As filed with the Securities and Exchange Commission on September 11, 2014
Registration No. 333-196816
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ATD CORPORATION
(Exact name of registrant as specified in its charter)
Delaware | 5013 | 27-2763683 | ||
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification Number) |
12200 Herbert Wayne Court
Suite 150
Huntersville, NC 28078
(704) 992-2000
(Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
William E. Berry
President and Chief Executive Officer
12200 Herbert Wayne Court
Suite 150
Huntersville, NC 28078
(704) 992-2000
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Craig E. Marcus Ropes & Gray LLP Prudential Tower 800 Boylston Street Boston, MA 02199 (617) 951-7000 |
J. Michael Gaither Executive Vice President, General Counsel and Secretary 12200 Herbert Wayne Court Suite 150 Huntersville, NC 28078 (704) 992-2000 |
William V. Fogg D. Scott Bennett Cravath, Swaine & Moore LLP Worldwide Plaza 825 Eighth Avenue New York, New York 10019 (212) 474-1131 |
Approximate date of commencement of proposed sale to public: As soon as practicable after this Registration Statement is declared effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ | Accelerated filer ¨ | Non-accelerated filer x | Smaller reporting company ¨ | |||
(Do not check if a smaller reporting company) |
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated September 11, 2014
PROSPECTUS
Shares
ATD Corporation
Common Stock
This is ATDs initial public offering. We are selling shares of our common stock. The selling stockholders identified are selling shares of our common stock. We will not receive any proceeds from the sale of shares to be offered by the selling stockholders.
We expect the public offering price to be between $ and $ per share. Currently, no public market exists for the shares. After pricing of the offering, we expect that the shares will trade on the New York Stock Exchange under the symbol ATD.
After the completion of this offering, investment funds affiliated with TPG Global, LLC will continue to own a majority of the voting power of our outstanding shares of common stock. As a result, we expect to be a controlled company within the meaning of the corporate governance standards of the New York Stock Exchange. See Principal and Selling Stockholders.
Investing in the common stock involves risks that are described in the Risk Factors section beginning on page 19 of this prospectus.
Per Share |
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Public offering price |
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Underwriting discount |
$ | $ | ||||||
Proceeds, before expenses, to us(1) |
$ | $ | ||||||
Proceeds, before expenses, to the selling stockholders |
$ | $ |
(1) | We have agreed to reimburse the underwriters for certain expenses in connection with this offering. See Underwriting (Conflicts of Interest). |
The underwriters may also exercise their option to purchase up to an additional shares from us and the selling stockholders at the public offering price, less the underwriting discount, for 30 days after the date of this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The shares will be ready for delivery on or about , 2014.
BofA Merrill Lynch | Deutsche Bank Securities | Goldman, Sachs & Co. |
Barclays | J.P. Morgan | UBS Investment Bank |
TPG Capital BD, LLC | RBC Capital Markets | SunTrust Robinson Humphrey |
The date of this prospectus is , 2014.
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Unaudited Pro Forma Combined Condensed Financial Information |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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Material United States Federal Income Tax Considerations for Non-U.S. Holders |
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Index to Consolidated Financial Statements and Financial Statement Schedules |
F-1 |
You should rely only on the information contained in this prospectus or in any free writing prospectus that we authorize to be distributed to you. Neither we nor the underwriters have authorized anyone to provide you with different information, and neither we nor the underwriters take responsibility for any other information others may give you. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than its date.
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Industry and Market Data
This prospectus includes market data and forecasts with respect to the replacement tire industry. Although we are responsible for all of the disclosure contained in this prospectus, in some cases we rely on and refer to market data that was obtained from publicly available information and industry publications and surveys, including Modern Tire Dealer, Tire Review and Rubber Manufacturers Association (RMA) data, that we believe to be reliable. Other industry and market data included in this prospectus are from internal analyses based upon data available from known sources or other proprietary research and analysis. We believe this data to be accurate as of the date of this prospectus. However, this information may prove to be inaccurate because this information cannot always be verified with complete certainty due to the limitations on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties. As a result, you should be aware that market and other similar industry data included in this prospectus, and estimates and beliefs based on that data, may not be reliable.
Trademarks and Service Marks
We own or have rights to trademarks and service marks that we use in connection with the operation of our business. The proprietary brand names under which we market our products are trademarks of our company. We value our brand names because they help develop brand identification. All of our trademarks are of perpetual duration as long as they are periodically renewed. We currently intend to maintain all of them in force. The principal proprietary brand names under which we market our products are: HERCULES® tires, IRONMAN® tires, CAPITOL® tires, NEGOTIATOR® tires, REGUL® tires, DYNATRAC® tires, CRUISERALLOY® custom wheels, DRIFZ® custom wheels, ICW® custom wheels, PACER® custom wheels and O.E. PERFORMANCE® custom wheels. Our other trademarks include: AMERICAN TIRE DISTRIBUTORS®, ATD®, TRICAN TIRE DISTRIBUTORS INC®, REGIONAL TIRE DISTRIBUTORS®, ATDONLINE®, ATDSERVICEBAY®, TIREBUYER.COM® and TIRE PROS®.
All other trademarks or service marks appearing in this prospectus that are not identified as marks owned by us are the property of their respective owners.
Solely for convenience, the trademarks, service marks and trade names referred to in this prospectus may be listed without the ®, SM and TM symbols, but we will assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and trade names.
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This summary highlights information contained in other parts of this prospectus. Because it is only a summary, it does not contain all of the information that you should consider before investing in shares of our common stock and it is qualified in its entirety by, and should be read in conjunction with, the more detailed information appearing elsewhere in this prospectus. You should read the entire prospectus carefully, especially Risk Factors and our financial statements and the related notes, before deciding to buy shares of our common stock. Except as otherwise indicated herein or as the context otherwise requires, references in this prospectus to ATD Corporation, the Company, we, our, and us refer collectively to ATD Corporation and its consolidated subsidiaries for the period, commencing on May 29, 2010, and to American Tire Distributors Holdings, Inc. and its consolidated subsidiaries for the period prior to May 29, 2010. The consolidated financial data for 2010 are presented in this prospectus for two periods: January 3, 2010 through May 28, 2010, which represents the period immediately preceding the Merger (as defined below), and May 29, 2010 through January 1, 2011, which represents the period following the Merger. Prior to the Merger, ATD Corporation had no operations or activities other than transaction costs related to the Merger. See Summary Historical Consolidated Financial Information for more information. Unless otherwise noted, all information in this prospectus assumes no exercise of the underwriters option to purchase additional shares and gives effect to the one-for- reverse split of our outstanding shares of common stock that we effected on , 2014.
Our Company
We are the largest distributor of replacement tires in North America based on dollar amount of wholesale sales and number of warehouses. We provide a wide range of products and value-added services to customers in each of the key market channels to enable tire retailers to more effectively service and grow sales to consumers. Through our network of more than 140 distribution centers in the United States and Canada, we offer access to an extensive breadth and depth of inventory, representing more than 40,000 stock-keeping units (SKUs), to approximately 80,000 customers. In 2013, we distributed more than 40 million replacement tires after giving effect to recent acquisitions. We estimate that our share of the replacement passenger and light truck tire market in 2013, after giving effect to our recently completed acquisitions, would have been approximately 14% in the United States, up from approximately 1% in 1996, and approximately 21% in Canada.
We serve a highly diversified customer base across multiple channels, comprised of local, regional and national independent tire retailers, mass merchandisers, warehouse clubs, tire manufacturer-owned stores, automotive dealerships and web-based marketers. We have a significant market presence in a number of these key market channels and we believe that we are the only replacement tire distributor in North America that services each of these key market channels. During fiscal 2013, our largest customer and top ten customers accounted for 3.1% and 10.9%, respectively, of our net sales. We believe we are a top supplier to many of our customers and have maintained relationships with our top 20 customers that exceed a decade on average.
We believe we distribute one of the broadest product offerings in our industry, supplying our customers with nine of the top ten leading passenger and light truck tire brands. We carry the flag brands from each of the four largest tire manufacturersBridgestone, Continental, Goodyear and Michelinas well as the Cooper, Hankook, Kumho, Nexen, Nitto and Pirelli brands. We also sell lower price point associate and proprietary brands of these and many other tire manufacturers, and through our acquisition of The Hercules Tire and Rubber Company (Hercules) we also own and market our proprietary Hercules® brand, the number one private brand in North America in 2013 based on unit sales. In addition, we sell custom wheels and accessories and related tire supplies and tools. In fiscal 2013, tire sales accounted for 97.4% of our net sales, with sales of passenger and light truck tires accounting for 82.3% of our net sales. Tire supplies, tools and custom wheels and accessories represented approximately 2.6% of our net sales. We believe that our large and diverse product offering allows us to penetrate the replacement tire market across a broad range of price points.
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Our growth strategy, coupled with our access to capital and our scalable platform, enables us to continue to expand organically in existing markets as well as in new geographic areas. We also expect to continue to employ a selective acquisition strategy to increase our share in the markets we currently service as well as to expand our distribution into new markets, utilizing our scale in an effort to realize significant synergies. In addition, we are investing in technology and each sales channel to fuel our future growth. As a result, we believe that we are well positioned to continue to achieve above-market growth in all market environments and to continue to enhance our profitability and cash flows.
Geographic Footprint
In fiscal 2009, our net income was $4.9 million and in fiscal 2013 our net loss was $6.4 million. This decrease in net income was primarily the result of increased interest expense related to our acquisition by investment funds affiliated with TPG in 2010, as well as interest associated with our eight acquisitions from 2010 through 2013, and non-cash amortization expense related to our intangible assets. From fiscal 2009 to fiscal 2013, our net sales increased from $2.2 billion to $3.8 billion, reflecting a compound annual growth rate of 15.3%, and Adjusted EBITDA increased from $101.0 million to $195.5 million, reflecting a compound annual growth rate of 17.9%. See Selected Consolidated Financial and Other Data for a presentation of net sales and Adjusted EBITDA data for each of our fiscal years in this period. Over the same period, our unit volume grew from approximately 19.5 million to approximately 26.0 million while, according to the RMA, unit volume in the North American replacement tire market grew from approximately 238.9 million to approximately 246.0 million. Our superior growth was driven by our organic initiatives and our acquisitions.
For the six months ended July 5, 2014 and the year ended December 28, 2013, our net sales were $2.6 billion and $5.1 billion, respectively, our net loss from continuing operations was $77.0 million and $47.5 million, respectively, and our Adjusted EBITDA was $93.1 million and $251.5 million, respectively, in each
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case including the pro forma effects of our recent acquisitions. Additional information regarding Adjusted EBITDA and pro forma Adjusted EBITDA, including a reconciliation of Adjusted EBITDA to income (loss) from continuing operations and a reconciliation of pro forma Adjusted EBITDA to pro forma net income (loss) from continuing operations, is included in Summary Consolidated Financial and Other Data. Additional information regarding the pro forma effects of our recent acquisitions is included in Summary Consolidated Financial and Other Data and Unaudited Pro Forma Combined Condensed Financial Information.
We have a substantial amount of debt, which requires significant interest and principal payments. See Risk FactorsAs of July 5, 2014, on a pro forma basis after giving effect to this offering and the application of the net proceeds therefrom, we would have had total indebtedness of approximately $ million, and our substantial indebtedness could adversely affect our financial condition and growth strategy.
Our Industry
According to Modern Tire Dealer, the U.S. replacement tire market generated annual retail sales of approximately $37.3 billion in 2013. Passenger tires, medium truck tires and light truck tires accounted for 66.9%, 16.9% and 13.1%, respectively, of the total U.S. market. Farm, specialty and other types of tires accounted for the remaining 3.1% of the total U.S. market. The Canadian replacement tire market generated annual retail sales of approximately $3.7 billion in 2012. Passenger and light truck tires accounted for 53% while commercial tires accounted for 20% of the total Canadian replacement tire market. Farm, specialty and other types of tires accounted for the remaining 27% of the total Canadian replacement tire market. According to a Tire Review survey conducted in 2013, U.S. tire dealers buy 55.4% of their consumer tires from wholesale distributors like us and 27.7% direct from tire manufacturers, with the remaining volume coming from various other sources.
In the United States and Canada, replacement tires are sold to consumers through several different channels, including local, regional and national independent tire retailers, mass merchandisers, warehouse clubs, tire manufacturer-owned stores, automotive dealerships and web-based marketers. Between 1990 and 2013, independent tire retailers and automotive dealerships have enjoyed the largest increase in U.S. replacement tire market share, according to Modern Tire Dealer, moving from 54% to 60.5% and 1% to 7.5% of the market, respectively. In 2012, replacement tire sales to independent tire retailers and automotive dealerships represented approximately 44% and 18%, respectively, of Canadian replacement tire market share. Mass merchandisers, warehouse clubs, manufacturer-owned stores and web-based marketers comprise the remaining market share in both the United States and Canada.
Since 2000, the number of specific tire sizes in the market has increased by 61%. One driver of this increase was above-market growth in high-performance tires. The increase in the number of tire sizes, coupled with the large number of brands in the market place, has driven SKU proliferation in the replacement tire market. As a result of this SKU proliferation and due to their capital and physical space constraints, many tire retailers are unable to carry sufficient inventory to meet the demands of their customers. This trend has helped increase the need for distributors in the replacement tire market.
The U.S. and Canadian replacement tire markets have historically experienced stable growth and favorable pricing dynamics. However, these markets are subject to changes in consumer confidence and economic conditions. As a result, tire consumers may opt to temporarily defer replacement tire purchases or purchase less costly brands during challenging economic periods when macroeconomic factors such as unemployment, high fuel costs and weakness in the housing market impact their financial health.
From 1955 through 2013, U.S. replacement tire unit shipments increased by an average of approximately 3% per year. We believe that we are experiencing the beginning of a recovery after a prolonged downturn, which began in 2008 for the replacement tire market. Replacement tire unit shipments were up 4.4%
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in the United States and 0.7% in Canada in 2013 as compared to 2012, as a rebound in the housing market, a decline in unemployment rates and increases in vehicle sales and vehicle miles driven impacted the U.S. and Canadian replacement tire markets favorably. The RMA projects that replacement tire shipments will increase by approximately 2% in the United States in 2014 as compared to 2013, as demand drivers continue to strengthen.
Going forward, we believe that long-term growth in the U.S. and Canadian replacement tire markets will continue to be driven by favorable underlying dynamics, including:
| increases in the number and average age of passenger cars and light trucks; |
| increases in the number of miles driven; |
| increases in the number of licensed drivers as the U.S. and Canadian population continues to grow; |
| increases in the number of replacement tire SKUs; |
| growth of the high-performance tire market; and |
| shortening of tire replacement cycles due to changes in product mix that increasingly favor high-performance tires, which have shorter average lives. |
Our Competitive Strengths
We believe the following key strengths have enabled us to become the largest distributor of replacement tires in North America and position us to achieve future revenue growth in excess of the long-term growth rates of the U.S. and Canadian replacement tire industry:
Leading Position in a Large and Highly Fragmented Marketplace. We are the largest distributor of replacement tires in North America with an estimated market share in 2013 of approximately 14%, after giving effect to our recently completed acquisitions, in a $37.3 billion market in the United States. Our estimated market share in 2013 of the replacement passenger and light truck tire market in Canada was approximately 21%, after giving effect to our recently completed acquisitions. We believe our scale provides us key competitive advantages relative to our smaller, and generally regionally-focused, competitors. These include the ability to: efficiently stock and deliver a wide variety of tires; invest in services, including sales tools and technologies, to support our customers; and realize operating efficiencies from our scalable infrastructure. We believe our leading market position and presence in each of the key market channels, combined with our commitment to distribution, as opposed to the retail operations engaged in by our customers, enhances our ability to expand our sales footprint cost effectively both in our existing markets and in new domestic geographic markets.
Scale Advantage from Extensive and Efficient Distribution Network. We believe we have the largest independent replacement tire distribution network in North America with more than 140 distribution centers (excluding distribution centers acquired in our recent acquisitions that are expected to be closed as part of the integration process) and approximately 1,000 delivery vehicles. Our distribution footprint services geographic regions in the United States that represented more than 90% of the replacement tire market for passenger and light truck tires in 2013, and we believe our geographic coverage in Canada is also very extensive. Our extensive distribution footprint, combined with sophisticated inventory management and logistics technologies, enables us to deliver the vast majority of orders on a same or next day basis, which is critical for tire retailers who are typically limited by physical inventory capacity and working capital constraints. Our delivery technologies allow us to more effectively and efficiently organize and optimize our route systems to provide timely product delivery. Our distribution systems are integrated with our proprietary business-to-business ATDOnline® order fulfillment
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system that captures more than 65% of our orders electronically, and our Oracle enterprise resource planning (ERP) system provides a scalable platform that can support future growth and ongoing cost reduction initiatives, including warehouse and truck management systems, which we believe will allow us to continue reducing warehouse and delivery costs per unit.
Broad Product Offering from Diverse Supplier Base. We believe we offer the most comprehensive selection of passenger and light truck tires in the industry through a diverse group of suppliers. We supply nine of the top ten leading passenger and light truck tire brands, and we carry the flag brands from each of the four largest tire manufacturersBridgestone, Continental, Goodyear and Michelinas well as the Cooper, Hankook, Kumho, Nexen, Nitto and Pirelli brands. Our tire product line includes a full suite of flag, associate and proprietary brand tires, allowing us to service a broad range of price points from entry-level imported products to the faster-growing high- performance category. Through our acquisition of Hercules, we also own and market our proprietary Hercules® brand, the number one private brand in North America in 2013 based on unit sales. In addition to tires, we also offer custom wheels and accessories and related tire supplies and tools. We believe that our broad product offering drives increased sales among existing customers, attracts new customers and increases customer retention.
Broad Range of Value-Added Services. We provide a wide range of services that enable our tire retailer customers to operate their businesses more profitably. These services include convenient access to and timely delivery of the broadest product offerings available in the industry, as well as fundamental business support services, such as administration of tire manufacturer affiliate programs and credit, training and access to consumer market data, which enable our tire retailer customers to better service their individual markets. We provide our U.S. customers with convenient 24/7 access to our extensive product offerings through our proprietary business-to-business web portal, ATDOnline®. Our online services also include TireBuyer.com®, which allows our U.S. independent tire retailers the ability to participate in the Internet marketing of tires to consumers. We also provide select, qualified U.S. independent tire retailers with the opportunity to participate in our Tire Pros® franchise program through which they receive advertising and marketing support and the benefits of a national brand identity. We believe our value-added services as well as the integration between our infrastructure and our customers operations enable us to maintain high rates of customer retention and build strong customer loyalty.
Diversified Customer Base and Longstanding Customer Relationships Across Multiple Channels. We serve a highly diversified customer base in each of the key market channels, including local, regional and national independent tire retailers, mass merchandisers, warehouse clubs, tire manufacturer-owned stores, automotive dealerships and web-based marketers. We believe we are the only distributor of replacement tires in North America that services each of these key market channels. Our business is diversified across the key market channels and reflects the evolving complexity of the North American replacement tire market, with independent tire retailers accounting for 76% of our net sales in 2013 as compared to 85% of our net sales in 2009. We believe we are a top supplier to many of our customers and maintain relationships with our top 20 customers that exceed a decade on average. We believe the diversity of our customer base and the strength of our customer relationships present an opportunity to grow market share regardless of macroeconomic and replacement tire market conditions.
Consistent Financial Performance and Strong Cash Flow Generation. Our financial performance has benefited from substantial growth that has been achieved through a combination of organic initiatives and acquisitions. Over the ten-year period from fiscal 2003 to fiscal 2013, our net sales grew at a compound annual rate of 13.2%, reflecting our strong revenue base, evolving business mix, scalable operating model and successful growth strategies. For information regarding our net sales in each fiscal year during this period, see the chart appearing in BusinessOur Competitive Strengths elsewhere in this prospectus. In addition, we believe the low capital intensity of our business combined with the efficient management of our working capital, due in part to our advanced inventory management systems in the United States that we are also in the process of implementing in Canada, and close vendor relationships, will enable us to generate strong cash flows. In
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addition, as a result of our presence in each major channel within the replacement tire market and based upon our ability to rationalize our operating costs, as necessary, we experienced only moderate margin contraction during the recent economic downturn.
Experienced Management Team Supported by Strong Equity Sponsorship. Our senior management team, led by our President and Chief Executive Officer William E. Berry, has an average of over 20 years of experience in the replacement tire distribution industry. Although we have experienced net losses for the past three years, management has implemented successful initiatives in a leveraged environment, including the execution of a disciplined acquisition strategy, which has contributed to our gross profit expansion and above-market net sales growth during that period. In addition, we have reduced costs through the integration of operating systems and introduction of standard operating practices, particularly in the United States, resulting in improved operating efficiencies, reduced headcount and improved operating profit at existing and acquired locations. We also benefit from the extensive management and business experience provided by our Sponsor, TPG.
Our Business Strategy
Our objective is to further expand our position as the largest distributor of replacement tires in North America and establish our company as the leading distributor in each of the key market channels that we serve, while continuing to provide our customers with a range of value-added services such as frequent and timely delivery of inventory, the broadest and deepest range of products, and other business support services. We intend to accomplish this objective, drive above-market growth and further enhance our profitability and cash flows by executing on the following key operating strategies:
Grow Organically in Excess of Market. It is at the core of our strategy to grow our profits and cash flows organically through further penetration of all of our key market channels, through greenfield expansion, through further penetration of our Hercules® brand, the number one private brand in North America in 2013 based on unit sales, through further establishment and expansion of TireBuyer.com®, and through further expansion and development of our value-added services.
Expand Penetration in Each of the Key Market Channels. We have a significant presence in each of the key market channels, including local, regional and national independent tire retailers, mass merchandisers, warehouse clubs, tire manufacturer-owned stores, automotive dealerships and web-based marketers. We regularly seek opportunities to grow our market share in each channel by customizing our sales strategies to suit the particular needs of that channel, and are focused on training and deploying sales personnel to help build our sales, particularly in the faster-growing automotive dealership channel, and strengthen and expand our relationships with retailers. We have observed an increase in sales through web-based marketers and seek to grow our presence in that channel through our Internet site, TireBuyer.com®.
Continue Greenfield Expansion in Existing and New Geographic Markets. While we already have the largest distribution footprint in the North American replacement tire market, servicing geographic regions in the United States that represented more than 90% of the replacement tire market for passenger and light truck tires in 2013 and with geographic coverage in Canada that we believe is also very extensive, we believe there are numerous further underserved areas in both our existing geographic markets as well as in areas not currently serviced by us that are favorably situated to support and grow additional distribution centers. Since 2010, we have successfully opened 23 greenfield distribution centers, and we intend to continue to expand our existing footprint in the United States and Canada in areas where we see opportunities.
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Expand our Hercules® Brand. Through our recently completed acquisition of Hercules, we now market the proprietary Hercules® brand, the number one private brand in North America in 2013 based on unit sales. We believe our expansive distribution network in the United States and Canada, combined with our greater access to capital, will allow us to both expand product availability and increase market share of the Hercules® brand. Further, we expect that Hercules multi-decade Asian sourcing experience, including its 250,000 square foot warehouse in northern China, will enhance our supply and distribution capabilities.
Grow TireBuyer.com® into a Premier Internet Tire Provider. TireBuyer.com® is an Internet site that enables our U.S. independent tire retailer customers to connect with consumers. TireBuyer.com® allows our broad base of independent tire retailers to participate in a greater share of the growing Internet tire market. We believe that TireBuyer.com® complements and services our participating U.S. independent tire retailers by providing them access to a sales and marketing channel previously unavailable to them. In 2012, the TireBuyer.com® site was re-launched on a newer, faster and more flexible platform, which has enhanced the overall consumer experience and resulted in increased traffic to the site.
Continue to Develop and Expand our Value-Added Services. Our Tire Pros® franchise program enables us to deliver advertising and marketing support to tire retailers operating as Tire Pros® franchisees. The Tire Pros® franchise program allows participating local tire retailers to enjoy the benefits of a national brand identity with minimal investment, while still maintaining their local identities. In return, we benefit from increasing volume penetration among, and further aligning ourselves with, our franchisees. We are focused on continuing to upgrade and improve the Tire Pros® franchise program and seek opportunities to develop similar programs in the future. In addition, individual manufacturers offer a variety of relatively complex programs for tire retailers that sell their products, providing cooperative advertising funds, volume discounts and other incentives. As part of our service to our customers, we assist them in managing the administration of these programs through dedicated staff. We believe these enhancements, combined with other aspects of our customer service, provide significant value to our customers.
Selectively Pursue Acquisitions. We expect to continue to employ a selective acquisition strategy to increase our share in the markets we currently service as well as to expand our distribution into new markets, utilizing our scale in an effort to realize significant synergies. Over the past six years we have successfully acquired and integrated nine businesses representing, in the aggregate, over $850 million in annual revenue through 2013, and on a pro forma basis, including our recently completed acquisitions of Hercules and Terrys Tire Town Holdings, Inc. (Terrys Tire), the 2013 annual revenue of businesses acquired is over $2 billion in the aggregate. We believe our position as the largest distributor of replacement tires in North America, combined with our access to capital and our scalable platform, has allowed us to make acquisitions at very attractive post-synergy valuations.
Leverage Our Infrastructure in Existing Markets. Through infrastructure expansions over the past several years in the United States, we have developed a scalable platform with available incremental distribution capacity. Our distribution infrastructure enables us to efficiently add new customers, such as corporate accounts, and service growing channels, such as automotive dealerships, thereby increasing profitability by leveraging the utilization of our existing assets. We expect to complete the implementation of a similar platform in Canada near the beginning of 2015. We believe our relative penetration in existing markets is largely a function of the services we offer and the length of time we have operated locally. Specifically, in new geographic markets, we have experienced growth in market share over time, and in markets that we have served the longest, we generally have market share well in excess of our national average.
Utilize Technology Platform to Continue to Increase Distribution Efficiency. We intend to continue to invest in our inventory and warehouse management systems and logistics technology in order to further increase
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our efficiency and profit margins and improve customer service. For example, we operate on our Oracle ERP platform in the United States and are in the process of implementing it in Canada. We continue to evaluate and incorporate technical solutions including utilization of handheld scanning for receiving, picking and delivery of products to our customers. We believe these increased efficiencies will continue to enhance our reputation with our customers for providing timely service, while also reducing costs. Additionally, we continue to roll out customized electronic solutions and point of sale (POS) system integration for our larger customers.
Maintain a Comprehensive and Deep Tire Portfolio to Meet Our Customers Needs. We provide a broad range of products covering a broad range of price points from entry-level imported products to faster-growing high-performance tires, through a full suite of flag, associate and proprietary brand tires. We acquired the Hercules® brand in January 2014 and intend to further expand its market presence throughout North America. We intend to continue to focus on high-performance tires, given the growth in demand for such tires, while maintaining our emphasis on providing broad and entry level tire offerings. Our comprehensive tire portfolio is designed to satisfy all of our customers needs and allow us to become the supplier of choice, thereby increasing customer penetration and retention across all channels.
Recent Developments
As part of our ongoing business strategy, we intend to expand organically in existing markets as well as enter into previously underserved markets and new geographic areas. Since the second half of 2010, we opened new distribution centers in 23 locations throughout the contiguous United States. We expect to continue to evaluate additional geographic markets during the remainder of 2014 and beyond.
On June 27, 2014, we completed the following acquisitions:
| Trail Tire. We acquired the wholesale distribution business of Trail Tire Distributors Ltd. (Trail Tire) pursuant to an Asset Purchase Agreement by and among our subsidiary, TriCan Tire Distributors (TriCan), and the shareholders and principals of Trail Tire. Trail Tire is a wholesale distributor of tires, tire parts, tire accessories and related equipment in Canada. |
| Extreme Wheel. We acquired the wholesale distribution business of Extreme Wheel Distributors Ltd. (Extreme Wheel) pursuant to an Asset Purchase Agreement by and between TriCan and the shareholder and principal of Extreme Wheel. Extreme Wheel is a wholesale distributor of wheels and related accessories in Canada. |
| Kirks. We acquired the wholesale distribution business of Kirks Tire Ltd. (Kirks Tire) pursuant to an Asset Purchase Agreement by and among TriCan and the shareholders and principals of Kirks Tire. Kirks Tire is engaged in (i) the wholesale distribution of tire, tire parts, tire accessories and related equipment and (ii) the retail sale and installation of tires, tire parts, and tire accessories and the manufacturing and sale of retread tires. We did not acquire Kirks Tires retail operations. |
| RTD Edmonton. We acquired the wholesale distribution business of Regional Tire Distributors (Edmonton) Inc. (RTD Edmonton) pursuant to an Asset Purchase Agreement by and among TriCan and the shareholders and principals of RTD Edmonton. RTD Edmonton is a wholesale distributor of tires, tire parts, tire accessories and related equipment in Canada. |
| RTD Calgary. We acquired the wholesale distribution business of Regional Tire Distributors (Calgary) Inc. (RTD Calgary) pursuant to an Asset Purchase Agreement by and among TriCan and the shareholders and principals of RTD Calgary. RTD Calgary is a wholesale distributor of tires, tire parts, tire accessories and related equipment in Canada. |
8
Terrys Tire. On March 28, 2014, we completed the acquisition of Terrys Tire pursuant to a Stock Purchase Agreement between us and TTT Holdings, Inc. (TTT Holdings), which owned all of the capital stock of Terrys Tire. Terrys Tire and its subsidiaries are engaged in the business of purchasing, marketing, distributing and selling tires, wheels and related tire and wheel accessories on a wholesale basis to tire dealers, wholesale distributors, retail chains, automotive dealers and others, retreading tires and selling retread and other commercial tires through commercial outlets to end users and selling tires directly to consumers via the Internet. Terrys Tire operated ten distribution centers spanning from Virginia to Maine and in Ohio. We believe the acquisition of Terrys Tire will enhance our market position in these areas and aligns very well with our distribution centers, especially our new distribution centers that we opened over the past two years in the Northeast and Ohio.
Hercules. On January 31, 2014, we completed the acquisition of Hercules Tire Holdings LLC (Hercules Holdings) pursuant to an Agreement and Plan of Merger, dated January 24, 2014. Hercules Holdings owns all of the capital stock of Hercules. Hercules is engaged in the business of purchasing, marketing, distributing and selling replacement tires for passenger cars, trucks and certain off-road vehicles to tire dealers, wholesale distributors, retail distributors and others in the United States, Canada and internationally. Hercules operated 15 distribution centers in the United States, six distribution centers in Canada and one warehouse in northern China. Hercules also markets the Hercules® brand, which is one of the most sought-after proprietary tire brands in the industry. We believe the acquisition of Hercules will strengthen our presence in major markets such as California, Texas and Florida in addition to increasing our presence in Canada. Additionally, Hercules strong logistics and sourcing capabilities, including a long-standing presence in China, will also allow us to capitalize on the growing import market, as well as provide the ability to expand the international sales of the Hercules® brand. Finally, this acquisition will allow us to be a brand marketer of the Hercules® brand, which in 2013 had a 2% market share of the passenger and light truck market in North America and a 3% market share of highway truck tires in North America.
RTD. On April 30, 2013, we completed the acquisition of Regional Tire Holdings, Inc. (RTD Holdco) pursuant to a Share Purchase Agreement dated as of March 22, 2013, among TriCan, American Tire Distributors, Inc. (ATDI), RTD Holdco and Regional Tire Distributors Inc., a 100% owned subsidiary of RTD Holdco (RTD). RTD is a wholesale distributor of tires, tire parts, tire accessories and related equipment in the Ontario and Atlantic provinces of Canada.
Credit Agreement Amendment. In addition, on June 16, 2014, we amended our credit agreement relating to our senior secured term loan facility to borrow an additional $420 million on the same terms as our Initial Term Loan (as defined below). The proceeds from these additional borrowings were used to redeem all amounts outstanding under our Senior Secured Notes (as defined below) and pay related fees and expenses, as well as for working capital requirements and other general corporate purposes, including the financing of potential future acquisitions.
Proposed Additional Term Loan. In connection with this offering, ATDI also intends to borrow an additional $ million on the same terms as ATDIs existing Term Loan (as defined below) (the Additional Term Loan). We intend to use the net proceeds therefrom, along with the net proceeds of this offering, to repay all amounts outstanding under ATDIs 11.50% Senior Subordinated Notes due 2018.
Risk Factors
An investment in our common stock involves a high degree of risk. Any of the factors set forth under Risk Factors may limit our ability to successfully execute our business strategy. You should carefully consider all
9
of the information set forth in this prospectus and, in particular, should evaluate the specific factors set forth under Risk Factors in deciding whether to invest in our common stock. Among these important risks are the following:
| Demand for tire products is lower when general economic conditions are weak and decreases in the availability of consumer credit or consumer spending could adversely affect our business, results of operations or cash flows. |
| We depend on manufacturers to provide us with the products we sell and disruptions in these relationships or manufacturers operations could adversely affect our results of operations, financial condition and cash flows. |
| The failure of our information technology systems could disrupt our business operations, which could have a material adverse effect on our business, financial condition and results of operations. |
| Our business requires a significant amount of cash, and fluctuations in our cash flows may adversely affect our ability to fund our business or acquisitions or satisfy our debt obligations. |
| Our substantial indebtedness could adversely affect our financial condition and limit our ability to pursue our growth strategy. |
| The industry in which we operate is highly competitive and our failure to effectively compete may adversely affect our results of operations, financial condition and cash flows. |
| We face risks related to integration of our recent significant acquisitions. |
| We may not realize the growth opportunities and cost savings synergies that we anticipated from our recent significant acquisitions. |
| Pricing volatility for raw materials acquired by our suppliers could result in increased costs and may affect our profitability. |
| Attempts to expand our distribution services into new geographic markets may adversely affect our business, results of operations, financial condition or cash flows. |
| We regularly seek to grow our business through acquisitions, and our inability to identify desirable acquisition targets or integrate such acquisitions, including our recent significant acquisitions, could have a material adverse effect on us. |
| Future acquisitions could require us to issue additional debt or equity. |
For additional information about the risks we face, please see the section of this prospectus captioned Risk Factors.
Our Sponsor
TPG is a leading global private investment firm founded in 1992 with $66 billion of assets under management as of June 30, 2014, and offices in San Francisco, Fort Worth, Austin, Beijing, Dallas, Hong Kong, Houston, London, Luxembourg, Melbourne, Moscow, Mumbai, New York, São Paulo, Shanghai, Singapore, Tokyo and Toronto. TPG has extensive experience with global public and private investments executed through leveraged buyouts, recapitalizations, spinouts, growth investments, joint ventures and restructurings. The firms investments span a variety of industries, including healthcare, financial services, travel and entertainment, technology, energy, industrials, retail, consumer, real estate and media and communications.
Following the completion of this offering, investment funds affiliated with TPG Global, LLC (together with its affiliates, TPG or the Sponsor) will own approximately % of our common stock, or % if the
10
underwriters option to purchase additional shares of our common stock is fully exercised. As a result, we expect to be a controlled company within the meaning of the corporate governance standards of the New York Stock Exchange (the NYSE) and TPG will continue to have significant influence over us and decisions made by stockholders and may have interests that differ from yours. See Risk FactorsRisks Related to our Common Stock and this OfferingTPG will continue to have significant influence over us after this offering, including control over decisions that require the approval of stockholders, which could limit your ability to influence the outcome of matters submitted to stockholders for a vote.
Corporate Information and Structure
On May 28, 2010, pursuant to an Agreement and Plan of Merger dated as of April 20, 2010, we were acquired by investment funds affiliated with TPG and certain co-investors (the Merger). ATD Corporation is a Delaware corporation that was formed in 2010 in connection with the Merger under the name Accelerate Parent Corp. On June 5, 2014, Accelerate Parent Corp. changed its name to ATD Corporation. The only material asset of ATD Corporation is the equity of Accelerate Holdings Corp., which is the holder of 100% of the equity of American Tire Distributors Holdings, Inc. (Holdings), which is the holder of 100% of the equity of ATDI, through which we conduct our operations. Our principal executive offices are located at 12200 Herbert Wayne Court, Suite 150, Huntersville, North Carolina 28078, and our telephone number at that address is (704) 992-2000. Our website address is http://www.atd-us.com. Our website and the information contained on our website do not constitute a part of this prospectus.
The following chart shows our simplified organizational structure immediately following the consummation of this offering assuming no exercise of the underwriters option to purchase additional shares:
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The Offering
Common stock offered by us |
shares |
Common stock offered by the selling stockholders |
shares |
Common stock to be outstanding after this offering |
shares (or shares if the underwriters exercise their option to purchase additional shares in full) |
Option to purchase additional shares |
The underwriters have an option for a period of 30 days to purchase up to additional shares of our common stock from us and the selling stockholders. |
Use of proceeds |
We estimate that the net proceeds from this offering will be approximately $ million, or approximately $ million if the underwriters exercise their option to purchase additional shares in full, at an assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. In connection with this offering, we also intend to borrow an additional $ million through the Additional Term Loan on the same terms as ATDIs existing Term Loan. We intend to use the net proceeds of this offering and the Additional Term Loan to repay all amounts outstanding under ATDIs 11.50% Senior Subordinated Notes due 2018. These notes bear interest at a rate of 11.50% per annum and mature on June 1, 2018. Under the terms of the indenture relating to these notes, we may redeem the notes at a price equal to 102% of the principal amount thereof plus accrued and unpaid interest thereon. We intend to use the remainder of the net proceeds, if any, for working capital and other general corporate purposes, including supporting our strategic growth opportunities in the future. We will not receive any of the proceeds from the sale of shares by the selling stockholders. See Use of Proceeds. |
Dividend policy |
Our board of directors does not currently intend to pay dividends on our common stock. However, we expect to reevaluate our dividend policy on a regular basis following the offering and may, subject to compliance with the covenants contained in the agreements governing our indebtedness and other considerations, determine to pay dividends in the future. The declaration, amount and payment of any future dividends on shares of our common stock will be at the sole discretion of our board of directors, which may take into account general and economic conditions, our financial condition and results of operations, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions, the implications of the payment of dividends by us to our stockholders or by our subsidiaries to us, and any other factors that our board of directors may deem relevant. See Dividend Policy and Description of Indebtedness. |
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Principal stockholders |
Upon completion of this offering, the TPG Funds will continue to beneficially own a controlling interest in us. As a result, we intend to avail ourselves of the controlled company exemption under the rules of the NYSE. See Risk Factors and Management. |
Risk factors |
You should read the Risk Factors section of this prospectus for a discussion of factors to consider carefully before deciding to invest in shares of our common stock. |
Proposed NYSE symbol |
ATD |
Conflicts of Interest |
Affiliates of TPG Capital BD, LLC, an underwriter of this offering, own in excess of 10% of our issued and outstanding common stock. Therefore, a conflict of interest is deemed to exist under Rule 5121(f)(5)(B) of the Financial Industry Regulatory Authority (FINRA). In addition, because the TPG Funds (as defined below) are affiliates of TPG Capital BD, LLC and, as selling stockholders, will receive more than 5% of the net proceeds of this offering, a conflict of interest is also deemed to exist under FINRA Rule 5121(f)(5)(C)(ii) . Accordingly, this offering will be made in compliance with the applicable provisions of FINRA Rule 5121. In accordance with FINRA Rule 5121(c), no sales of the shares will be made to any discretionary account over which TPG Capital BD, LLC exercises discretion without the prior specific written approval of the account holder. However, no qualified independent underwriter is required because the underwriters primarily responsible for managing this offering are free of any conflict of interest, as that term is defined in the rule. See Use of Proceeds and Underwriting (Conflicts of Interest). |
The number of shares of common stock to be outstanding after this offering is based on shares of common stock outstanding as of , 2014 (after giving effect to the one-for- reverse stock split effected on , 2014) and excludes the following:
| shares reserved for future issuance in connection with the exercise of outstanding stock options at a weighted-average exercise price of $ per share; and |
| shares of common stock reserved for future issuance under our equity incentive plans. |
Unless otherwise indicated, this prospectus reflects and assumes the following:
| the adoption of our amended and restated certificate of incorporation and our amended and restated bylaws, to be effective upon the closing of this offering; |
| no exercise by the underwriters of their option to purchase up to additional shares of our common stock in this offering; and |
| a one-for- reverse stock split of our common stock that became effective on , 2014. |
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Summary Consolidated Financial and Other Data
The following table sets forth summary historical consolidated financial and other data for the periods indicated. The summary historical financial and other data as of December 28, 2013 and December 29, 2012 and for fiscal years 2013, 2012 and 2011 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary historical balance sheet data as of December 31, 2011 have been derived from our unaudited consolidated financial statements as of such date, which are not included in this prospectus. The summary historical financial and other data as of July 5, 2014 and for the six months of 2014 and 2013 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. The summary historical balance sheet data as of June 29, 2013 have been derived from our unaudited consolidated financial statements for such quarter, which are not included in this prospectus. Historical results are not necessarily indicative of the results to be expected for future periods, and operating results for the six months of 2014 are not necessarily indicative of the results that may be expected for the year ending January 3, 2015. The pro forma data for fiscal year 2013 and the six months of 2014 have been derived from our unaudited pro forma condensed combined financial data included elsewhere in this prospectus.
Our fiscal year is based on either a 52- or 53-week period ending on the Saturday closest to each December 31. Therefore, the financial results of 53-week fiscal years, and the associated 14-week quarter, will not be comparable to 52-week fiscal years, and the associated quarters having only 13 weeks. The 2011 fiscal year, which ended December 31, 2011, the 2012 fiscal year, which ended December 29, 2012, and the 2013 fiscal year, which ended December 28, 2013, each contain operating results for 52 weeks. The six months ended July 5, 2014 contains operating results for 27 weeks while the six months ended June 29, 2013 contains operating results for 26 weeks. It should be noted that the Companys recently acquired subsidiaries, Hercules, Terrys Tire, Trail Tire, Extreme Wheel, Kirks Tire, RTD Edmonton and RTD Calgary have different quarter-end reporting dates than that of the Company for the second quarter of 2014, with their quarters ending on June 30. Prior to the acquisitions, Hercules had an October 31 fiscal year end, Terrys Tire had a December 31 fiscal year end, RTD and Kirks Tire had a January 31 fiscal year end and Trail Tire, Extreme Wheel, RTD Edmonton and RTD Calgary each had a February 28 fiscal year end, but each such subsidiary changed its year end to be the same as that of the Company, effective as of their respective acquisition dates. It should also be noted that, prior to fiscal 2013, our year-end reporting date was different from that of our TriCan subsidiary. For fiscal 2012, TriCan had a calendar year-end reporting date. TriCan converted to our fiscal year-end reporting date during fiscal 2013. The impact from these differences on the consolidated financial statements was not material. This summary historical consolidated financial data should be read in conjunction with the disclosures set forth under Unaudited Pro Forma Combined Condensed Financial Information, Capitalization, Managements Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and the related notes thereto appearing elsewhere in this prospectus. Due to our prior acquisitions and future acquisitions we may engage in, our historical operating results may be of limited use in evaluating our historical performance and predicting future results. See Risk FactorsRisks Related to our Business and IndustryBecause of our prior acquisitions and future acquisitions we may engage in, our historical operating results may be of limited use in evaluating our historical performance and predicting our future results.
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Dollars in thousands (except for per share data) |
Six Months |
Six Months |
Fiscal Year |
Fiscal Year |
Fiscal Year |
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Statement of Operations Data: |
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Net sales |
$ | 2,343,051 | $ | 1,795,053 | $ | 3,839,269 | $ | 3,455,864 | $ | 3,050,240 | ||||||||||
Cost of goods sold, excluding depreciation included in selling, general and administrative expenses below |
1,980,690 | 1,510,648 | 3,188,409 | 2,887,421 | 2,535,020 | |||||||||||||||
Selling, general and administrative expenses |
381,313 | 272,825 | 569,234 | 499,112 | 432,636 | |||||||||||||||
Management fees |
15,575 | 2,246 | 5,753 | 7,446 | 4,624 | |||||||||||||||
Transaction expenses |
20,176 | 3,289 | 6,719 | 5,246 | 3,946 | |||||||||||||||
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Operating income (loss) |
(54,703 | ) | 6,045 | 69,154 | 56,639 | 74,014 | ||||||||||||||
Other income (expense): |
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Interest expense (6) |
(56,622 | ) | (34,627 | ) | (74,316 | ) | (72,910 | ) | (67,572 | ) | ||||||||||
Loss on extinguishment of debt |
(17,113 | ) | | | | | ||||||||||||||
Other, net (7) |
1,950 | (2,908 | ) | (5,196 | ) | (3,895 | ) | (2,110 | ) | |||||||||||
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Income (loss) from continuing operations before income taxes |
(126,488 | ) | (31,490 | ) | (10,358 | ) | (20,166 | ) | 4,332 | |||||||||||
Income tax provision (benefit) |
(42,976 | ) | (9,362 | ) | (3,982 | ) | (5,965 | ) | 4,464 | |||||||||||
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Income (loss) from continuing operations |
(83,512 | ) | (22,128 | ) | (6,376 | ) | (14,201 | ) | (132 | ) | ||||||||||
Income (loss) from discontinued operations, net of tax |
(48 | ) | | | | | ||||||||||||||
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Net income (loss) |
$ | (83,560 | ) | $ | (22,128 | ) | $ | (6,376 | ) | $ | (14,201 | ) | $ | (132 | ) | |||||
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Basic net income (loss) per common share (8) |
$ | (0.11 | ) | $ | (0.03 | ) | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.00 | ) | |||||
Diluted net income (loss) per share (8) |
$ | (0.11 | ) | $ | (0.03 | ) | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.00 | ) | |||||
Weighted average shares outstanding (8) |
||||||||||||||||||||
Basic |
761,950,775 | 734,168,402 | 734,168,402 | 688,300,235 | 684,172,402 | |||||||||||||||
Diluted |
761,950,775 | 734,168,402 | 734,168,402 | 688,300,235 | 684,172,402 | |||||||||||||||
Other Financial Data: |
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Cash flows provided by (used in): |
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Continuing operating activities |
$ | (167,545 | ) | $ | 29,033 | $ | 100,982 | $ | 10,072 | $ | (90,699 | ) | ||||||||
Discontinued operating activities |
350 | | | | | |||||||||||||||
Investing activities |
(855,423 | ) | (88,532 | ) | (118,435 | ) | (167,821 | ) | (92,249 | ) | ||||||||||
Financing activities |
1,013,358 | 63,000 | 22,998 | 168,824 | 186,263 | |||||||||||||||
Depreciation and amortization |
66,013 | 51,140 | 105,458 | 89,167 | 78,071 | |||||||||||||||
Capital expenditures |
34,241 | 23,848 | 47,127 | 52,388 | 31,044 | |||||||||||||||
EBITDA (9) |
(3,853 | ) | 54,277 | 169,416 | 141,911 | 149,975 | ||||||||||||||
Adjusted EBITDA (9) |
82,649 | 68,156 | 195,486 | 165,416 | 164,255 | |||||||||||||||
Balance Sheet Data: |
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Cash and cash equivalents |
$ | 27,533 | $ | 35,653 | $ | 35,760 | $ | 34,700 | $ | 23,682 | ||||||||||
Working capital (10) |
859,525 | 572,226 | 541,051 | 556,646 | 457,443 | |||||||||||||||
Total assets |
3,747,966 | 2,547,921 | 2,541,655 | 2,486,837 | 2,285,364 | |||||||||||||||
Total debt (11) |
1,944,297 | 1,022,369 | 967,000 | 951,204 | 835,808 | |||||||||||||||
Total stockholders equity |
649,059 | 664,954 | 680,054 | 692,753 | 642,773 | |||||||||||||||
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Six Months |
Fiscal Year |
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Pro Forma Data: |
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Pro forma net sales |
$ | 2,552,363 | $ | 5,109,193 | ||||||||||||||||
Pro forma Adjusted EBITDA (12) |
93,126 | 251,498 | ||||||||||||||||||
Pro forma net income (loss) from continuing operations |
(76,974 | ) | (47,467 | ) |
(1) | Reflects the acquisition of Trail Tire, Extreme Wheel, Kirks Tire, RTD Edmonton and RTD Calgary in June 2014, the acquisition of Terrys Tire in March 2014 and the acquisition of Hercules and Kipling Tire Co. LTD in January 2014. |
(2) | Reflects the acquisition of RTD in April 2013. |
(3) | Reflects the acquisition of Wholesale Tire Distributors Inc. in December 2013, the acquisition of Tire Distributors, Inc. (TDI) in August 2013 and the acquisition of RTD in April 2013. |
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(4) | Reflects the acquisition of Triwest Trading (Canada) Ltd. d/b/a TriCan Tire Distributors in November 2012 and the acquisition of Firestone of Denham Springs, Inc. d/b/a Consolidated Tire & Oil in May 2012. |
(5) | Reflects the acquisition of Bowlus Service Company d/b/a North Central Tire in April 2011. |
(6) | As described under Managements Discussion and Analysis of Financial Condition and Results of OperationsIndebtednessSenior Secured Term LoanProposed Additional Term Loan, in connection with this offering, we also intend to borrow an additional $ million through the Additional Term Loan on the same terms as ATDIs existing Term Loan and to use the net proceeds therefrom, along with the net proceeds of this offering, to repay all amounts outstanding under our 11.50% Senior Subordinated Notes due 2018. Based on the interest rate under ATDIs existing Term Loan of 5.75% as of July 5, 2014, as applied to the Additional Term Loan and existing Term Loan as if they were outstanding for the entire periods presented, and assuming immediately prior to the periods presented the early redemption of all amounts outstanding under ATDIs 9.75% Senior Secured Notes, which occurred on June 16, 2014, as well as the repayment of all amounts outstanding under our 11.50% Senior Subordinated Notes due 2018, in each case at the redemption price set forth in their respective indentures, we estimate that our net interest expense would have decreased by approximately $ million for the year ended December 28, 2013 and by approximately $ million for the six months ended July 5, 2014, in each case before taxes. There can be no assurance that we will be able to consummate the Additional Term Loan on the terms described in this prospectus or at all. |
(7) | Other, net primarily includes bank fees, credit card charges to us and gains and losses on foreign currency, net of financing service fees that we charge our customers. |
(8) | Does not reflect the one-for reverse stock split effected on , 2014. |
(9) | EBITDA represents earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA represents EBITDA as further adjusted to reflect the items set forth in the table below. The presentation of EBITDA and Adjusted EBITDA are financial measures that are not calculated in accordance with GAAP. We use EBITDA and Adjusted EBITDA to facilitate a comparison of our operating performance on a consistent basis from period to period that, when viewed in combination with our GAAP results and the following reconciliation, we believe provides a more complete understanding of factors and trends affecting our business than GAAP measures alone. We also believe that such measures are frequently used by securities analysts, investors and other interested parties in the evaluation of companies similar to ours. Our board of directors, management and investors use EBITDA and Adjusted EBITDA to assess our financial performance because it allows them to compare our operating performance on a consistent basis across periods by removing items that we do not believe are indicative of our core operating performance. Our board of directors also uses Adjusted EBITDA in determining compensation for our management. The adjustments from EBITDA to Adjusted EBITDA include management and advisory fees paid to our Sponsor, non-cash stock compensation expense, transaction expenses related to our acquisitions, non-cash amortization of inventory step-up resulting from the business combination rules for our acquisitions and other items, including franchise and other taxes, non-cash gains and losses on the disposal of fixed assets and assets held for sale, exchange gains and losses on foreign currency, and non-cash impairment of long-lived assets. Amounts presented in accordance with our definition of Adjusted EBITDA may not be comparable to similar measures disclosed by other issuers because not all issuers calculate Adjusted EBITDA in the same manner. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same or similar to some of the adjustments set forth below. Neither EBITDA nor Adjusted EBITDA should be considered an alternative to, or more meaningful than, net income (loss) as determined in accordance with GAAP. |
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The following table presents a reconciliation of each of EBITDA and Adjusted EBITDA to income (loss) from continuing operations, determined in accordance with GAAP:
In thousands |
Six Months 2014 |
Six Months 2013 |
Fiscal Year |
Fiscal Year |
Fiscal Year |
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Income (loss) from continuing operations |
$ | (83,512 | ) | $ | (22,128 | ) | $ | (6,376 | ) | $ | (14,201 | ) | $ | (132 | ) | |||||
Depreciation and amortization |
66,013 | 51,140 | 105,458 | 89,167 | 78,071 | |||||||||||||||
Interest expense |
56,622 | 34,627 | 74,316 | 72,910 | 67,572 | |||||||||||||||
Income tax provision (benefit) |
(42,976 | ) | (9,362 | ) | (3,982 | ) | (5,965 | ) | 4,464 | |||||||||||
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EBITDA |
$ | (3,853 | ) | $ | 54,277 | $ | 169,416 | $ | 141,911 | $ | 149,975 | |||||||||
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Management fees |
15,575 | 2,246 | 5,753 | 7,446 | 4,624 | |||||||||||||||
Non-cash stock compensation |
1,987 | 1,452 | 2,634 | 4,349 | 4,114 | |||||||||||||||
Transaction expenses |
20,176 | 3,289 | 6,719 | 5,246 | 3,946 | |||||||||||||||
Non-cash inventory step-up |
31,640 | 4,907 | 5,379 | 4,074 | | |||||||||||||||
Early debt extinguishment |
17,113 | | | | | |||||||||||||||
Other (A) |
11 | 1,985 | 5,585 | 2,390 | 1,596 | |||||||||||||||
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Adjusted EBITDA |
$ | 82,649 | $ | 68,156 | $ | 195,486 | $ | 165,416 | $ | 164,255 | ||||||||||
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(A) | Other includes non-income based taxes, impairment, gain/loss on property and equipment disposals, deferred compensation and foreign currency exchange gains/losses. |
(10) | Working capital is defined as current assets less current liabilities. |
(11) | Total debt is the sum of current maturities of long-term debt, non-current portion of long-term debt and capital lease obligations. |
(12) | Pro forma EBITDA and pro forma Adjusted EBITDA are financial measures that are not calculated in accordance with GAAP. We present pro forma EBITDA and pro forma Adjusted EBITDA, in addition to EBITDA and Adjusted EBITDA, to provide a more complete understanding of our results of operations that gives effect to the recent significant acquisitions that we have completed. These amounts have similar limitations to the limitations described in footnote (9) regarding EBITDA and Adjusted EBITDA. In addition, the pro forma financial information we present is based on estimates and assumptions regarding our recent acquisitions that may end up being materially different from our actual experience. Neither pro forma EBITDA nor pro forma Adjusted EBITDA should be considered an alternative to, or more meaningful than, net income (loss) as determined in accordance with GAAP or pro forma net income (loss). Moreover, our debt agreements use a measure similar to pro forma Adjusted EBITDA to measure compliance with certain covenants except that, under certain of these debt agreements, the calculation of the measure allows us (subject to certain limitations) to take into account the amount of cost savings and synergies projected in good faith to be realized in the future in connection with cost saving restructuring initiatives as though those cost savings had already been realized in past periods. We have not included such projected cost savings or synergies in our presentation of pro forma Adjusted EBITDA in this prospectus. Therefore, the amount calculated pursuant to our debt agreements may be higher than pro forma Adjusted EBITDA as set forth in this prospectus. For further discussion of our cost savings initiatives, see Managements Discussion and Analysis of Financial Condition and Results of Operations. |
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The following table presents a reconciliation of each of pro forma EBITDA and pro forma Adjusted EBITDA to pro forma net income (loss) from continuing operations:
Six Months |
Fiscal Year | |||||||
In thousands |
2014 | 2013 | ||||||
Pro forma net income (loss) from continuing operations |
$ | (76,974 | ) | $ | (47,467 | ) | ||
Depreciation and amortization |
82,699 | 164,902 | ||||||
Interest expense |
67,415 | 133,438 | ||||||
Income tax provision (benefit) |
(21,576 | ) | (31,962 | ) | ||||
|
|
|
|
|||||
Pro forma EBITDA |
$ | 51,564 | $ | 218,911 | ||||
|
|
|
|
|||||
Management fees |
15,822 | 5,928 | ||||||
Non-cash stock compensation |
1,987 | 5,222 | ||||||
Transaction expenses |
6,530 | 4,799 | ||||||
Non-cash inventory step-up |
167 | 2,348 | ||||||
Early debt extinguishment |
17,113 | | ||||||
Other (A) |
(57 | ) | 14,290 | |||||
|
|
|
|
|||||
Pro forma Adjusted EBITDA |
$ | 93,126 | $ | 251,498 | ||||
|
|
|
|
(A) | Other includes non-income based taxes, impairment, gain/loss on property and equipment disposals, deferred compensation and foreign currency exchange gains/losses. |
For a discussion of pro forma net income (loss) from continuing operations, see Unaudited Pro Forma Combined Condensed Financial Information.
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This offering and investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below together with all of the other information contained in this prospectus, including our consolidated financial statements and the related notes appearing at the end of this prospectus, before deciding to invest in our common stock. If any of the following risks actually occurs, our business, prospects, operating results and financial condition could suffer materially, the trading price of our common stock could decline and you could lose all or part of your investment.
Risks Related to our Business and Industry
Demand for tire products is lower when general economic conditions are weak and decreases in the availability of consumer credit or consumer spending could adversely affect our business, results of operations or cash flows.
The popularity, supply and demand for tire products changes from year to year based on consumer confidence, the volume of tires reaching the replacement tire market and the level of personal discretionary income, among other factors. Decreases in the availability of consumer credit or decreases in consumer spending as a result of recent economic conditions, including increased unemployment and rising fuel prices, may cause consumers to delay tire purchases, reduce spending on tires or purchase less expensive tires. These changes in consumer behavior could reduce the number of tires we sell, reduce our net sales or cause a change in our product mix toward products with lower per-tire margins, any of which could adversely affect our business, results of operations or cash flows.
Local economic, employment, weather, transportation and other conditions also affect tire sales, on both a wholesale and retail basis. We cannot, as a result of these factors and others, assure you that our business will continue to generate sufficient cash flows to finance or grow our business or that our cash needs will not increase. Historically, we have experienced that rising fuel costs, higher unemployment and credit tightening cause a decrease in miles driven and consumer spending, both of which we believe cause a decrease in unit sales in the U.S. and Canadian replacement tire industries. Our business is adversely affected as a result of such industry-wide events and we may be adversely affected by similar events in the future.
We depend on manufacturers to provide us with the products we sell and disruptions in these relationships or manufacturers operations could adversely affect our results of operations, financial condition and cash flows.
There are a limited number of tire manufacturers worldwide. Accordingly, we rely on a limited number of tire manufacturers to supply us with the products we sell, including flag and associate brands and our proprietary brands. Our business depends on developing and maintaining productive relationships with these manufacturers. Outside of our proprietary brands, we do not have long-term contracts with these manufacturers, and we cannot assure you that these manufacturers will continue to supply products to us on favorable terms or at all. Many of our manufacturers are free to terminate their business relationship with us with little or no notice and may elect to do so for any reason or no reason. We believe that part of our value proposition is our ability to distribute the broadest product offering in our industry. As a result, if one or more of our manufacturers were to discontinue business with us, our business could be adversely affected by the negative impact on our reputation and ability to continue to deliver on this value proposition, as well as any decrease in net sales. Further, certain of our key suppliers also compete with us as they distribute and sell tires to certain of our tire retailer customers. A move towards this business model among our manufacturers could adversely affect our results of operations, financial condition and cash flows.
In addition, our growth strategy depends in part on our ability to make selective acquisitions, but manufacturers may not be willing to supply the companies we acquire, which could adversely affect our business and results of operations. Furthermore, we could be adversely affected if any significant manufacturer experiences financial, operational, production, supply, labor, regulatory or quality assurance difficulties that result in a reduction or interruption in our supply, or if they otherwise fail to meet our needs. These risks have
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been more pronounced recently in light of commodity price volatility and governmental actions. In addition, our failure to order or promptly pay for sufficient quantities of our products may result in an increase in the unit cost of the products we purchase, a reduction in cooperative advertising and marketing funds, or a manufacturers unwillingness or refusal to sell products to us. If we are required to replace one or more of our manufacturers, we could experience cost increases, time delays in deliveries and a loss of customers, any of which would adversely affect us. Finally, although most newly manufactured tires are sold in the replacement tire market, manufacturers pay disproportionate attention to automobile manufacturers that purchase tires for new cars. Increased demand from automobile manufacturers could result in cost increases and time delays in deliveries to us, either of which could adversely affect us.
The failure of our information technology systems could disrupt our business operations, which could have a material adverse effect on our business, financial condition and results of operations.
The operation of our business depends on our information technology systems. The failure of our information technology systems, including our Oracle ERP platform, to perform as we anticipate could disrupt our business substantially and could result in, among other things, transaction errors, processing inefficiencies, loss of data and the loss of sales and customers, all of which could cause our business and results of operations to suffer. While we have made significant investments in our disaster recovery strategies and infrastructure, our information technology systems may be vulnerable to damage or interruption from circumstances beyond our control, including, without limitation, fire, natural disasters, power outages, systems failure, system conversions, security breaches, cyber-attacks, viruses and/or human error. In any such event, we could be required to make a significant investment to fix or replace information technology systems, and we could experience interruptions in our ability to service our customers. Additionally, we and our customers could suffer financial and reputational harm if customer or Company proprietary information was compromised by a security breach or cyber-attack. Any such damage or interruption could have a material adverse effect on our business, financial condition and results of operations.
Our business requires a significant amount of cash, and fluctuations in our cash flows may adversely affect our ability to fund our business or acquisitions or satisfy our debt obligations.
Our ability to fund working capital needs, planned capital expenditures and acquisitions and our ability to satisfy our debt obligations depend on our ability to generate cash flows, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. If we are unable to generate sufficient cash flows from operations to meet these needs, we may need to refinance all or a portion of our existing debt, obtain additional financing or reduce expenditures that we deem necessary to our business. Further, our ability to grow our business and market share through acquisitions may be impaired. We cannot assure you that we would be able to obtain refinancing of this kind on favorable terms or at all or that any additional financing could be obtained. The inability to obtain additional financing could materially and adversely affect our business, financial condition and cash flows.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure or refinance our indebtedness. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of existing or future debt instruments may restrict us from adopting some of these alternatives. In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. Our credit facilities and the indenture governing our outstanding notes restrict our ability to dispose of assets and use the proceeds from any such disposition. We may not be able to consummate those dispositions or to obtain the proceeds that we could realize from them and these proceeds may not be adequate to
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meet any debt service obligations then due. These alternative measures may not be successful and may not permit us to meet our debt service obligations.
As of July 5, 2014, on a pro forma as adjusted basis after giving effect to this offering and the application of the net proceeds therefrom, we would have had total indebtedness of approximately $ , and our substantial indebtedness could adversely affect our financial condition and limit our ability to pursue our growth strategy.
We have a substantial amount of debt, which requires significant interest and principal payments. As of July 5, 2014, on a pro forma as adjusted basis after giving effect to this offering and the application of the net proceeds therefrom, at an assumed public offering price per share of $ , the midpoint of the range set forth on the cover of the prospectus, we would have had total indebtedness of approximately $ . Subject to the restrictions contained in our ABL Facility, our Term Loan, the indenture governing our Senior Subordinated Notes (to the extent they remain outstanding following this offering), and our other debt instruments, we may be able to incur substantial additional debt from time to time to finance working capital, capital expenditures, investments or acquisitions, or for other purposes. These restrictions will not prevent us from incurring obligations that do not constitute indebtedness, may be waived by certain votes of debt holders and, if we refinance our existing indebtedness, such refinancing indebtedness may contain fewer restrictions on our activities. To the extent new indebtedness or other financial obligations are added to our and our subsidiaries currently anticipated indebtedness levels, the related risks that we and our subsidiaries face could intensify.
Our substantial level of indebtedness could adversely affect our financial condition and increase the possibility that we may be unable to generate cash sufficient to pay, when due, the principal of, interest on or other amounts due in respect of our indebtedness. Our substantial indebtedness, combined with our other existing and any future financial obligations and contractual commitments, could have important consequences. For example, it could:
| make it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to comply with the obligations under any of our debt instruments, including restrictive covenants, could result in an event of default under the agreements governing such indebtedness; |
| require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing funds available for working capital, capital expenditures, acquisitions, selling and marketing efforts, research and development and other purposes; |
| increase our vulnerability to adverse economic and industry conditions, which could place us at a competitive disadvantage compared to our competitors that have proportionately less indebtedness; |
| increase our cost of borrowing and cause us to incur substantial fees from time to time in connection with debt amendments or refinancings; |
| increase our exposure to rising interest rates because a portion of our borrowings is at variable interest rates; |
| limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate; and |
| limit our ability to borrow additional funds, or to dispose of assets to raise funds, if needed, for working capital, capital expenditures, acquisitions, selling and marketing efforts, research and development and other corporate purposes. |
For additional risks relating to our substantial indebtedness, see Restrictions imposed by our outstanding indebtedness, including the indenture governing our outstanding notes, may limit our ability to operate our business and to finance our future operation or capital needs or to engage in other business activities.
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The industry in which we operate is highly competitive and our failure to effectively compete may adversely affect our results of operations, financial condition and cash flows.
The industry in which we operate is highly competitive. In North America, replacement tires are sold to consumers through several different retail channels, including local independent tire retailers and mass merchandisers, warehouse clubs, tire manufacturer-owned stores, automotive dealerships and web-based marketers. A number of independent wholesale tire distributors compete with us for the business of tire retailers in the regions in which we do business. Most of our tire retailer customers buy products from both us and our competitors. We cannot assure you that we will be able to compete successfully in our markets in the future. We would also be adversely affected if certain channels in the replacement tire retail market, including mass merchandisers and warehouse clubs, were to gain market share at the expense of the local independent tire retailers, as our market share in those channels is lower. See BusinessCompetition.
We face risks related to the integration of our recent significant acquisitions.
The acquisitions of Hercules and Terrys Tire constitute significant acquisitions for our business. Our management will be required to devote a significant amount of time and attention to the process of integrating the businesses and operations of Hercules and Terrys Tire with our business and operations, which may decrease the time management will have to serve existing customers, attract new customers and develop new products, services or strategies, and could adversely affect the performance of the combined company. The size and complexity of both acquired businesses, if not managed successfully by our management, may result in interruptions in our business activities, inconsistencies in our operations, standards, controls, procedures and policies, a decrease in the quality of our services and products, a deterioration in our employee and customer relationships, increased costs of integration and harm to our reputation, all of which could have a material adverse effect on our business, financial condition and results of operations.
We may not realize the growth opportunities and cost savings synergies that are anticipated from our recent significant acquisitions.
The benefits that we expect to achieve as a result of the recent acquisitions of Hercules and Terrys Tire will depend in part on our ability to realize anticipated growth opportunities and cost savings synergies. Our success in realizing these opportunities and synergies and the timing of this realization depend on the successful integration of the businesses and operations of Hercules and Terrys Tire with our business and operations and the adoption of our respective best practices. Even if we are able to integrate these businesses and operations successfully, this integration may not result in the realization of the full benefits of the growth opportunities and synergies we currently expect from this integration within the anticipated time frame or at all. While we anticipate that substantial expenses will be incurred in connection with the integration of Hercules and Terrys Tire, such expenses are difficult to estimate accurately, and may significantly exceed current estimates. Accordingly, the benefits from these acquisitions may be offset by unanticipated costs or delays in integrating the companies.
Pricing volatility for raw materials acquired by our suppliers could result in increased costs and may affect our profitability.
Costs for certain raw materials used in manufacturing the products we sell, including natural rubber, chemicals, steel reinforcements, carbon black, synthetic rubber and other petroleum-based products, are volatile. Increasing costs for raw materials supplies would result in increased production costs for tire manufacturers. Tire manufacturers typically pass along a portion of their increased costs to us through price increases. While we typically try to pass increased prices and fuel costs through to tire retailers or modify our activities to mitigate the impact of higher prices, we may not be successful. Failure to fully pass these increased prices and costs through to tire retailers or to modify our activities to mitigate the impact would adversely affect our operating margins and results of operations. Further, even if we do successfully pass along these costs, demand for tires may decline as a result of the increased costs, which would adversely affect us.
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Attempts to expand our distribution services into new geographic markets may adversely affect our business, results of operations, financial condition or cash flows.
We plan to expand our distribution services into new geographic markets in North America, which will require us to make capital investments to extend and develop our distribution infrastructure. We may not achieve profitability in new regions for a period of time. If we do not successfully add new distribution centers and routes, we experience unanticipated costs or delays or we experience competition in such markets that is greater than we expect, our business, results of operations, financial condition or cash flows may be adversely affected.
We regularly seek to grow our business through acquisitions, and our inability to identify desirable acquisition targets or integrate such acquisitions, including our recent significant acquisitions, could have a material adverse effect on us.
We regularly investigate and acquire strategic businesses or product lines with the potential to be accretive to earnings, increase our market penetration, strengthen our market position or enhance our existing product offering. In executing our business strategy, we routinely conduct discussions, evaluate opportunities and enter into agreements for such acquisitions. Pursuing growth by way of these types of transactions involves significant challenges and risks, including the inability to successfully identify suitable acquisition targets on terms acceptable to us, advance our business strategy, realize a satisfactory return on investment, successfully integrate business activities or resources, or retain key personnel, customers and suppliers. A failure to identify and acquire desirable acquisition targets may slow growth in our annual unit volume, which could adversely affect our existing business, financial condition, results of operations and cash flows. In addition, if we are unable to manage acquisitions or investments, successfully complete transactions or effectively integrate acquired businesses, such as Hercules or Terrys Tire, we may not realize the cost savings or other financial benefits we anticipated from the transaction relative to the consideration paid in the anticipated time frame or at all, and our business, results of operations and financial condition may be materially and adversely affected.
Further, we may be unsuccessful in identifying and evaluating business, legal or financial risks as part of the due diligence process associated with a particular transaction, and could be held liable for environmental, tax or other risks and liabilities of the acquired business. In addition, some investments may result in the incurrence of debt or may have contingent consideration components that may require us to pay additional amounts in the future in relation to future performance results of the subject business. We may also experience additional financial and accounting challenges and complexities in areas such as tax planning, treasury, management and financial reporting as a result of such transactions. These factors could divert attention from our business and otherwise harm our business, financial condition and operating results.
Future acquisitions could require us to issue additional debt or equity.
A number of our recent acquisitions have been financed primarily through the incurrence of additional debt, either through increases in availability under our ABL Facility, the issuance of additional subordinated notes or through term loans. We have also financed some recent acquisitions by selling additional equity to the TPG Funds and certain co-investors. If we were to undertake another substantial acquisition, the acquisition would likely need to be financed in part through further amendments to our ABL Facility, additional financing from banks, public offerings or private placements of debt or equity securities or other arrangements. We cannot assure you that the necessary acquisition financing would be available to us on acceptable terms if and when required, particularly because we are currently highly leveraged, which may make it difficult or impossible for us to secure financing for acquisitions. If we were to undertake an acquisition by issuing equity securities or equity-linked securities, the acquisition may have a dilutive effect on the interests of the holders of our common stock. If we were to undertake an acquisition by incurring additional debt, the risks associated with our already substantial level of indebtedness could intensify.
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Our business strategy relies increasingly upon online commerce. If our customers were unable to access any of our websites, such as ATDOnline®, our business and operations could be disrupted and our operating results would be adversely affected.
Customers access to our websites directly affects the volume of orders we fulfill and our revenues in the United States. Approximately 65% of our U.S. total order volume in fiscal 2013 was placed online using ATDOnline®, up from approximately 56% in fiscal 2007. We expect our Internet-generated business in the United States to continue to grow as a percentage of overall sales. To be successful, we must ensure that ATDOnline® is well supported and functional on a 24/7 basis. If we are not able to continuously make these ordering tools available to our customers, there could be a decline in online orders and a decrease in our net sales.
We may not successfully execute our plan to grow our TireBuyer.com® service or we may not attain the growth we expect from our TireBuyer.com® service.
We continue to invest in TireBuyer.com®, an Internet site which enables our independent tire retailer customers to connect with consumers over the Internet. In 2012, the TireBuyer.com® site was re-launched on a platform that is faster and more flexible in allowing us to respond to the needs of our customers and enhancing the overall consumer experience. Since its initial launch in 2009, we have generally seen a consistent increase in consumer traffic on the site. We expect that by growing and developing our TireBuyer.com® service, we can leverage our tire retailer customer footprint to capture a greater share of the Internet tire market. For TireBuyer.com® to be successful, however, we must ensure that it is well supported and functional on a 24/7 basis. In addition, TireBuyer.com® faces significant competition from other online participants, some of which have significantly larger Internet market share, longer Internet market presence, greater Internet marketing experience and better name recognition than we enjoy. We may fail to successfully grow, develop or support the TireBuyer.com® service or we may not attain the growth or benefits we expect TireBuyer.com® to provide us due to strong competition or other factors, which may adversely affect our business, financial condition or results of operations.
Because the majority of our inventory is stored in our warehouse distribution centers, a disruption in our warehouse distribution centers could adversely affect our results of operations by increasing our cost and distribution lead times.
We maintain the majority of our inventory in our more than 140 distribution centers in North America. Serious disruptions affecting these distribution centers or the flow of products in or out of these centers, including disruptions from inclement weather, fire, earthquakes or other causes, could damage a significant portion of our inventory and could adversely affect our ability to distribute our products to tire retailers in a timely manner or at a reasonable cost. During the time that it may take us to reopen or replace a distribution center, we could incur significantly higher costs and longer lead times associated with distributing our products to tire retailers, which could adversely affect our reputation, as well as our results of operations and our customer relationships.
If we experience problems with our fleet of trucks or are otherwise unable to make timely deliveries of our products to our customers, our business and reputation could be adversely affected.
We use a fleet of trucks to deliver our products to our customers, most of which are leased from third parties. We are subject to the risks associated with product delivery, including inclement weather, disruptions in the transportation infrastructure, disruptions in our lease arrangements, availability and price of fuel, liabilities arising from accidents to the extent we are not covered by insurance and insurance premium increases. Our failure to deliver tires and other products in a timely and accurate manner could harm our reputation and brand, which could adversely affect our business and reputation.
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Our Hercules® brand tires are generally manufactured in various countries in Asia and as a result are subject to risks associated with doing business outside the United States and Canada.
Following our acquisition of Hercules, we distribute a private brand tire marketed under the Hercules® brand. These tires are generally manufactured in various countries in Asia. There are a number of risks in doing business abroad, including political and economic uncertainty, social unrest, sudden changes in laws and regulations, shortages of trained labor, transportation risks and the uncertainties associated with doing business in foreign countries. These risks may impact our ability to expand our outsourced manufacturing operations and otherwise achieve our objectives relating to private brand marketing, including capitalizing on the expanding import market. In addition, compliance with multiple and potentially conflicting foreign laws and regulations, import and export limitations, anti-corruption laws such as the Foreign Corrupt Practices Act and exchange controls is burdensome and expensive. Our foreign operations also subject us to the risks of international terrorism and hostilities and to foreign currency risks, including exchange rate fluctuations and limits on the repatriation of funds.
Our exposure to the credit risks of our customers may make it difficult to collect accounts receivable and could adversely affect our operating results and financial condition.
In the course of our sales to customers, we may encounter difficulty collecting accounts receivable and could be exposed to risks associated with uncollectible accounts receivable. Economic conditions may impact some of our customers ability to pay their accounts payable. While we attempt to monitor these situations carefully and attempt to take appropriate measures to collect accounts receivable balances, we have written down accounts receivable and written off doubtful accounts in prior periods and may be unable to avoid accounts receivable write-downs or write-offs of doubtful accounts in the future. Such write-downs or write-offs could negatively affect our operating results for the period in which they occur and could harm our operating results.
Consolidation among customers may reduce our importance as a holder of sizable inventory, which could adversely affect our business and results of operations.
Our success has been dependent, in part, on the fragmented customer base in our industry. Due to the small size of most tire retailers, they cannot support substantial inventory positions and thus, as our size permits us to maintain a sizable inventory, we fill an important role. However, we do not generally have long-term arrangements with our tire retailer customers and they can cease doing business with us at any time. If a trend towards consolidation among tire retailers develops in the future, it could reduce our importance and reduce our revenues, margins and earnings. While the local independent tire retailer share of the replacement tire market has been relatively stable in the recent past, the share of larger tire retailers has grown at the expense of smaller tire retailers. If that trend continues, the number of tire retailers able to handle sizable inventory could increase, reducing the importance of distributors like us to the local independent tire retailer market.
Participants in our Tire Pros® franchise program are independent operators and we have limited influence over their operations. Our Tire Pros® franchisees could take actions that could harm the value of the Tire Pros® franchise, or could be unwilling or unable to continue to participate in the program, which could materially and adversely affect our business, results of operations, financial condition and cash flows.
Participants in our Tire Pros® franchise program are independent operators and have significant discretion in running their operations. Their employees are not our employees. Franchisees could take actions that subject them to legal and financial liabilities, and we may, regardless of the actual validity of such a claim, be named as a party in an action relating to, or be held liable for, the conduct of our franchisees if it is shown that we exercise a sufficient level of control over a particular franchisees operation. In addition, the quality of franchise operations may be diminished by any number of factors beyond our control. We do not offer financial or management services to our franchisees, which may not have sufficient resources or expertise to operate their businesses at the level we would expect. While we ultimately can take action to terminate franchisees that do not comply with the standards contained in our franchise agreements, we may not be able to identify problems and take action quickly enough and, as a result, the image and reputation of Tire Pros® may suffer, fewer tire retailers may become Tire Pros® franchisees and existing participants may leave the Tire Pros® program.
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In addition, our franchise agreements have limited durations and our franchisees may not be willing or able to renew their franchise agreements with us. For example, a franchisee may decide not to renew due to a lawsuit or disagreement with us, dissatisfaction with the Tire Pros® program or a perception that the Tire Pros® program conflicts with other business interests. Similarly, a franchisee may be unable to renew its franchise agreement with us due to a bankruptcy or restructuring event or the failure to secure a real estate lease renewal, among other factors.
Our business, business prospects, results of operations, financial condition and cash flows could be adversely affected if we are forced to defend claims made against our franchisees, if others seek to hold us accountable for our franchisees actions, if the Tire Pros® program does not grow as we expect or if the Tire Pros® franchise program is not otherwise successful.
We could become subject to additional government regulation which could cause us to incur significant liabilities.
We are currently subject to federal, state and foreign laws and regulations that apply to our business, including laws and regulations that affect tire distribution and sale, safety matters and tire specifications. Our costs of complying with these laws and regulations, including our operating expenses and liabilities arising under governmental regulations, may be increased in the future, including due to expansion of our business into new geographic areas, and additional fees and taxes may be imposed by governmental authorities. Future regulatory requirements, such as required disclosure of made-on dates for tires or an expansion of the Transportation Recall Enhancement Accountability and Documentation (TREAD) Act to cover tire distributors, could cause a material increase in our liabilities or operating expenses, which would materially and adversely affect our business, results of operations, financial condition and cash flows.
Loss of key personnel or failure to attract and retain highly qualified personnel could adversely affect our results of operations, financial condition and cash flows.
We are dependent on the continued services of our senior management team. We may not be able to retain our existing senior management, fill new positions or vacancies created by expansion or turnover, or attract additional senior management personnel. We believe the loss of such key personnel could adversely affect our financial performance. In addition, our ability to manage our anticipated growth will depend on our ability to identify, hire and retain qualified management personnel. We cannot assure you that we will attract and retain sufficient qualified personnel to meet our business needs.
We could be subject to product liability, personal injury or other litigation claims that could adversely affect our business, results of operations and financial condition.
Purchasers of our products, or their employees or customers, could be injured or suffer property damage from exposure to, or defects in, products we sell or distribute, or have sold or distributed in the past. We could be subject to claims, including personal injury claims. These claims may not be covered by insurance or tire manufacturers may be unwilling or unable to assume the defense of these claims, as they have in the past. In addition, if any tire manufacturer encounters financial difficulty or ceases to operate, it may not be able to assume the defense of such claims. In addition, we now own the Hercules® tire brand and therefore could be liable for these claims in the future in connection with the manufacture and sale of the Hercules® brand tires. We also may be subject to claims due to injuries caused by our truck drivers which may not be covered by insurance. As a result, the defense, settlement or successful assertion of any future product liability, personal injury or other litigation claims could cause us to incur significant costs and could have an adverse effect on our business, financial condition, results of operations and cash flows.
We could incur costs to comply with environmental regulations and to address liabilities relating to environmental matters, particularly those relating to our distribution centers.
We are subject to various federal, state, local and foreign environmental, health and safety laws and regulations. These requirements are complex, change frequently and have tended to become more stringent over
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time. Compliance costs associated with current and future environmental and health and safety laws, particularly as they relate to our distribution centers, as well as liabilities, including fines, claims or clean-up costs, arising from past or future releases of, or exposure to, hazardous substances, may adversely affect our business, results of operations, financial condition or cash flows.
Failure to maintain effective internal control over financial reporting could materially adversely affect our business, results of operations and financial condition.
Pursuant to the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act), we provide a report by management on internal control over financial reporting, including managements assessment of the effectiveness of such control. Changes to our business and the integration of newly-acquired businesses will necessitate ongoing changes to our internal control systems and processes, including to address any internal control issues of the businesses that we acquire from time to time. For example, the Terrys Tire auditors identified material weaknesses, which were in existence at the time we acquired the business, relating to security administration and access to systems, separation of duties, and external financial reporting. We are in the process of integrating the Terrys Tire business, including placing them on our information technology and accounting systems, as well as implementing our own internal controls and procedures with respect to the Terrys Tire business. While we do not expect the issues identified by the Terrys Tire auditors to continue following the completion of the integration, which we anticipate will be complete by the end of 2014, we face risks like this in the ordinary course of business.
Internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls or fraud. Therefore, even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If we fail to maintain adequate internal controls, including any required new or improved controls, we may be unable to provide financial information in a timely and reliable manner and might be subject to sanctions or investigation by regulatory authorities such as the SEC or the Public Company Accounting Oversight Board. Any such action could adversely affect our financial results or investors confidence in us or in the integrity of our financial statements and public filings and could cause the price of our securities to fall.
If we determine that our goodwill and other intangible assets have become impaired, we may record significant impairment charges, which would adversely affect our results of operations.
Goodwill and other intangible assets represent a significant portion of our assets. Goodwill is the excess of cost over the fair market value of net assets acquired in business combinations. In the future, goodwill and intangible assets may increase as a result of future acquisitions. We review our goodwill and indefinite lived intangible assets at least annually for impairment. Impairment may result from, among other things, deterioration in the performance of acquired businesses, adverse market conditions and adverse changes in applicable laws or regulations, including changes that restrict the activities of an acquired business. Any impairment of goodwill or other intangible assets would result in a non-cash charge against earnings, which would adversely affect our results of operations.
Our variable rate indebtedness subjects us to interest rate risk, which could cause our indebtedness service obligations to increase significantly.
Borrowings under our ABL Facility, FILO Facility and Term Loan are at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness, would correspondingly decrease.
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Currency exchange rate fluctuations may adversely affect our financial results.
The financial position and results of operations for TriCan, our 100% owned subsidiary acquired during 2012, was initially recorded in its functional currency which is the Canadian dollar. Because our consolidated financial statements are presented in U.S. dollars, we must translate revenues and expenses into U.S. dollars at the weighted-average exchange rate prevailing during the year and assets and liabilities into U.S. dollars at the year-end exchange rate. Therefore, fluctuations in the value of the U.S. dollar versus the Canadian dollar will have an impact on the value of these items in our consolidated financial statements, even if its value has not changed in its original currency.
Restrictions imposed by our outstanding indebtedness, including the indenture governing our outstanding notes, may limit our ability to operate our business and to finance our future operations or capital needs or to engage in other business activities.
The terms of our outstanding indebtedness restrict us from engaging in specified types of transactions. These covenants restrict our ability, among other things, to:
| incur indebtedness or guarantees or engage in sale-leaseback transactions; |
| incur liens; |
| engage in mergers, acquisitions and asset sales; |
| alter the business conducted by ATDI and its restricted subsidiaries; |
| make investments and loans; |
| declare dividends or other distributions; |
| enter into agreements limiting restricted subsidiary distributions; and |
| engage in certain transactions with affiliates. |
In addition, the credit agreement for our ABL Facility requires us to comply with a fixed charge coverage ratio test if certain conditions are triggered. Our ability to comply with this financial covenant can be affected by events beyond our control, and we may not be able to satisfy it. Additionally, the restrictions contained in the indenture governing our outstanding notes could also limit our ability to plan for or react to market conditions, meet capital needs or make acquisitions or otherwise restrict our activities or business plans. See Description of Indebtedness. The terms of any future indebtedness we incur could include more restrictive covenants.
A breach of any of these covenants could result in a default under our credit facilities or the indenture governing our outstanding notes, which could trigger acceleration of our indebtedness and may result in the acceleration of or default under any other debt to which a cross-acceleration or cross-default provision applies, which could have a material adverse effect on our business, operations and financial results. In the event of any default under our credit facilities, the applicable lenders could elect to terminate borrowing commitments and declare all borrowings and loans outstanding, together with accrued and unpaid interest and any fees and other obligations, to be due and payable. In addition, or in the alternative, the applicable lenders could exercise their rights under the security documents entered into in connection with our credit facilities. We have pledged a significant portion of our assets as collateral under our credit facilities.
If we were unable to repay or otherwise refinance these borrowings and loans when due, the applicable lenders could proceed against the collateral granted to them to secure that indebtedness, which could force us into
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bankruptcy or liquidation. In the event the applicable lenders accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness. Any acceleration of amounts due under the agreements governing our credit facilities or the exercise by the applicable lenders of their rights under the security documents would likely have a material adverse effect on us.
Because of our prior acquisitions and future acquisitions we may engage in, our historical operating results may be of limited use in evaluating our historical performance and predicting our future results.
We have acquired a number of businesses in recent years, including TriCan, RTD, Hercules, Terrys Tire, Trail Tire, Extreme Wheels, Kirks Tire, RTD Edmonton and RTD Calgary, and we expect that we will engage in acquisitions of other businesses from time to time in the future. The operating results of the acquired businesses are included in our financial statements included in this prospectus only from the date of the completion of such acquisitions. All of our acquisitions have been accounted for using the acquisition method of accounting. Use of this method has resulted in a new valuation of the assets and liabilities of the acquired companies. As a result of these acquisitions and any future acquisitions, our historical operating results may be of limited use in evaluating our historical performance and predicting our future results. In addition, other significant changes may occur in our cost structure, management, financing and business operations as a result of these acquisitions and any future acquisitions.
The pro forma financial information in this prospectus is presented for illustrative purposes only and does not represent what the financial position or results of operations of the Company would have been had the applicable acquisitions and other transactions been completed on the dates assumed for purposes of that pro forma information nor does it represent the actual financial position or results of operations of the Company following such transactions.
The pro forma financial information in this prospectus is derived from the respective historical consolidated financial statements and related notes of the Company, Terrys Tire, Hercules, RTD, Trail Tire, Extreme Wheels, Kirks Tire, RTD Edmonton and RTD Calgary included in this prospectus. It is presented for illustrative purposes only and contains certain estimates and assumptions about the acquisitions and other transactions described therein. The preparation of this pro forma financial information is based on certain assumptions and estimates that we believe are reasonable. Our assumptions may prove to be inaccurate over time and may be affected by other factors. Accordingly, the pro forma financial information may not reflect what our results of operations, financial positions and cash flows would have been had the applicable transactions occurred during the periods presented or what our results of operations, financial positions and cash flows will be in the future.
In addition, for purposes of the pro forma financial information, the consideration for the relevant acquisitions has been preliminarily allocated to the assets acquired and liabilities assumed based on the preliminary valuations. The final allocation is dependent upon third-party valuations and other studies that have not been completed. The final allocation could vary materially from the preliminary allocation used in the financial information contained in this prospectus. Additionally, the pro forma financial information does not give effect to any unforeseen costs that could result from the relevant acquisitions, nor does it include any other items not expected to have a continuing impact on the consolidated results of operations.
Risks Related to our Common Stock and this Offering
TPG will continue to have significant influence over us after this offering, including control over decisions that require the approval of stockholders, which could limit your ability to influence the outcome of matters submitted to stockholders for a vote.
We are currently controlled, and after this offering is completed will continue to be controlled, by the TPG Funds. Upon completion of this offering, the TPG Funds will beneficially own % of our outstanding common stock (or % if the underwriters exercise in full their option to purchase additional shares). As long as the TPG Funds own or control at least a majority of our outstanding voting power, they will have the ability to
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exercise substantial control over all corporate actions requiring stockholder approval, irrespective of how our other stockholders may vote, including the election and removal of directors and the size of our board, any amendment of our certificate of incorporation or bylaws, or the approval of any merger or other significant corporate transaction, including a sale of substantially all of our assets. Even if the TPG Funds ownership falls below 50%, TPG will continue to be able to strongly influence or effectively control our decisions.
Additionally, TPGs interests may not align with the interests of our other stockholders. TPG is in the business of making investments in companies and may acquire and hold interests in businesses that compete directly or indirectly with us. TPG may also pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us.
Upon the listing of our shares, we will be a controlled company within the meaning of the rules of the NYSE and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements; you will not have the same protections afforded to stockholders of companies that are subject to such requirements.
Because the TPG Funds will continue to control a majority of the voting power of our outstanding common stock after completion of this offering, we will be a controlled company within the meaning of the corporate governance standards of the NYSE. Under these rules, a company of which more than 50% of the voting power for the election of directors is held by an individual, group or another company is a controlled company and may elect not to comply with certain corporate governance requirements, including the requirements that, within one year of the date of the listing of our common stock:
| we have a board that is composed of a majority of independent directors, as defined under the rules of the NYSE; |
| we have a compensation committee that is composed entirely of independent directors; and |
| we have a nominating and corporate governance committee that is composed entirely of independent directors. |
Following this offering, we intend to utilize all of these exemptions. Accordingly, in the event TPGs interests differ from those of other stockholders, and, for so long as we are a controlled company, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE. Our status as a controlled company could make our common stock less attractive to some investors or otherwise harm our stock price.
Our directors who have relationships with TPG may have conflicts of interest with respect to matters involving our company.
Following this offering, two of our directors will be affiliated with TPG. Our TPG-affiliated directors have fiduciary duties to us and, in addition, will have duties to TPG. Two additional directors will be Senior Advisors to TPG. As a result, these directors may face real or apparent conflicts of interest with respect to matters affecting both us and TPG, whose interests, in some circumstances, may be adverse to ours.
Provisions of our corporate governance documents could make an acquisition of our company more difficult and may prevent attempts by our stockholders to replace or remove our current management, even if beneficial to our stockholders.
In addition to the TPG Funds beneficial ownership of a controlling percentage of our common stock, our certificate of incorporation and bylaws and the Delaware General Corporation Law (the DGCL) contain provisions that could make it more difficult for a third party to acquire us, even if doing so might be beneficial to
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our stockholders. These provisions include:
| the division of our board of directors into three classes and the election of each class for three-year terms; |
| advance notice requirements for stockholder proposals and director nominations; |
| the ability of the board of directors to fill a vacancy created by the expansion of the board of directors; |
| the ability of our board of directors to issue new series of, and designate the terms of, preferred stock, without stockholder approval, which could be used to, among other things, institute a rights plan that would have the effect of significantly diluting the stock ownership of a potential hostile acquirer, likely preventing acquisitions that have not been approved by our board of directors; |
| limitations on the ability of stockholders to call special meetings and to take action by written consent following the date that the TPG Funds no longer beneficially own a majority of our common stock; and |
| the required approval of holders of at least 75% of the voting power of the outstanding shares of our capital stock to adopt, amend or repeal certain provisions of our certificate of incorporation and bylaws or remove directors for cause, in each case following the date that the TPG Funds no longer beneficially own a majority of our common stock. |
In addition, Section 203 of the DGCL may affect the ability of an interested stockholder to engage in certain business combinations, for a period of three years following the time that the stockholder becomes an interested stockholder. While we have elected in our certificate of incorporation not to be subject to Section 203 of the DGCL, our certificate of incorporation contains provisions that have the same effect as Section 203 of the DGCL, except that they provide that investment funds affiliated with TPG will not be deemed to be an interested stockholder, and accordingly will not be subject to such restrictions.
Because our board is responsible for appointing the members of our senior management, the foregoing provisions of our certificate of incorporation and bylaws may frustrate or prevent any attempts by our stockholders to replace or remove our current management, or otherwise change the strategic direction of the Company, by making it more difficult for stockholders to replace members of our board of directors. In addition, certain of these provisions may limit your ability to sell your stock for a price in excess of the prevailing market price in a transaction that is not approved by our board of directors. See Description of Capital Stock.
If you purchase shares of common stock in this offering, you will suffer immediate and substantial dilution of your investment.
The initial public offering price of our common stock is substantially higher than the net tangible book deficit per share of our common stock. Therefore, if you purchase shares of our common stock in this offering, you will pay a price per share that substantially exceeds our net tangible book deficit per share after this offering. Based on an assumed initial public offering price of $ per share, the midpoint of the range set forth on the cover page of this prospectus, you will experience immediate dilution of $ per share, representing the difference between our pro forma net tangible book deficit per share after giving effect to this offering and the initial public offering price. In addition, purchasers of common stock in this offering will have contributed % of the aggregate price paid by all purchasers of our stock but will own only approximately % of our common stock outstanding after this offering. We also have a large number of outstanding stock options to purchase common stock with exercise prices that are below the estimated initial public offering price of our common stock. To the extent that these options are exercised, you will experience further dilution. See Dilution for more detail.
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Your percentage ownership in us may be diluted by future issuances of capital stock, which could reduce your influence over matters on which stockholders vote.
Pursuant to our certificate of incorporation and bylaws, our board of directors has the authority, without action or vote of our stockholders, to issue all or any part of our authorized but unissued shares of common stock, including shares issuable upon the exercise of options, or shares of our authorized but unissued preferred stock. Issuances of common stock or voting preferred stock would reduce your influence over matters on which our stockholders vote and, in the case of issuances of preferred stock, would likely result in your interest in us being subject to the prior rights of holders of that preferred stock.
An active, liquid trading market for our common stock may not develop, which may limit your ability to sell your shares.
Prior to this offering, there was no public market for our common stock. Although we intend to list our common stock on the NYSE under the symbol ATD, an active trading market for our shares may never develop or be sustained following this offering. The initial public offering price will be determined by negotiations between us and the underwriters and may not be indicative of market prices of our common stock that will prevail in the open market after the offering. A public trading market having the desirable characteristics of depth, liquidity and orderliness depends upon the existence of willing buyers and sellers at any given time, such existence being dependent upon the individual decisions of buyers and sellers over which neither we nor any market maker has control. The failure of an active and liquid trading market to develop and continue would likely have a material adverse effect on the value of our common stock. The market price of our common stock may decline below the initial public offering price, and you may not be able to sell your shares of our common stock at or above the price you paid in this offering, or at all. An inactive market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.
As a public company, we will become subject to additional laws, regulations and stock exchange listing standards, which will impose additional costs on us and may strain our resources and divert our managements attention.
Prior to this offering, although Holdings has filed periodic and current reports with the SEC to satisfy obligations under our debt instruments, we operated our company on a private basis. After this offering, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the Exchange Act), the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the listing requirements of the NYSE, and other applicable securities laws and regulations. Compliance with these laws and regulations will increase our legal and financial compliance costs and make some activities more difficult, time-consuming or costly. In particular, we estimate that we will incur incremental costs in connection with the requirements to obtain an attestation report on our internal controls from our independent auditors under Section 404 of the Sarbanes-Oxley Act. In connection with preparation for providing this attestation, our independent auditors may identify deficiencies or weaknesses in our controls. We also expect that being a public company and being subject to new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. We estimate that we will incur between $ million and $ million annually in expenses related to incremental insurance costs and other expenses associated with being a public company, including listing, printer, audit and XBRL fees and investor relations costs. However, the incremental costs that we incur as a result of becoming a public company could exceed our estimate. These factors may therefore strain our resources, divert managements attention and affect our ability to attract and retain qualified board members.
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Our operating results and share price may be volatile, and the market price of our common stock after this offering may drop below the price you pay.
Our quarterly operating results are likely to fluctuate in the future as a publicly traded company. In addition, securities markets worldwide have experienced, and are likely to continue to experience, significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could subject the market price of our shares to wide price fluctuations regardless of our operating performance. We and the underwriters will negotiate to determine the initial public offering price. You may not be able to resell your shares at or above the initial public offering price or at all. Our operating results and the trading price of our shares may fluctuate in response to various factors, including:
| market conditions in the broader stock market; |
| actual or anticipated fluctuations in our quarterly financial and operating results; |
| introduction of new products or services by us or our competitors; |
| issuance of new or changed securities analysts reports or recommendations; |
| results of operations that vary from expectations of securities analysis and investors; |
| guidance, if any, that we provide to the public, any changes in this guidance or our failure to meet this guidance; |
| strategic actions by us or our competitors; |
| announcement by us, our competitors or our vendors of significant contracts or acquisitions; |
| sales, or anticipated sales, of large blocks of our stock; |
| additions or departures of key personnel; |
| regulatory, legal or political developments; |
| public response to press releases or other public announcements by us or third parties, including our filings with the SEC; |
| litigation and governmental investigations; |
| changing economic conditions; |
| changes in accounting principles; |
| default under agreements governing our indebtedness; |
| exchange rate fluctuations; and |
| other events or factors, including those from natural disasters, war, actors of terrorism or responses to these events. |
These and other factors, many of which are beyond our control, may cause our operating results and the market price and demand for our shares to fluctuate substantially. While we believe that operating results for any particular quarter are not necessarily a meaningful indication of future results, fluctuations in our quarterly operating results could limit or prevent investors from readily selling their shares and may otherwise negatively
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affect the market price and liquidity of our shares. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management from our business, which could significantly harm our profitability and reputation.
A significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of our common stock to drop significantly, even if our business is doing well.
Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. After this offering, we will have outstanding shares of common stock based on the number of shares outstanding as of , 2014. This includes shares that we are selling in this offering, as well as the shares that the selling stockholders are selling, which may be resold in the public market immediately, and assumes no exercises of outstanding options. Substantially all of the shares that are not being sold in this offering will be subject to a 180-day lock-up period provided under agreements executed in connection with this offering. These shares will, however, be able to be resold after the expiration of the lock-up agreement as described in the Shares Eligible for Future Sale section of this prospectus. We also intend to file a Form S-8 under the Securities Act of 1933, as amended (Securities Act), to register all shares of common stock that we may issue under our equity compensation plans. In addition, the TPG Funds have certain demand registration rights that could require us in the future to file registration statements in connection with sales of our stock by them. See Certain Relationships and Related Party TransactionsRegistration Rights Agreement. Such sales could be significant. Once we register these shares, they can be freely sold in the public market upon issuance, subject to the lock-up agreements described in the Underwriting (Conflicts of Interest) section of this prospectus. As restrictions on resale end, the market price of our stock could decline if the holders of currently restricted shares sell them or are perceived by the market as intending to sell them.
Since we have no current plans to pay regular cash dividends on our common stock following this offering, you may not receive any return on investment unless you sell your common stock for a price greater than that which you paid for it.
Although we have previously declared dividends to our stockholders, we do not anticipate paying any regular cash dividends on our common stock following this offering. Any decision to declare and pay dividends in the future will be made at the discretion of our board and will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions and other factors that our board may deem relevant. In addition, our ability to pay dividends is, and may be, limited by covenants of existing and any future outstanding indebtedness we or our subsidiaries incur. Therefore, any return on investment in our common stock is solely dependent upon the appreciation of the price of our common stock on the open market, which may not occur. See Dividend Policy for more detail.
We are a holding company with nominal net worth and will depend on dividends and distributions from our subsidiaries to pay any dividends.
ATD Corporation is a holding company with nominal net worth. We do not have any material assets or conduct any business operations other than our investments in our subsidiaries. Our business operations are conducted primarily out of our indirect operating subsidiary, ATDI and its subsidiaries. As a result, notwithstanding any restrictions on payment of dividends under our existing indebtedness, our ability to pay dividends, if any, will be dependent upon cash dividends and distributions or other transfers from our subsidiaries, including from ATDI. Payments to us by our subsidiaries will be contingent upon their respective earnings and subject to any limitations on the ability of such entities to make payments or other distributions to us.
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If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our shares or if our results of operations do not meet their expectations, our share price and trading volume could decline.
The trading market for our shares will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not have any control over these analysts. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our share price or trading volume to decline. Moreover, if one or more of the analysts who cover us downgrade our stock, or if our results of operations do not meet their expectations, our share price could decline.
A ratings downgrade or other negative action by a ratings organization could adversely affect the trading price of the shares of our common stock.
Credit rating agencies continually revise their ratings for companies they follow. The condition of the financial and credit markets and prevailing interest rates have fluctuated in the past and are likely to fluctuate in the future. In addition, developments in our business and operations could lead to a ratings downgrade for us or our subsidiaries. Any such fluctuation in the rating of us or our subsidiaries may impact our ability to access debt markets in the future or increase our cost of future debt which could have a material adverse effect on our operations and financial condition, which in return may adversely affect the trading price of shares of our common stock.
Our certificate of incorporation designates courts in the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our certificate of incorporation provides that, subject to limited exceptions, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees to us or our stockholders, (iii) any action asserting a claim against us arising pursuant to any provision of the DGCL, our certificate of incorporation or our bylaws, (iv) any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or bylaws or (v) any other action asserting a claim against us that is governed by the internal affairs doctrine (each, a Covered Proceeding). In addition, our certificate of incorporation provides that if any action the subject matter of which is a Covered Proceeding is filed in a court other than the specified Delaware courts without the approval of our board of directors (each, a Foreign Action), the claiming party will be deemed to have consented to (i) the personal jurisdiction of the specified Delaware courts in connection with any action brought in any such courts to enforce the exclusive forum provision described above and (ii) having service of process made upon such claiming party in any such enforcement action by service upon such claiming partys counsel in the Foreign Action as agent for such claiming party. Our certificate of incorporation also provides that, except to the extent prohibited by the DGCL, in the event that a claiming party initiates, asserts, joins, offers substantial assistance to or has a direct financial interest in any Foreign Action without the prior approval of our board of directors, each such claiming party shall be obligated jointly and severally to reimburse us and any officer, director or other employee made a party to such proceeding for all fees, costs and expenses of every kind and description (including, but not limited to, all attorneys fees and other litigation expenses) that the parties may incur in connection with such Foreign Action. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to these provisions. These provisions may limit a stockholders ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and employees. Alternatively, if a court were to find these provisions of our certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business and financial condition.
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Our bylaws provide that if a claiming party brings certain actions against us and is not successful on the merits then they will be obligated to pay our litigation costs, which could have the effect of discouraging litigation, including claims brought by our stockholders.
Under our bylaws, except to the extent prohibited by the DGCL, and unless our board of directors otherwise approves, in the event that any claiming party (a) initiates, asserts, joins, offers substantial assistance to or has a direct financial interest in a Covered Proceeding and (b) such claiming party does not obtain a judgment on the merits that substantially achieves, in substance and amount, the full remedy sought by such claiming party, then each such claiming party shall be obligated to reimburse us and any applicable director, officer or other employee for all fees, costs and expenses of every kind and description (including, but not limited to, all attorneys fees and other litigation expenses) that we or any such director, officer or other employee actually incurs in connection with the Covered Proceeding. Any person or entity purchasing or otherwise acquiring any interest in the shares of capital stock of the Company shall be deemed to have notice of and consented to this provision. This provision could have the effect of discouraging litigation against us, including claims brought by our stockholders and including claims that are partially (but not wholly) successful on the merits. However, it is currently unclear whether the Delaware legislature will take action to eliminate or limit the ability of stock corporations to implement provisions such as this, or whether Delaware courts will enforce in full a provision such as this for a Delaware stock corporation. If the Delaware legislature takes action to limit or eliminate our ability to include this provision in our bylaws or a court were to find this provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business and financial condition.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, and other future conditions. Forward-looking statements can be identified by words such as anticipate, believe, envision, estimate, expect, intend, may, plan, predict, project, target, potential, will, would, could, should, continue, contemplate and other similar expressions, although not all forward-looking statements contain these identifying words. Examples of forward-looking statements include, among others, statements we make regarding:
| plans for future growth and other business development activities; |
| plans for capital expenditures; |
| expectations for market and industry growth and trends; |
| financing sources; |
| dividends; |
| the effects of regulation and competition; |
| synergies and cost savings related to acquisitions; |
| foreign currency conversion; and |
| all other statements regarding our intent, plans, beliefs or expectations or those of our directors or officers. |
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place significant reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. Important factors that could cause actual results and events to differ materially from those indicated in the forward-looking statements include, among others, those discussed in the Risk Factors section of this prospectus, which include the following:
| Demand for tire products is lower when general economic conditions are weak and decreases in the availability of consumer credit or consumer spending could adversely affect our business, results of operations or cash flows. |
| We depend on manufacturers to provide us with the products we sell and disruptions in these relationships or manufacturers operations could adversely affect our results of operations, financial condition and cash flows. |
| The failure of our information technology systems could disrupt our business operations, which could have a material adverse effect on our business, financial condition and results of operations. |
| Our business requires a significant amount of cash, and fluctuations in our cash flows may adversely affect our ability to fund our business or acquisitions or satisfy our debt obligations. |
| Our substantial indebtedness could adversely affect our financial condition and limit our ability to pursue our growth strategy. |
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| The industry in which we operate is highly competitive and our failure to effectively compete may adversely affect our results of operations, financial condition and cash flows. |
| Pricing volatility for raw materials could result in increased costs and may affect our profitability. |
| We face risks related to integration of our recent significant acquisitions. |
| We may not realize the growth opportunities and cost savings synergies that we anticipated from our recent significant acquisitions. |
| Attempts to expand our distribution services into new geographic markets may adversely affect our business, results of operations, financial condition or cash flows. |
| We regularly seek to grow our business through acquisitions, and our inability to identify desirable acquisition targets or integrate such acquisitions, including our recent significant acquisitions, could have a material adverse effect on us. |
| Future acquisitions could require us to issue additional debt or equity. |
Given these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. Any forward-looking statement that we make in this prospectus speaks only as of the date of such statement, and we undertake no obligation to update any forward-looking statements or to publicly announce the results of any revisions to any of those statements to reflect future events or developments. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should only be viewed as historical data.
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We estimate that the net proceeds to us from our issuance and sale of shares of common stock in this offering will be approximately $ million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us (or approximately $ million if the underwriters exercise their option to purchase additional shares of common stock in full). This estimate assumes an initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus.
In connection with this offering, we also intend to borrow an additional $ million through the Additional Term Loan on the same terms as ATDIs existing Term Loan. We intend to use the net proceeds of this offering and the Additional Term Loan to repay all amounts outstanding under ATDIs 11.50% Senior Subordinated Notes due 2018. These notes bear interest at a rate of 11.50% per annum and mature on June 1, 2018. Under the terms of the indenture relating to these notes, we may redeem the notes at a price equal to 102% of the principal amount thereof plus accrued and unpaid interest thereon. We intend to use the remainder of the net proceeds, if any, for working capital and other general corporate purposes, including supporting our strategic growth opportunities in the future.
We will not receive any proceeds from the sale of shares by the selling stockholders, including if the underwriters exercise their option to purchase additional shares. After deducting the underwriting discounts, the selling stockholders will receive approximately $ million of proceeds from this offering.
A $1.00 increase (decrease) in the assumed public offering price of $ , based upon the midpoint of the estimated price range set forth on the cover of this prospectus, would increase (decrease) the net proceeds to us from this offering by $ million (or approximately $ million if the underwriters exercise their option to purchase additional shares of common stock in full), assuming the number of shares we offer, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
Affiliates of TPG Capital BD, LLC, an underwriter of this offering, own in excess of 10% of our issued and outstanding common stock. Therefore, a conflict of interest is deemed to exist under FINRA Rule 5121(f)(5)(B). In addition, because the TPG Funds are affiliates of TPG Capital BD, LLC and, as selling stockholders, will receive more than 5% of the net proceeds of this offering, a conflict of interest is also deemed to exist under FINRA Rule 5121(f)(5)(C)(ii). Accordingly, this offering will be made in compliance with the applicable provisions of FINRA Rule 5121. In accordance with FINRA Rule 5121(c), no sales of the shares will be made to any discretionary account over which TPG Capital BD, LLC exercises discretion without the prior specific written approval of the account holder. However, no qualified independent underwriter is required because the underwriters primarily responsible for managing this offering are free of any conflict of interest, as that term is defined in the rule. See Underwriting (Conflicts of Interest).
39
Our board of directors does not currently intend to pay dividends on our common stock. However, we expect to reevaluate our dividend policy on a regular basis following the offering and may, subject to compliance with the covenants contained in our credit facilities and other instruments governing our indebtedness which limit our ability to pay dividends and other considerations, determine to pay dividends in the future. The declaration, amount and payment of any future dividends on shares of our common stock will be at the sole discretion of our board of directors, which may take into account general and economic conditions, our financial condition and results of operations, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions, the implications of the payment of dividends by us to our stockholders or by our subsidiaries to us, and any other factors that our board of directors may deem relevant.
Our ability to pay dividends is restricted by certain covenants contained in our ABL Facility (as defined below), our Term Loan and in the indenture that governs our Senior Subordinated Notes (to the extent they remain outstanding following this offering) and may be further restricted by any future indebtedness that we incur. Our business is conducted through our subsidiaries. Dividends from, and cash generated by, our subsidiaries will be our principal sources of cash to repay indebtedness, fund operations and pay dividends. Accordingly, our ability to pay dividends to our stockholders is dependent on the earnings and distributions of funds from our subsidiaries. See Description of Indebtedness.
40
The following table sets forth our cash and cash equivalents and capitalization at July 5, 2014:
| on an actual basis; |
| on an as adjusted basis to give effect to (1) the issuance of shares of common stock by us in this offering and the receipt of approximately $ million in net proceeds from the sale of such shares, assuming an initial public offering price of $ per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses, and (2) the application of the estimated net proceeds from the offering as described in Use of Proceeds, excluding the effect of the Additional Term Loan and the use of proceeds therefrom. |
You should read this table in conjunction with the information contained in Use of Proceeds, Selected Consolidated Financial and Other Data, Unaudited Pro Forma Combined Condensed Financial Information, Managements Discussion and Analysis of Financial Condition and Results of Operations and Description of Indebtedness as well as our consolidated financial statements and the related notes included elsewhere in this prospectus.
As of July 5, 2014 |
||||||||
(dollars in thousands) |
Actual |
As Adjusted |
||||||
Cash and cash equivalents |
$ | 27,533 | $ | |||||
|
|
|
|
|||||
Long-term debt, including current portions: |
||||||||
U.S. ABL Facility |
$ | 641,639 | ||||||
Canadian ABL Facility |
53,165 | |||||||
U.S. FILO Facility |
80,000 | |||||||
Canadian FILO facility |
10,266 | |||||||
Term Loan(3) |
717,693 | |||||||
Senior Secured Notes |
| |||||||
Senior Subordinated Notes(3) |
421,361 | |||||||
Capital lease obligations |
12,577 | |||||||
Other |
7,596 | |||||||
|
|
|
|
|||||
Total debt |
1,944,297 | |||||||
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|
|
|
|||||
Stockholders equity: |
||||||||
Common stock, par value $0.01 per share; 2,000,000,000 shares authorized and 768,082,437 shares issued and outstanding on an actual basis, shares authorized and shares issued and outstanding on an as adjusted basis |
7,681 | |||||||
Additional paid-in capital |
803,278 | |||||||
Accumulated deficit |
(153,378 | ) | ||||||
Accumulated other comprehensive loss |
(8,522 | ) | ||||||
|
|
|
|
|||||
Total stockholders equity |
649,059 | |||||||
|
|
|
|
|||||
Total capitalization |
$ | 2,593,356 | $ | |||||
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|
|
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(1) | As adjusted reflects the application of the estimated proceeds of the offering as described in Use of Proceeds. |
(2) | A $1.00 increase (decrease) in the assumed initial public offering price of $ per share, the midpoint of the price range set forth on the cover of this prospectus, would increase (decrease) the as adjusted amount of each of cash and cash equivalents and total stockholders equity by approximately $ million after deducting underwriting discounts and commissions and estimated offering expenses payable by us. |
(3) | In connection with this offering, ATDI also intends to borrow an additional $ million through the Additional Term Loan on the same terms as ATDIs existing Term Loan. We intend to use the net proceeds therefrom, along with the net proceeds of this offering, to repay all amounts outstanding under ATDIs 11.50% Senior Subordinated Notes due 2018. |
41
If you invest in our common stock in this offering, your interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock in this offering and the pro forma as adjusted net tangible book value per share of our common stock after this offering. Dilution results from the fact that the initial public offering price per share of common stock is substantially in excess of the net tangible book deficit per share of our common stock attributable to the existing stockholders for our presently outstanding shares of common stock. Our net tangible book deficit per share represents the amount of our total tangible assets (total assets less intangible assets) less total liabilities, divided by the number of shares of common stock issued and outstanding.
As of July 5, 2014, we had a historical net tangible book deficit of $ million, or $ per share of common stock, based on shares of our common stock outstanding as of , 2014 (after giving effect to the one-for- reverse stock split effected on , 2014). Dilution is calculated by subtracting net tangible book deficit per share of our common stock from the assumed initial public offering price per share of our common stock.
Investors participating in this offering will incur immediate and substantial dilution. Without taking into account any other changes in such net tangible book deficit after July 5, 2014, after giving effect to the sale of shares of our common stock in this offering assuming an initial public offering price of $ per share (the midpoint of the offering range shown on the cover of this prospectus), less the underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma net tangible book deficit as of July 5, 2014 would have been approximately $ million, or $ per share of common stock. This amount represents an immediate decrease in net tangible book deficit of $ per share of our common stock to the existing stockholders and immediate dilution in net tangible book deficit of $ per share of our common stock to investors purchasing shares of our common stock in this offering. The following table illustrates this dilution on a per share basis:
Assumed initial public offering price per share |
$ | |||||||
Net tangible book deficit per share as of July 5, 2014, before giving effect to this offering |
$ | |||||||
Decrease in net tangible book deficit per share attributable to investors purchasing shares in this offering |
||||||||
|
|
|||||||
Pro forma net tangible book value per share, after giving effect to this offering |
||||||||
Dilution in as adjusted net tangible book deficit per share to investors in this offering |
$ |
If the underwriters exercise their option in full to purchase additional shares, the pro forma as adjusted net tangible book deficit per share of our common stock after giving effect to this offering would be $ per share of our common stock. This represents an increase in pro forma as adjusted net tangible book deficit of $ per share of our common stock to existing stockholders and dilution in pro forma as adjusted net tangible book deficit of $ per share of our common stock to new investors.
Each $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease) the pro forma as adjusted net tangible book deficit per share of our common stock after giving effect to this offering by $ , or by $ per share of our common stock, assuming no change to the number of shares of our common stock offered by us as set forth on the front cover page of this prospectus and after deducting the estimated underwriting discounts and expenses payable by us.
42
The following table summarizes, as of July 5, 2014, on the pro forma basis described above, the total number of shares of our common stock purchased from us, the total consideration paid to us, and the average price per share of our common stock paid by purchasers of such shares and by new investors purchasing shares of our common stock in this offering.
Shares purchased |
Total consideration |
Average price |
||||||||||||||
Number |
Percent |
Amount |
Percent |
|||||||||||||
Existing stockholders |
$ | % | $ | |||||||||||||
New investors |
$ | % | $ | |||||||||||||
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Total |
$ | % | ||||||||||||||
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|
The number of shares of common stock to be outstanding after this offering is based on shares of common stock outstanding as of , 2014 (after giving effect to the one-for- reverse stock split effected on , 2014) and excludes the following:
| shares of common stock issuable upon exercise of stock options outstanding as of , 2014 at a weighted-average exercise price of $ per share; and |
| shares of common stock reserved for future issuance under our equity incentive plans as of , 2014. |
43
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following table sets forth our selected historical consolidated financial and other data for the periods indicated. The selected historical financial data as of December 28, 2013 and December 29, 2012 and for fiscal years 2013, 2012 and 2011 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected historical balance sheet data as of December 31, 2011 have been derived from our unaudited consolidated financial statements as of such date, which are not included in this prospectus. The selected historical financial data as of July 5, 2014 and for the six months of 2014 and 2013 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. The selected historical balance sheet data as of June 29, 2013 have been derived from our unaudited consolidated financial statements for such quarter, which are not included in this prospectus. On May 28, 2010, pursuant to an Agreement and Plan of Merger, dated as of April 20, 2010, we were acquired by investment funds affiliated with TPG and certain co-investors (the Merger). In the following table, periods prior to May 28, 2010 reflect our financial position, results of operations and changes in financial position prior to the Merger (the Predecessor). Periods after May 28, 2010 reflect our financial position, results of operations, and changes in financial position after the Merger (the Successor). The selected historical financial data for the fiscal year 2009 and the five months ended through May 28, 2010 which are under the Predecessor ownership and for the seven months ended January 1, 2011 which are under Successor ownership have been derived from unaudited consolidated financial statements for such periods, which have not been included in this prospectus. Historical results are not necessarily indicative of the results to be expected for future periods, and operating results for the six months of 2014 are not necessarily indicative of the results that may be expected for the year ending January 3, 2015. The pro forma data for fiscal year 2013 and the six months of 2014 have been derived from our unaudited pro forma condensed combined financial data included elsewhere in this prospectus.
Our fiscal year is based on either a 52- or 53-week period ending on the Saturday closest to each December 31. Therefore, the financial results of 53-week fiscal years, and the associated 14-week quarter, will not be comparable to 52-week fiscal years, and the associated quarters having only 13 weeks. The 2009 fiscal year, which ended January 2, 2010, the 2011 fiscal year, which ended December 31, 2011, the 2012 fiscal year, which ended December 29, 2012, and the 2013 fiscal year, which ended December 28, 2013, each contain operating results for 52 weeks. The five months ended May 28, 2010 contains operating results for 21 weeks. The seven months ended January 1, 2011 contains operating results for 31 weeks. The six months ended July 5, 2014 contains operating results for 27 weeks while the six months ended June 29, 2013 contains operating results for 26 weeks. It should be noted that the Companys recently acquired subsidiaries, Hercules, Terrys Tire, Trail Tire, Extreme Wheel, Kirks Tire, RTD Edmonton and RTD Calgary, have different quarter-end reporting dates than that of the Company for the second quarter of 2014, with their quarters ending June 30. Prior to the acquisitions, Hercules had an October 31 fiscal year end, Terrys Tire had a December 31 fiscal year end, RTD and Kirks Tire each had a January 31 fiscal year end and Trail Tire, Extreme Wheel, RTD Edmonton and RTD Calgary each had a February 28 fiscal year end, but each such subsidiary changed its year end to be the same as that of the Company, effective with their respective acquisition dates. It should also be noted that, prior to fiscal 2013, our year-end reporting date was different from that of our TriCan subsidiary. For fiscal 2012, TriCan had a calendar year-end reporting date. TriCan converted to our fiscal year-end reporting date during fiscal 2013. The impact from these differences on the consolidated financial statements was not material. This selected historical consolidated financial and other data should be read in conjunction with the disclosures set forth under Unaudited Pro Forma Combined Condensed Financial Information, Capitalization, Managements Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and the related notes thereto appearing elsewhere in this prospectus. Due to our prior acquisitions and future acquisitions we may engage in, our historical operating results may be of limited use in evaluating our historical performance and predicting future results. See Risk FactorsRisks Related to our Business and IndustryBecause of our prior acquisitions and future acquisitions we may engage in, our historical operating results may be of limited use in evaluating our historical performance and predicting our future results.
44
Successor |
Predecessor |
|||||||||||||||||||||||||||||||||
Dollars in thousands (except for per share data) |
Six Months |
Six Months |
Fiscal Year 2013 (3) |
Fiscal Year 2012 (4) |
Fiscal Year 2011 (5) |
Seven |
Five |
Fiscal Year 2009 |
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Statement of Operations Data: |
||||||||||||||||||||||||||||||||||
Net sales |
$ | 2,343,051 | $ | 1,795,053 | $ | 3,839,269 | $ | 3,455,864 | $ | 3,050,240 | $ | 1,525,249 | $ | 934,925 | $ | 2,171,787 | ||||||||||||||||||
Cost of goods sold, excluding depreciation included in selling, general and administrative expenses below |
1,980,690 | 1,510,648 | 3,188,409 | 2,887,421 | 2,535,020 | 1,316,679 | 775,678 | 1,797,905 | ||||||||||||||||||||||||||
Selling, general and administrative expenses |
381,313 | 272,825 | 569,234 | 499,112 | 432,636 | 226,311 | 135,021 | 305,689 | ||||||||||||||||||||||||||
Management fees |
15,575 | 2,246 | 5,753 | 7,446 | 4,624 | 2,352 | 125 | 500 | ||||||||||||||||||||||||||
Transaction expenses |
20,176 | 3,289 | 6,719 | 5,246 | 3,946 | 18,500 | 42,608 | | ||||||||||||||||||||||||||
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Operating income (loss) |
(54,703 | ) | 6,045 | 69,154 | 56,639 | 74,014 | (38,593 | ) | (18,507 | ) | 67,693 | |||||||||||||||||||||||
Other income (expense): |
||||||||||||||||||||||||||||||||||
Interest expense(7) |
(56,622 | ) | (34,627 | ) | (74,316 | ) | (72,910 | ) | (67,572 | ) | (37,387 | ) | (32,669 | ) | (54,415 | ) | ||||||||||||||||||
Loss on extinguishment of debt |
(17,113 | ) | | | | | | | | |||||||||||||||||||||||||
Other, net (8) |
1,950 | (2,908 | ) | (5,196 | ) | (3,895 | ) | (2,110 | ) | (958 | ) | (127 | ) | (1,020 | ) | |||||||||||||||||||
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Income (loss) from continuing operations before income taxes |
(126,488 | ) | (31,490 | ) | (10,358 | ) | (20,166 | ) | 4,332 | (76,938 | ) | (51,303 | ) | 12,258 | ||||||||||||||||||||
Income tax provision (benefit) |
(42,976 | ) | (9,362 | ) | (3,982 | ) | (5,965 | ) | 4,464 | (27,829 | ) | (15,227 | ) | 7,326 | ||||||||||||||||||||
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Income (loss) from continuing operations |
(83,512 | ) | (22,128 | ) | (6,376 | ) | (14,201 | ) | (132 | ) | (49,109 | ) | (36,076 | ) | 4,932 | |||||||||||||||||||
Income (loss) from discontinued operations, net of tax |
(48 | ) | | | | | | | | |||||||||||||||||||||||||
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Net income (loss) |
$ | (83,560 | ) | $ | (22,128 | ) | $ | (6,376 | ) | $ | (14,201 | ) | $ | (132 | ) | $ | (49,109 | ) | $ | (36,076 | ) | $ | 4,932 | |||||||||||
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Basic net income (loss) per common share (9)(10) |
$ | (0.11 | ) | $ | (0.03 | ) | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.00 | ) | $ | (0.07 | ) | ||||||||||||||||
Diluted net income (loss) per share (9)(10) |
$ | (0.11 | ) | $ | (0.03 | ) | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.00 | ) | $ | (0.07 | ) | ||||||||||||||||
Weighted average shares outstanding (9)(10) |
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Basic |
761,950,775 | 734,168,402 | 734,168,402 | 688,300,235 | 684,172,402 | 682,830,902 | ||||||||||||||||||||||||||||
Diluted |
761,950,775 | 734,168,402 | 734,168,402 | 688,300,235 | 684,172,402 | 682,830,902 | ||||||||||||||||||||||||||||
Other Financial Data: |
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Cash flows provided by (used in): |
||||||||||||||||||||||||||||||||||
Continuing operating activities |
$ | (167,545 | ) | $ | 29,033 | $ | 100,982 | $ | 10,072 | $ | (90,699 | ) | $ | (15,043 | ) | $ | 28,106 | $ | 131,105 | |||||||||||||||
Discontinued operating activities |
350 | | | | | | | | ||||||||||||||||||||||||||
Investing activities |
(855,423 | ) | (88,532 | ) | (118,435 | ) | (167,821 | ) | (92,249 | ) | (17,237 | ) | (7,523 | ) | (4,620 | ) | ||||||||||||||||||
Financing activities |
1,013,358 | 63,000 | 22,998 | 168,824 | 186,263 | 40,405 | (15,631 | ) | (127,690 | ) | ||||||||||||||||||||||||
Depreciation and amortization |
66,013 | 51,140 | 105,458 | 89,167 | 78,071 | 40,905 | 14,707 | 32,078 | ||||||||||||||||||||||||||
Capital expenditures |
34,241 | 23,848 | 47,127 | 52,388 | 31,044 | 12,381 | 6,424 | 12,757 | ||||||||||||||||||||||||||
EBITDA (11) |
(3,853 | ) | 54,277 | 169,416 | 141,911 | 149,975 | 1,354 | (3,927 | ) | 98,751 | ||||||||||||||||||||||||
Adjusted EBITDA (11) |
82,649 | 68,156 | 195,486 | 165,416 | 164,255 | 87,974 | 45,696 | 101,035 | ||||||||||||||||||||||||||
Balance Sheet Data: |
||||||||||||||||||||||||||||||||||
Cash and cash equivalents |
$ | 27,533 | $ | 35,653 | $ | 35,760 | $ | 34,700 | $ | 23,682 | $ | 20,367 | $ | 7,290 | ||||||||||||||||||||
Working capital (12) |
859,525 | 572,226 | 541,051 | 556,646 | 457,443 | 278,673 | 197,317 | |||||||||||||||||||||||||||
Total assets |
3,747,966 | 2,547,921 | 2,541,655 | 2,486,837 | 2,285,364 | 2,040,076 | 1,300,624 | |||||||||||||||||||||||||||
Total debt (13) |
1,944,297 | 1,022,369 | 967,000 | 951,204 | 835,808 | 652,544 | 549,576 | |||||||||||||||||||||||||||
Total redeemable preferred stock |
| | | | | | 26,600 | |||||||||||||||||||||||||||
Total stockholders equity |
649,059 | 664,954 | 680,054 | 692,753 | 642,773 | 638,649 | 230,647 | |||||||||||||||||||||||||||
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45
Six Months |
|
Fiscal Year |
||||||||
Pro Forma Data: |
||||||||||
Pro forma net sales |
$ | 2,552,363 | $ | 5,109,193 | ||||||
Pro forma Adjusted EBITDA (13) |
93,126 | 251,498 | ||||||||
Pro forma net income (loss) from continuing operations |
(76,974 | ) | (47,467 | ) |
(1) | Reflects the acquisition of Trail Tire, Extreme Wheel, Kirks Tire, RTD Edmonton and RTD Calgary in June 2014, the acquisition of Terrys Tire in March 2014 and the acquisition of Hercules and Kipling Tire Co. LTD in January 2014. |
(2) | Reflects the acquisition of RTD in April 2013. |
(3) | Reflects the acquisition of Wholesale Tire Distributors Inc. in December 2013, the acquisition of Tire Distributors, Inc. in August 2013 and the acquisition of RTD in April 2013. |
(4) | Reflects the acquisition of Triwest Trading (Canada) Ltd. d/b/a TriCan Tire Distributors in November 2012 and the acquisition of Firestone of Denham Springs, Inc. d/b/a Consolidated Tire & Oil in May 2012. |
(5) | Reflects the acquisition of Bowlus Service Company d/b/a North Central Tire in April 2011. |
(6) | Reflects the acquisition of Lisacs of Washington, Inc. and Tire Wholesalers, Inc. in December 2010. Additionally, includes certain costs related to the start-up and development of ATD Corporation. |
(7) | As described under Managements Discussion and Analysis of Financial Condition and Results of OperationsIndebtednessSenior Secured Term LoanProposed Additional Term Loan, in connection with this offering, we also intend to borrow an additional $ million through the Additional Term Loan on the same terms as ATDIs existing Term Loan and to use the net proceeds therefrom, along with the net proceeds of this offering, to repay all amounts outstanding under our 11.50% Senior Subordinated Notes due 2018. Based on the interest rate under ATDIs existing Term Loan of 5.75% as of July 5, 2014, as applied to the Additional Term Loan and existing Term Loan as if they were outstanding for the entire periods presented, and assuming immediately prior to the periods presented the early redemption of all amounts outstanding under ATDIs 9.75% Senior Secured Notes, which occurred on June 16, 2014, as well as the repayment of all amounts outstanding under our 11.50% Senior Subordinated Notes due 2018, in each case at the redemption price set forth in their respective indentures, we estimate that our net interest expense would have decreased by approximately $ million for the year ended December 28, 2013 and by approximately $ million for the six months ended July 5, 2014, in each case before taxes. There can be no assurance that we will be able to consummate the Additional Term Loan on the terms described in this prospectus or at all. |
(8) | Other, net primarily includes bank fees, credit card charges to us and gains and losses on foreign currency, net of financing service fees that we charge our customers. |
(9) | As a result of the Merger, our capital structures for periods before and after the Merger are not comparable, and therefore we are presenting our net income (loss) per share and weighted-average share information only for periods subsequent to the Merger. |
(10) | Does not reflect the one-for- reverse stock split effected on , 2014. |
(11) | EBITDA represents earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA represents EBITDA as further adjusted to reflect the items set forth in the table below. The presentation of EBITDA and Adjusted EBITDA are financial measures that are not calculated in accordance with GAAP. We use EBITDA and Adjusted EBITDA to facilitate a comparison of our operating performance on a consistent basis from period to period that, when viewed in combination with our GAAP results and the following reconciliation, we believe provides a more complete understanding of factors and trends affecting our business than GAAP measures alone. We also believe that such measures are frequently used by securities analysts, investors and other interested parties in the evaluation of companies similar to ours. Our board of directors, management and investors use EBITDA and Adjusted EBITDA to assess our |
46
financial performance because it allows them to compare our operating performance on a consistent basis across periods by removing items that we do not believe are indicative of our core operating performance. In addition, the indenture governing our senior notes use a measure similar to Adjusted EBITDA to measure our compliance with certain covenants. Our board of directors also uses Adjusted EBITDA in determining compensation for our management. The adjustments from EBITDA to Adjusted EBITDA include management and advisory fees paid to our Sponsor, non-cash stock compensation expense, transaction expenses related to our acquisitions, non-cash amortization of inventory step-up resulting from the business combination rules for our acquisitions and other items, including franchise and other taxes, non-cash gains and losses on the disposal of fixed assets and assets held for sale, exchange gains and losses on foreign currency, and non-cash impairment of long-lived assets. Amounts presented in accordance with our definition of Adjusted EBITDA may not be comparable to similar measures disclosed by other issuers because not all issuers calculate Adjusted EBITDA in the same manner. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same or similar to some of the adjustments set forth below. Neither EBITDA nor Adjusted EBITDA should be considered an alternative to, or more meaningful than, net income (loss) as determined in accordance with GAAP. |
The following table presents a reconciliation of each of EBITDA and Adjusted EBITDA to income (loss) from continuing operations, determined in accordance with GAAP:
Successor |
Predecessor |
|||||||||||||||||||||||||||||||||
In thousands | Six Months 2014 (1) |
Six Months |
Fiscal 2013 (3) |
Fiscal 2012 (4) |
Fiscal 2011 (5) |
Seven |
Five |
Fiscal 2009 |
||||||||||||||||||||||||||
Income (loss) from continuing operations |
$ | (83,512 | ) | $ | (22,128 | ) | $ | (6,376 | ) | $ | (14,201 | ) | $ | (132 | ) | $ | (49,109 | ) | $ | (36,076 | ) | $ | 4,932 | |||||||||||
Depreciation and amortization |
66,013 | 51,140 | 105,458 | 89,167 | 78,071 | 40,905 | 14,707 | 32,078 | ||||||||||||||||||||||||||
Interest expense |
56,622 | 34,627 | 74,316 | 72,910 | 67,572 | 37,387 | 32,669 | 54,415 | ||||||||||||||||||||||||||
Income tax provision (benefit) |
(42,976 | ) | (9,362 | ) | (3,982 | ) | (5,965 | ) | 4,464 | (27,829 | ) | (15,227 | ) | 7,326 | ||||||||||||||||||||
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EBITDA |
$ | (3,853 | ) | $ | 54,277 | $ | 169,416 | $ | 141,911 | $ | 149,975 | $ | 1,354 | $ | (3,927 | ) | $ | 98,751 | ||||||||||||||||
Management fees |
15,575 | 2,246 | 5,753 | 7,446 | 4,624 | 2,352 | 125 | 500 | ||||||||||||||||||||||||||
Non-cash stock compensation |
1,987 | 1,452 | 2,634 | 4,349 | 4,114 | 3,706 | 5,892 | 326 | ||||||||||||||||||||||||||
Transaction expenses |
20,176 | 3,289 | 6,719 | 5,246 | 3,946 | 18,500 | 42,608 | | ||||||||||||||||||||||||||
Non-cash inventory step-up |
31,640 | 4,907 | 5,379 | 4,074 | | 58,797 | | | ||||||||||||||||||||||||||
Early debt extinguishment |
17,113 | | | | | | | | ||||||||||||||||||||||||||
Other (A) |
11 | 1,985 | 5,585 | 2,390 | 1,596 | 3,265 | 998 | 1,458 | ||||||||||||||||||||||||||
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Adjusted EBITDA |
$ | 82,649 | $ | 68,156 | $ | 195,486 | $ | 165,416 | $ | 164,255 | $ | 87,974 | $ | 45,696 | $ | 101,035 | ||||||||||||||||||
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(A) | Other includes non-income based taxes, impairment, gain/loss on property and equipment disposals, deferred comp. and foreign currency exchange gains/losses. |
(12) | Working capital is defined as current assets less current liabilities. |
(13) | Total debt is the sum of current maturities of long-term debt, non-current portion of long-term debt and capital lease obligations. |
(14) | Pro forma EBITDA and pro forma Adjusted EBITDA are financial measures that are not calculated in accordance with GAAP. We present pro forma EBITDA and pro forma Adjusted EBITDA, in addition to EBITDA and Adjusted EBITDA, to provide a more complete understanding of our results of operations that gives effect to the recent significant acquisitions that we have completed. These amounts have similar limitations to the limitations described in footnote (11) regarding EBITDA and Adjusted EBITDA. In addition, the pro forma financial information we present is based on estimates and assumptions regarding our recent acquisitions that may end up being materially different from our actual experience. Neither pro forma EBITDA nor pro forma Adjusted EBITDA should be considered an alternative to, or more |
47
meaningful than, net income (loss) as determined in accordance with GAAP or pro forma net income (loss). Moreover, our debt agreements use a measure similar to pro forma Adjusted EBITDA to measure compliance with certain covenants except that, under certain of these debt agreements, the calculation of the measure allows us (subject to certain limitations) to take into account the amount of cost savings and synergies projected in good faith to be realized in the future in connection with cost saving restructuring initiatives as though those cost savings had already been realized in past periods. We have not included such projected cost savings or synergies in our presentation of pro forma Adjusted EBITDA in this prospectus. Therefore, the amount calculated pursuant to our debt agreements may be higher than pro forma Adjusted EBITDA as set forth in this prospectus. For further discussion of our cost savings initiatives, see Managements Discussion and Analysis of Financial Condition and Results of Operations. |
The following table presents a reconciliation of each of pro forma EBITDA and pro forma Adjusted EBITDA to pro forma net income (loss) from continuing operations:
Six Months |
Fiscal Year | |||||||
In thousands |
2014 | 2013 | ||||||
Pro forma net income (loss) from continuing operations |
$ | (76,974 | ) | $ | (47,467 | ) | ||
Depreciation and amortization |
82,699 | 164,902 | ||||||
Interest expense |
67,415 | 133,438 | ||||||
Income tax provision (benefit) |
(21,576 | ) | (31,962 | ) | ||||
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Pro forma EBITDA |
$ | 51,564 | $ | 218,911 | ||||
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Management fees |
15,822 | 5,928 | ||||||
Non-cash stock compensation |
1,987 | 5,222 | ||||||
Transaction expenses |
6,530 | 4,799 | ||||||
Non-cash inventory step-up |
167 | 2,348 | ||||||
Early debt extinguishment |
17,113 | | ||||||
Other (A) |
(57 | ) | 14,290 | |||||
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Pro forma Adjusted EBITDA |
$ | 93,126 | $ | 251,498 | ||||
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(A) | Other includes non-income based taxes, impairment, gain/loss on property and equipment disposals, deferred compensation and foreign currency exchange gains/losses. |
For a discussion of pro forma net income (loss) from continuing operations, see Unaudited Pro Forma Combined Condensed Financial Information.
48
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
On June 27, 2014, we completed the acquisition of the wholesale distribution business of Trail Tire pursuant to an Asset Purchase Agreement by and among TriCan and the shareholders and principals of Trail Tire. Trail Tire is a wholesale distributor of tires, tire parts, tire accessories and related equipment in Canada. The Trail Tire acquisition was completed for aggregate cash consideration of approximately $20.8 million. The aggregate cash consideration was funded through borrowings under our ABL Facility. The Trail Tire purchase price is subject to certain post-closing adjustments, including, but not limited to, working capital adjustments.
On June 27, 2014, we completed the acquisition of the wholesale distribution business of Extreme Wheel pursuant to an Asset Purchase Agreement by and between TriCan and the shareholder and principal of Extreme Wheel. Extreme Wheel is a wholesale distributor of wheels and related accessories in Canada. The Extreme Wheel acquisition was completed for aggregate cash consideration of approximately $6.5 million. The aggregate cash consideration was funded through borrowings under our ABL Facility. The Extreme Wheel purchase price is subject to certain post-closing adjustments, including, but not limited to, working capital adjustments.
On June 27, 2014, we completed the acquisition of the wholesale distribution business of Kirks Tire pursuant to an Asset Purchase Agreement by and among TriCan and the shareholders and principals of Kirks Tire. Kirks Tire is engaged in (i) the wholesale distribution of tire, tire parts, tire accessories and related equipment and (ii) the retail sale and installation of tires, tire parts, and tire accessories and the manufacturing and sale of retread tires. Kirks Tires retail operations were not acquired by us. The Kirks Tire acquisition was completed for aggregate cash consideration of approximately $73.0 million. The aggregate cash consideration was funded through borrowings under our ABL Facility. The Kirks Tire purchase price is subject to certain post-closing adjustments, including, but not limited to, working capital adjustments.
On June 27, 2014, we completed the acquisition of the wholesale distribution business of RTD Edmonton pursuant to an Asset Purchase Agreement by and among TriCan and the shareholders and principals of RTD Edmonton. RTD Edmonton is a wholesale distributor of tires, tire parts, tire accessories and related equipment in Canada. The RTD Edmonton acquisition was completed for aggregate cash consideration of approximately $31.9 million. The aggregate cash consideration was funded through borrowings under our ABL Facility. The RTD Edmonton purchase price is subject to certain post-closing adjustments, including, but not limited to, working capital adjustments.
On June 27, 2014, we completed the acquisition of the wholesale distribution business of Regional Tire RTD Calgary pursuant to an Asset Purchase Agreement by and among TriCan and the shareholders and principals of RTD Calgary. RTD Calgary is a wholesale distributor of tires, tire parts, tire accessories and related equipment in Canada. The RTD Calgary acquisition was completed for aggregate cash consideration of approximately $20.7 million. The aggregate cash consideration was funded through borrowings under our ABL Facility. The RTD Calgary purchase price is subject to certain post-closing adjustments, including, but not limited to, working capital adjustments.
On March 28, 2014, we completed the acquisition of Terrys Tire. The Terrys Tire acquisition was completed pursuant to a Stock Purchase Agreement between us and TTT Holdings. TTT Holdings owned all of the capital stock of Terrys Tire. TTT Holdings had no significant assets or operations other than its ownership of Terrys Tire. The operations of Terrys Tire and its subsidiaries constituted the operations of TTT Holdings. Terrys Tire and its subsidiaries are engaged in the business of purchasing, marketing, distributing and selling tires, wheels and related tire and wheel accessories on a wholesale basis to tire dealers, wholesale distributors, retail chains, automotive dealers and others, retreading tires and selling retread and other commercial tires through commercial outlets to end users and selling tires directly to consumers via the Internet. The Terrys Tire acquisition was completed for an aggregate purchase price of approximately $372.7 million, consisting of cash consideration of approximately $358.0 million, contingent consideration of $12.5 million and non-cash
49
consideration for debt assumed of $2.2 million. The cash consideration paid for the Terrys Tire acquisition included estimated working capital adjustments and a portion of consideration contingent on certain events which were achieved prior to closing. The closing purchase price is subject to certain post-closing adjustments, including but not limited to, working capital adjustments.
On January 31, 2014, we completed the acquisition of Hercules Holdings, the parent company of Hercules. Hercules is engaged in the business of purchasing, marketing, distributing and selling replacement tires for passenger cars, trucks and certain off-road vehicles to tire dealers, wholesale distributors, retail distributors and others in the United States, Canada and internationally. The acquisition was completed for an aggregate purchase price of approximately $318.9 million, consisting of net cash consideration of $310.0 million, contingent consideration of $3.5 million and non-cash consideration for debt assumed of $5.4 million. The merger agreement provides for the payment of up to $6.5 million in additional consideration contingent upon the occurrence of certain post-closing events. The closing purchase price is subject to certain post-closing adjustments, including, but not limited to, working capital adjustments.
On April 30, 2013, we completed the acquisition of RTD Holdco, the parent company of RTD. RTD is a wholesale distributor of tires, tire parts, tire accessories and related equipment in the Ontario and the Atlantic provinces of Canada. The acquisition was completed for an aggregate cash consideration of $65.9 million which includes post-closing working capital adjustments. The operations of RTD constitute the operations of RTD Holdco. RTD Holdco has no significant assets or operations other than its ownership of RTD.
The following presents unaudited pro forma combined condensed financial information for the six months ended July 5, 2014 and the year ended December 28, 2013. Since the most recent balance sheet presented in this prospectus as of July 5, 2014 includes the impact of all completed acquisitions, a pro forma balance sheet as of July 5, 2014 has not been presented. The unaudited pro forma combined condensed financial information has been prepared from, and should be read in conjunction with, the respective historical consolidated financial statements and related notes of the Company, Trail Tire, Extreme Wheel, Kirks Tire, RTD Edmonton, RTD Calgary, Terrys Tire, Hercules and RTD included in this prospectus. The Companys fiscal year is based on either a 52- or 53 week period ending on the Saturday closest to each December 31 while prior to the respective acquisition dates, Trail Tire, Extreme Wheel, RTD Edmonton and RTD Calgary each had fiscal years that ended on February 28, Kirks Tire and RTD each had fiscal years that ended on January 31, Terrys Tires fiscal year ended on December 31 and Hercules fiscal year ended on October 31. Accordingly, the unaudited pro forma condensed combined statements of operations for the six months ended July 5, 2014 and the year ended December 28, 2013 give effect to the acquisitions of Trail Tire, Extreme Wheel, Kirks Tire, RTD Edmonton, RTD Calgary, Terrys Tire, Hercules and RTD as if these transactions had occurred on December 30, 2012 (the first day of the Companys 2013 fiscal year), and includes only factually supportable adjustments that are directly attributable to the acquisitions and expected to have a continuing effect.
The Trail Tire, Extreme Wheel, Kirks Tire, RTD Edmonton, RTD Calgary, RTD, Terrys Tire and Hercules acquisitions have been accounted for using the acquisition method of accounting in accordance with current accounting guidance for business combinations and non-controlling interests. As a result, the total purchase price for each acquisition has been preliminarily allocated to the net tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. Any excess of the purchase price over the fair value of identified assets acquired and liabilities assumed is recognized as goodwill. The preliminary allocation reflects managements best estimates of fair value, which are based on key assumptions of the acquisitions, including prior acquisition experience, benchmarking of similar acquisitions and historical data. In addition, portions of the preliminary allocation are dependent upon certain valuations and other studies that have yet to commence or progress to a stage where there is sufficient information for a definitive measurement. Upon completion of detail valuation studies and the final determination of fair value, we may make additional adjustments to the fair value allocation, which may differ significantly from the valuations set forth in the unaudited pro forma condensed combined financial information. The final allocation of the purchase price will be completed within the required measurement period in accordance with the accounting guidance for business combinations, but in no event later than one year following the completion of the acquisitions.
50
The unaudited pro forma condensed combined statements of operations are based on estimates and assumptions, which have been made solely for the purposes of developing such pro forma information. Pro forma adjustments arising from the acquisitions are derived from the estimated fair value of the assets acquired and liabilities assumed. The unaudited pro forma condensed combined statements of operations also includes certain purchase accounting adjustments such as increased amortization expense on acquired intangible assets, changes in interest expense on the debt incurred to complete the acquisitions and debt repaid as part of the acquisitions as well as the tax impacts related to these adjustments. The pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable.
The unaudited condensed consolidated pro forma financial information is not a projection of our results of operations or financial position for any future period or date. The preparation of the unaudited pro forma condensed consolidated financial information requires the use of certain estimates and assumptions, which may be materially different from our actual experience.
51
ATD Corporation
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Six Months Ended July 5, 2014
(In Thousands except per share amounts)
Historical | Pro Forma Adjustments | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ATD Corporation |
Hercules (Jan- uary 1- Acqui- sition Date, January 31, 2014) |
Terrys Tire (Jan- uary 1 - Acqui- sition Date, March 28, 2014) |
Trail Tire (Jan- uary 1 - Acqui- sition Date, June 27, 2014) |
Extreme Wheel (Jan- uary 1 - Acqui- sition Date, June 27, 2014) |
Kirks Tire (Jan- uary 1 - Acqui- sition Date, June 27, 2014) |
RTD Edmonton (Jan- uary 1- on Date, June 27, 2014) |
RTD Calgary (Jan- uary 1 - Acqui- sition Date, June 27, 2014) |
Hercules | Terrys Tire |
Trail Tire |
Extreme Wheel |
Kirks Tire |
RTD Edmonton |
RTD Calgary |
Use of Offering Proceeds (AU) |
Pro Forma Combined |
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Net sales |
$ | 2,343,051 | $ | 42,136 | $ | 106,372 | $ | 16,578 | $ | 3,622 | $ | 26,616 | $ | 6,153 | $ | 10,766 | $ | | $ | (4,038 | ) | (I | ) | $ | | $ | | $ | | $ | 1,107 | (AJ | ) | $ | | $ | 2,552,363 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cost of goods sold, excluding depreciation included in selling, general and administrative expenses below |
1,980,690 | 33,719 | 91,021 | 13,470 | 2,778 | 21,904 | 5,010 | 8,468 | (19,016 | ) | (A | ) | (12,457 | ) | (J | ) | | | | 123 | (AJ | ) | | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(3,138 | ) | (I | ) | | | | | | 2,122,572 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Selling, general and administrative expenses |
381,313 | 6,796 | 18,317 | 2,286 | 370 | 400 | 560 | 1,305 | 1,815 | (B | ) | 4,065 | (L | ) | 972 | (S | ) | 287 | (W | ) | 3,514 | (AA | ) | 1,531 | (AF | ) | 884 | (AK | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
58 | (C | ) | (1,089 | ) | (I | ) | | | | 303 | (AJ | ) | | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | | | | 423,687 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Management fees |
15,575 | | 247 | | | | | | | | | | | | | 15,822 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Transaction expenses |
20,176 | 29,182 | 60 | | | | | | (37,498 | ) | (D | ) | (5,390 | ) | (M | ) | | | | | | 6,530 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Operating income (loss) |
(54,703 | ) | (27,561 | ) | (3,273 | ) | 822 | 474 | 4,312 | 583 | 993 | 54,641 | 13,971 | (972 | ) | (287 | ) | (3,514 | ) | (850 | ) | (884 | ) | (16,248 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other income (expense): |
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Interest expense, net |
(56,622 | ) | (430 | ) | (3,374 | ) | | | | | (52 | ) | 361 | (E | ) | 3,207 | (N | ) | (357 | ) | (T | ) | (112 | ) | (X | ) | (1,255 | ) | (AB | ) | (549 | ) | (AG | ) | (355 | ) | (AL | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(2,346 | ) | (F | ) | (5,531 | ) | (O | ) | | | | | | (67,415 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loss on extinguishment of debt |
(17,113 | ) | | | | | | | | | | | | | | | | (17,113 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other, net |
1,950 | 177 | | 94 | 15 | | 23 | (33 | ) | | | | | | | | 2,226 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Income (loss) from continuing operations before income taxes |
(126,488 | ) | (27,814 | ) | (6,647 | ) | 916 | 489 | 4,312 | 606 | 908 | 52,656 | 11,647 | (1,329 | ) | (399 | ) | (4,769 | ) | (1,399 | ) | (1,239 | ) | (98,550 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income tax provision (benefit) |
(42,976 | ) | (402 | ) | 1 | 235 | 123 | 1,079 | 173 | 238 | 20,536 | (G | ) | 4,542 | (P | ) | (355 | ) | (U | ) | (106 | ) | (Y | ) | (1,273 | ) | (AC | ) | (555 | ) | (AH | ) | (331 | ) | (AM | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(2,593 | ) | (Q | ) | | | | 88 | (AJ | ) | | (21,576 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Net income (loss) from continuing operations |
$ | (83,512 | ) | $ | (27,412 | ) | $ | (6,648 | ) | $ | 681 | $ | 366 | $ | 3,233 | $ | 433 | $ | 670 | $ | 32,120 | $ | 9,698 | $ | (974 | ) | $ | (293 | ) | $ | (3,496 | ) | $ | (932 | ) | $ | (908 | ) | $ | (76,974 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) per share: |
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Basic |
$ | (0.11 | ) | $ | (0.10 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Diluted |
$ | (0.11 | ) | $ | (0.10 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Weighted average shares outstanding (in thousands): |
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Basic |
761,951 | 761,951 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Diluted |
761,951 | 761,951 |
See accompanying notes to unaudited pro forma condensed combined financial information.
52
ATD Corporation
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Fiscal Year Ended December 28, 2013
(In Thousands except per share amounts)
Historical | Pro Forma Adjustments | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ATD Corporation |
RTD (Jan- uary 1 - Acquis- ition Date, April 30, 2013) |
Hercules (Nov- ember 1, 2012- Oct- ober 31, 2013) |
Terrys Tire (Jan- uary 1 - Dec- ember 31, 2013) |
Trail Tire (March 1, 2013 - Feb- ruary 28, 2014) |
Extreme Wheel (March 1, 2013 - Feb- ruary 28, 2014) |
Kirks Tire (Feb- ruary 1, 2013 - Jan- uary 31, 2014) |
RTD Edmo- nton (March 1, 2013 - Feb- ruary 28, 2014) |
RTD Calgary (March 1, 2013 - Feb- ruary 28, 2014) |
RTD | Hercules | Terrys Tire |
Trail Tire |
Extreme Wheel |
Kirks Tire |
RTD Edmonton |
RTD Calgary |
Use of Offering Proceeds (AU) |
Pro Forma Combined |
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Net sales |
$ | 3,839,269 | $ | 34,200 | $ | 602,921 | $ | 502,194 | $ | 43,800 | $ | 7,459 | $ | 63,988 | $ | 18,948 | $ | 24,862 | $ | | $ | | $ | (23,645 | )(I) | $ | | $ | | $ | (6,666 | ) | (AE) | $ | 1,863 | (AJ) | $ | | $ | 5,109,193 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cost of goods sold, excluding depreciation included in selling, general and administrative expenses below |
3,188,409 | 27,684 | 496,068 | 420,952 | 36,579 | 5,808 | 49,272 | 13,961 | 19,879 | (3,031 | ) | (AT) | | (18,641 | ) | (I) | | | (2,348 | ) | (AE) | 739 | (AJ) | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
4,374 | (K) | | | | | | 4,239,705 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Selling, general and administrative expenses |
569,234 | 6,785 | 89,711 | 83,233 | 4,858 | 811 | 2,839 | 1,483 | 3,282 | 2,569 | (AO) | 14,906 | (B) | 11,063 | (L) | (213 | ) | (V) | (37 | ) | (Z) | (103 | ) | (AD) | (40 | ) | (AI) | (111 | ) | (AN) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (833 | ) | (H) | (4,513 | ) | (I) | 1,637 | (S) | 492 | (W) | 5,364 | (AA) | 2,643 | (AF) | 1,490 | (AK) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
697 | (C) | (465 | ) | (R) | | | (2,330 | ) | (AE) | 746 | (AJ) | | 795,198 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Management fees |
5,753 | | | | | | | | 175 | | | | | | | | | 5,928 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Transaction expenses |
6,719 | 580 | | | | | | | | (2,500 | ) | (AS) | | 465 | (R) | | | | | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(465 | ) | (M) | | | | | | 4,799 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Operating income (loss) |
69,154 | (849 | ) | 17,142 | (1,991 | ) | 2,363 | 840 | 11,877 | 3,504 | 1,526 | 2,962 | (14,770 | ) | (15,463 | ) | (1,424 | ) | (455 | ) | (7,249 | ) | (2,225 | ) | (1,379 | ) | 63,563 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other income (expense): |
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Interest expense, net |
(74,316 | ) | (82 | ) | (6,396 | ) | (9,853 | ) | | | | | | 82 | (AP) | 5,269 | (E) | 9,719 | (N) | (723 | ) | (T) | (226 | ) | (X) | (2,542 | ) | (AB) | (1,111 | ) | (AG) | (720 | ) | (AL) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(955 | ) | (AQ) | (833 | ) | (H) | (22,455 | ) | (O) | | | | 2 | (AJ) | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (28,298 | ) | (F) | | | | | | | (133,438 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other, net |
(5,196 | ) | (632 | ) | (1,952 | ) | | 74 | 10 | 89 | (1,621 | ) | 178 | | | | (213 | ) | (V) | (37 | ) | (Z) | (103 | ) | (AD) | (40 | ) | (AI) | (111 | ) | (AN) | (9,554 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Income (loss) from continuing operations before income taxes |
(10,358 | ) | (1,563 | ) | 8,794 | (11,844 | ) | 2,437 | 850 | 11,966 | 1,883 | 1,704 | 2,089 | (38,632 | ) | (28,199 | ) | (2,360 | ) | (718 | ) | (9,894 | ) | (3,374 | ) | (2,210 | ) | (79,429 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income tax provision (benefit) |
(3,982 | ) | (853 | ) | 3,209 | (15 | ) | 608 | 161 | 2,989 | 512 | 449 | 558 | (AR) | (15,066 | ) | (G) | (1 | ) | (I) | (630 | ) | (U) | (192 | ) | (Y) | (2,111 | ) | (AC) | (1,002 | ) | (AH) | (590 | ) | (AM) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(10,998 | ) | (P) | | | (497 | ) | (AE) | 93 | (AJ) | | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(4,604 | ) | (Q) | | | | | | (31,962 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Net income (loss) from continuing operations |
$ | (6,376 | ) | $ | (710 | ) | $ | 5,585 | $ | (11,829 | ) | $ | 1,829 | $ | 689 | $ | 8,977 | $ | 1,371 | $ | 1,255 | $ | 1,531 | $ | (23,566 | ) | $ | (12,596 | ) | $ | (1,730 | ) | $ | (526 | ) | $ | (7,286 | ) | $ | (2,465 | ) | $ | (1,620 | ) | $ | (47,467 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) per share: |
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Basic |
$ | (0.01 | ) | $ | (0.06 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Diluted |
$ | (0.01 | ) | $ | (0.06 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Weighted average shares outstanding (in thousands): |
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Basic |
734,168 | 734,168 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Diluted |
734,168 | 734,168 |
See accompanying notes to unaudited pro forma condensed combined financial information.
53
Notes to Unaudited Pro Forma Condensed Combined Financial Information
1. Basis of Presentation
These unaudited pro forma condensed combined statements of operations were prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the SEC Regulation S-X, and present the pro forma results of operations of the combined companies based upon the historical information after giving effect to the acquisitions of Trail Tire, Extreme Wheel, Kirks Tire, RTD Edmonton, RTD Calgary, Terrys Tire, Hercules and RTD and adjustments described in these footnotes. The unaudited pro forma condensed combined statements of operations for the six months ended July 5, 2014 and the year ended December 28, 2013 are presented as if the acquisitions of Trail Tire, Extreme Wheel, Kirks Tire, RTD Edmonton, RTD Calgary, Terrys Tire, Hercules and RTD had occurred on December 30, 2012 (the first day of the Companys 2013 fiscal year). Prior to their respective acquisitions, Trail Tire, Extreme Wheel, RTD Edmonton and RTD Calgary each had fiscal years that ended on February 28, Kirks Tire and RTD each had fiscal years that ended on January 31, Hercules had an October 31 fiscal year end and Terrys Tire had a December 31 fiscal year end. In addition, certain amounts in the Trail Tire, Extreme Wheel, Kirks Tire, RTD Edmonton, RTD Calgary, Terrys Tire and Hercules historical consolidated financial statements have been reclassified to conform to the Companys basis of presentation. See also footnote 2(AE). The historical results of operations for Trail Tire, Extreme Wheel, Kirks Tire, RTD Edmonton and RTD Calgary have been translated from Canadian dollars to U.S. dollars using the average exchange rates of 0.912482415 for the six months ended July 5, 2014 and 0.971439337 for the year ended December 28, 2013.
2. Pro Forma Adjustments
Hercules Pro Forma Adjustments
Adjustments included in the Hercules columns in the accompanying unaudited pro forma condensed combined statements of operations are as follows:
(A) | Represents the reversal of amortization of inventory step-up included in the historical results for ATD Corporation that is directly related to the Hercules acquisition and non-recurring. The carrying value of the acquired inventory was adjusted to the estimated fair market value, which is the estimated selling price less the sum of (a) costs of disposal and (b) a reasonable profit margin for completing the selling effort. The step-up in inventory value was amortized into cost of goods sold over the period of the Companys normal inventory turns, which approximated two months. |
(B) | Represents estimated amortization of the finite-lived intangible assets acquired of $1.8 million and $15.4 million for the six months ended July 5, 2014 and the year ended December 28, 2013, respectively. The acquired intangible assets consisted of a customer list with a valuation of $147.2 million that is being amortized on an accelerated basis over an estimated useful life of eighteen years and a tradename with a valuation of $8.5 million that is being amortized on a straight-line basis over an estimated useful life of fifteen years. The estimated useful lives have been determined based upon various accounting studies, historical acquisition experience, economic factors and future cash flows. The $15.4 million for the year ended December 28, 2013 is composed of $14.8 million of customer list amortization and $0.6 million of tradename amortization. A projection of future cash flows was utilized in valuing the customer list intangible asset. The Company utilizes the income-forecast method of amortization which is based on the relative annual contribution of cash flows of the asset over its life based on these projected future cash flows. Thus, the amount of the discounted cash flows generated in each year of this projection is used to determine the annual amortization of the customer list for the applicable year, which is then recognized evenly each month in the respective annual period. The annual amortization for the first year represents approximately 10% of the value of the customer list and the annual amortization for the second |
54
year represents approximately 15% of the customer list value. The pro forma adjustments for the six months ended July 5, 2014 and the year ended December 28, 2013 include amortization for one month and twelve months, respectively. The tradename amortization was based on the tradename value of $8.5 million divided by 15 years for the applicable number of months in the period. In addition, the pro forma adjustment for the year ended December 28, 2013 is net of $0.5 million for the reversal of the amortization of identifiable assets as previously recorded by Hercules that has been eliminated. |
(C) | Represents estimated incremental depreciation expense related to the step-up in fair market value of Hercules property and equipment, net of $0.1 million and $0.7 million for the six months ended July 5, 2014 and the year ended December 28, 2013, respectively. The pro forma adjustment for the six months ended July 5, 2014 and the year ended December 28, 2013 included depreciation expense on a straight-line basis for one month and twelve months, respectively. The step-up in fair market value and useful life by asset category is as follows: |
FMV Step-up |
Useful Life (yrs) | |||||
Land |
$ | 999 | N/A | |||
Building |
1,346 | 25 | ||||
Tire Molds |
3,215 | 5 | ||||
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Total |
$ | 5,560 | ||||
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(D) | Represents the reversal of transaction expenses included in the historical results for ATD Corporation and Hercules that are directly related to the acquisition and non-recurring. |
(E) | Represents the reversal of the interest expense recognized by Hercules, including amortization of deferred financing costs related to Hercules debt that was not assumed by ATD Corporation and paid-off in conjunction with the acquisition. |
(F) | Represents the estimated increase in interest expense associated with the issuance of $225.0 million in aggregate principal amount of its 11.50% Senior Subordinated Notes due 2018 (the Additional Senior Subordinated Notes) and the incremental borrowings incurred on the Companys U.S. ABL Facility of $43.3 million, both of which were used to finance the Hercules acquisition. In addition, the incremental amortization of deferred financing costs was included to determine the total increase in interest expense. |
The estimated increase in interest expense is calculated as follows:
In thousands |
Six Months |
Fiscal Year Ended |
||||||
Interest expense on Additional Senior Subordinated Notes (1) |
$ | 2,156 | $ | 25,875 | ||||
Increase in interest expense on U.S. ABL Facility (2) |
124 | 1,510 | ||||||
Amortization of the original issue discount related to the Additional Senior Subordinated Notes (3) |
65 | 737 | ||||||
Change in amortization of deferred financing costs related to the ABL facility (4) |
(12 | ) | 24 | |||||
Incremental amortization of deferred financing costs related to the Additional Senior Subordinated Notes (5) |
13 | 152 | ||||||
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Net adjustment |
$ | 2,346 | $ | 28,298 | ||||
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(1) | Represents additional interest expense related to the $225.0 million of Additional Senior Subordinated Notes used to finance a portion of the Hercules acquisition, based on a fixed interest rate of 11.5%. |
55
(2) | Represents additional interest expense related to the incremental borrowings incurred on the Companys of $43.3 million U.S. ABL Facility used to finance a portion of the Hercules acquisition. The Company used the weighted-average interest rate of 3.4% for the six months ended July 5, 2014 and 3.5% for the fiscal year ended December 28, 2013 to calculate the estimated increase in interest expense related to incremental borrowings under the U.S. ABL Facility. |
(3) | Represents additional interest expense related to the Additional Senior Subordinated Notes original issue discount of $3.9 million which is being amortized over the life of the Additional Senior Subordinated Notes, or 52 months. |
(4) | Represents additional interest expense for the amortization of deferred financing costs related to the Companys ABL Facility of $35,000 and $424,000 for the six months ended July 5, 2014 and year ended December 28, 2013 net of historical amortization expense of $47,000 and $400,000 for the six months ended July 5, 2014 and December 28, 2013. Deferred financing costs related to the U.S. and Canadian FILO Facilities totaled $577,000 and are being amortized over the life of the facilities, or 36 months. Deferred financing costs related to the Canadian ABL Facility totaled $871,000 and are being amortized over the life of the Canadian ABL Facility, or 45 months. |
(5) | Represents additional interest expense for the amortization of deferred financing costs related to the Additional Senior Subordinated Notes of $661,000 amortized over the life of the Additional Senior Subordinated Notes, or 52 months. |
A 0.125% change to interest rates on the Companys incremental U.S. ABL Facility borrowings would result in a change in pro forma interest expense of approximately $0.1 million for the year ended December 28, 2013.
(G) | Represents the income tax effect of the pro forma adjustments using a combined federal and state statutory income tax rate of 39.0%. This rate is an estimate and does not take into account future tax strategies that may apply to the combined Company. |
(H) | Reflects the reclassification of amortization of deferred financing costs in Hercules historical statement of operations to conform to the Companys basis of presentation. |
Terrys Tire Pro Forma Adjustments
Adjustments included in the Terrys Tire columns in the accompanying unaudited pro forma condensed combined statements of operations are as follows. These adjustments are based on preliminary estimates, which may change as additional information is obtained:
(I) | Reflects the reclassification of the operating results for Terrys Tire commercial and retread businesses from continuing operations, as historically presented, to discontinued operations. As part of the acquisition of Terrys Tire, the Company acquired Terrys Tires commercial and retread businesses. As the Companys core business does not include commercial and retread operations, the Company decided that it would divest of these businesses. Accordingly, pro forma adjustments have been made to reclassify the historical operating results of both the commercial and retread businesses from continuing operations, as historically presented, to discontinued operations in the accompanying unaudited pro forma condensed combined statement of operations. |
(J) | Represents the reversal of amortization of inventory step-up included in the historical results for ATD Corporation that is directly related to the Terrys Tire acquisition and non-recurring. The carrying value of the acquired inventory was adjusted to the estimated fair market value, which is the estimated selling price less the sum of (a) costs of disposal and (b) a reasonable profit margin for completing the selling effort. The step-up in inventory value was amortized into cost of goods sold over the period of the Companys normal inventory turns, which approximated two months. |
56
(K) | Represents an adjustment to Terrys Tires historical consolidated financial statements to reverse their last-in, first-out (LIFO) reserve impact on cost of goods sold recorded during the year ended December 31, 2013 to conform to the Companys accounting policy for inventory valuation using the first-in, first-out (FIFO) method. No similar adjustment is required for the six months ended July 5, 2014 as Terrys Tires historical interim statement of operations for the six months did not include a LIFO reserve impact to cost of goods sold. |
(L) | Represents estimated amortization of finite-lived intangible assets acquired of $6.3 million and $21.3 million for the six months ended July 5, 2014 and the year ended December 28, 2013, respectively. The acquired intangible assets were a customer list with a preliminary valuation of $185.8 million that is being amortized on an accelerated basis over an estimated useful life of 18 years and a favorable leases intangible asset with a preliminary valuation of $0.4 million that is being amortized on a straight-line basis over an estimated useful life of 5 years. The estimated useful lives have been determined based upon various accounting studies, historical acquisition experience, economic factors and future cash flows. The $21.3 million amortization for the year ended December 28, 2013 consists of $21.2 million of customer list amortization and $0.1 million of favorable lease amortization. A projection of future cash flows was utilized in valuing the customer list intangible asset. The Company utilizes the income-forecast method of amortization which is based on the relative annual contribution of cash flows of the asset over its life based on these projected future cash flows. Thus, the amount of the discounted cash flows generated in each year of this projection is used to determine the annual amortization of the customer list for the applicable year, which is then recognized evenly each month in the respective annual period. The annual amortization for the first year represents 11.41% of the value of the customer list and the annual amortization for the second year represents 13.34% of the customer list value. The pro forma adjustments for the six months ended July 5, 2014 and the year ended December 28, 2013 include amortization for three months and twelve months, respectively. In addition, the pro forma adjustments for the six months ended July 5, 2014 and the year ended December 28, 2013 are net of $2.2 million and $10.2 million, respectively, for the reversal of the amortization of identifiable assets as previously recorded by Terrys Tire that has been eliminated. |
(M) | Represents the reversal of transaction expenses included in the historical results for ATD Corporation and Terrys Tire that are directly related to the acquisition and non-recurring. |
(N) | Represents the reversal of the interest expense recognized by Terrys Tire, including amortization of deferred financing costs related to Terrys Tire debt that was not assumed by ATD Corporation and paid-off in conjunction with the acquisition. |
(O) | Represents the estimated increase in interest expense associated with the issuance of the Additional Senior Subordinated Notes and the incremental borrowings incurred on the Companys U.S. ABL Facility, both of which were used to finance the Terrys Tire acquisition. In addition, the incremental amortization of deferred financing costs was included to determine the total increase in interest expense. |
The estimated increase in interest expense is calculated as follows:
In thousands |
Six Months |
Fiscal Year Ended |
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Interest expense on Initial Term Loan (1) |
$ | 4,269 | $ | 17,377 | ||||
Increase in interest expense on U.S. ABL Facility (2) |
652 | 2,641 | ||||||
Amortization of the original issue discount related to the Initial Term Loan (3) |
43 | 168 | ||||||
Amortization of deferred financing costs related to the Initial Term Loan (4) |
567 | 2,269 | ||||||
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Net adjustment |
$ | 5,531 | $ | 22,455 | ||||
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57
(1) | Represents additional interest expense related to the $300.0 million Initial Term Loan used to finance a portion of the Terrys Tire acquisition, based on the current variable interest rate of 5.8%. |
(2) | Represents additional interest expense related to incremental borrowings of $75.8 million incurred on the Companys U.S. ABL Facility used to finance a portion of the Terrys Tire acquisition. The Company used the weighted-average interest rate of 3.4% for the six months ended July 5, 2014 and 3.5% for the fiscal year ended December 28, 2013 to calculate the estimated increase in interest expense related to incremental borrowings under the U.S. ABL Facility. The six months ended July 5, 2014 and the year ended December 28, 2013 included interest expense for three months and twelve months, respectively. |
(3) | Represents additional interest expense for the amortization of the Initial Term Loan original issue discount of $750,000 using the effective interest method over the life of the Initial Term Loan, or 50 months. |
(4) | Represents additional interest expense for the amortization of deferred financing costs related to the Initial Term Loan of $9.5 million amortized over the life of the Initial Term Loan, or 50 months. |
A 0.125% change to interest rates on the Companys incremental U.S. ABL Facility borrowings would result in a change in pro forma interest expense of approximately $0.5 million for the year ended December 28, 2013.
(P) | Represents the income tax effect of the pro forma adjustments, other than adjustment (Q), using a combined federal and state statutory income tax rate of 39.0%. This rate is an estimate and does not take into account future tax strategies that may apply to the combined Company. |
(Q) | Represents an adjustment to record an income tax benefit on Terrys Tire historical loss from continuing operations before income taxes using a combined federal and state statutory income tax rate of 39.0% to conform to the Companys accounting policy for income taxes. This rate is an estimate and does not take into account future tax strategies that may apply to the combined Company. Prior to the acquisition, Terrys Tire was formed and taxed as an S-Corporation for income tax purposes. Accordingly, Terrys Tire did not record any historical income tax expense (benefit). |
(R) | Reflects the reclassification of transaction expenses related to the acquisition in Terrys Tires historical statement of operations to conform to the Companys basis of presentation. |
Trail Tire Pro Forma Adjustments
Adjustments included in the Trail Tire columns in the accompanying unaudited pro forma condensed combined statements of operations are as follows. These adjustments are based on preliminary estimates, which may change as additional information is obtained:
(S) | Represents estimated amortization of a finite-lived intangible asset acquired. The acquired intangible asset consisted of a customer list with a preliminary valuation of $14.7 million that is being amortized on an accelerated basis over an estimated useful life of 16 years. The estimated useful life has been determined based upon various accounting studies, historical acquisition experience, economic factors and future cash flows. A projection of future cash flows was utilized in valuing the customer list intangible asset. The Company utilizes the income-forecast method of amortization which is based on the relative annual contribution of cash flows of the asset over its life based on these projected future cash flows. Thus, the amount of the discounted cash flows generated in each year of this projection is used to determine the annual amortization of the customer list for the applicable year, which is then recognized evenly each month in the respective annual period. The annual amortization for the first year represents approximately 11% of the value of the customer list and the annual amortization for the second year represents approximately 13% |
58
of the customer list value. The pro forma adjustments for the six months ended July 5, 2014 and the year ended December 28, 2013 include amortization for six months and twelve months, respectively. |
(T) | Represents the estimated increase in interest expense associated with the incremental borrowings incurred on the Companys ABL Facility of $20.8 million which was used to finance the Trail Tire acquisition. The Company used the weighted-average interest rate of 3.4% for the six months ended July 5, 2014 and 3.5% for the year ended December 28, 2013 to calculate the estimated increase in interest expense related to incremental borrowings under the ABL Facility. The six months ended July 5, 2014 and the year ended December 28, 2013 included interest expense for six months and twelve months, respectively. A 0.125% change to interest rates on the Companys incremental ABL Facility borrowings would result in a change in pro forma interest expense of less than $0.1 million for both the six months ended July 5, 2014 and the year ended December 28, 2013. |
(U) | Represents the income tax effect of the pro forma adjustments using the Canadian statutory income tax rate of 26.7%. This rate is an estimate and does not take into account future tax strategies that may apply to the combined Company. |
(V) | Reflects the reclassification of Trail Tires historical bank charges to conform to the Companys basis of presentation. |
Extreme Wheel Pro Forma Adjustments
Adjustments included in the Extreme Wheel columns in the accompanying unaudited pro forma condensed combined statements of operations are as follows. These adjustments are based on preliminary estimates, which may change as additional information is obtained:
(W) | Represents estimated amortization of a finite-lived intangible asset acquired. The acquired intangible asset consisted of a customer list with a preliminary valuation of $4.4 million that is being amortized on an accelerated basis over an estimated useful life of 16 years. The estimated useful life has been determined based upon various accounting studies, historical acquisition experience, economic factors and future cash flows. A projection of future cash flows was utilized in valuing the customer list intangible asset. The Company utilizes the income-forecast method of amortization which is based on the relative annual contribution of cash flows of the asset over its life based on these projected future cash flows. Thus, the amount of the discounted cash flows generated in each year of this projection is used to determine the annual amortization of the customer list for the applicable year, which is then recognized evenly each month in the respective annual period. The annual amortization for the first year represents approximately 11% of the value of the customer list and the annual amortization for the second year represents approximately 13% of the customer list value. The pro forma adjustments for the six months ended July 5, 2014 and the year ended December 28, 2013 include amortization for six months and twelve months, respectively. |
(X) | Represents the estimated increase in interest expense associated with the incremental borrowings incurred on the Companys ABL Facility of $6.5 million which was used to finance the Extreme Wheel acquisition. The Company used the weighted-average interest rate of 3.4% for the six months ended July 5, 2014 and 3.5% for the year ended December 28, 2013 to calculate the estimated increase in interest expense related to incremental borrowings under the ABL Facility. The six months ended July 5, 2014 and the year ended December 28, 2013 included interest expense for six months and twelve months, respectively. A 0.125% change to interest rates on the Companys incremental ABL Facility borrowings would result in a change in pro forma interest expense of less than $0.1 million for both the six months ended July 5, 2014 and the year ended December 28, 2013. |
59
(Y) | Represents the income tax effect of the pro forma adjustments using the Canadian statutory income tax rate of 26.7%. This rate is an estimate and does not take into account future tax strategies that may apply to the combined Company. |
(Z) | Reflects the reclassification of Extreme Wheels historical bank charges to conform to the Companys basis of presentation. |
Kirks Tire Pro Forma Adjustments
Adjustments included in the Kirks Tire columns in the accompanying unaudited pro forma condensed combined statements of operations are as follows. These adjustments are based on preliminary estimates, which may change as additional information is obtained:
(AA) | Represents estimated amortization of a finite-lived intangible asset acquired. The acquired intangible asset consisted of a customer list with a preliminary valuation of $52.8 million that is being amortized on an accelerated basis over an estimated useful life of 16 years. The estimated useful life has been determined based upon various accounting studies, historical acquisition experience, economic factors and future cash flows. A projection of future cash flows was utilized in valuing the customer list intangible asset. The Company utilizes the income-forecast method of amortization which is based on the relative annual contribution of cash flows of the asset over its life based on these projected future cash flows. Thus, the amount of the discounted cash flows generated in each year of this projection is used to determine the annual amortization of the customer list for the applicable year, which is then recognized evenly each month in the respective annual period. The annual amortization for the first year represents approximately 10% of the value of the customer list and the annual amortization for the second year represents approximately 13% of the customer list value. The pro forma adjustments for the six months ended July 5, 2014 and the year ended December 28, 2013 include amortization for six months and twelve months, respectively. |
(AB) | Represents the estimated increase in interest expense associated with the incremental borrowings incurred on the Companys ABL Facility of $73.0 million which was used to finance the Kirks Tire acquisition. The Company used the weighted-average interest rate of 3.4% for the six months ended July 5, 2014 and 3.5% for the year ended December 28, 2013 to calculate the estimated increase in interest expense related to incremental borrowings under the ABL Facility. The six months ended July 5, 2014 and the year ended December 28, 2013 included interest expense for six months and twelve months, respectively. A 0.125% change to interest rates on the Companys incremental ABL Facility borrowings would result in a change in pro forma interest expense of less than $0.1 million for both the six months ended July 5, 2014 and the year ended December 28, 2013. |
(AC) | Represents the income tax effect of the pro forma adjustments using the Canadian statutory income tax rate of 26.7%. This rate is an estimate and does not take into account future tax strategies that may apply to the combined Company. |
(AD) | Reflects the reclassification of Kirks Tires historical bank charges to conform to the Companys basis of presentation. |
(AE) | Represents an adjustment to eliminate the operating results of Kirks Tires retail business from its historical statement of operations for the year ended December 28, 2013 as the Company did not acquire the Kirks Tire retail business. The historical interim statement of operations for the six months ended July 5, 2014 did not include Kirks Tires retail business so no adjustment is needed. |
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RTD Edmonton Pro Forma Adjustments
Adjustments included in the RTD Edmonton columns in the accompanying unaudited pro forma condensed combined statements of operations are as follows. These adjustments are based on preliminary estimates, which may change as additional information is obtained:
(AF) | Represents estimated amortization of a finite-lived intangible asset acquired. The acquired intangible asset consisted of a customer list with a preliminary valuation of $23.3 million that is being amortized on an accelerated basis over an estimated useful life of 16 years. The estimated useful life has been determined based upon various accounting studies, historical acquisition experience, economic factors and future cash flows. A projection of future cash flows was utilized in valuing the customer list intangible asset. The Company utilizes the income-forecast method of amortization which is based on the relative annual contribution of cash flows of the asset over its life based on these projected future cash flows. Thus, the amount of the discounted cash flows generated in each year of this projection is used to determine the annual amortization of the customer list for the applicable year, which is then recognized evenly each month in the respective annual period. The annual amortization for the first year represents approximately 11% of the value of the customer list and the annual amortization for the second year represents approximately 13% of the customer list value. The pro forma adjustments for the six months ended July 5, 2014 and the year ended December 28, 2013 include amortization for six months and twelve months, respectively. |
(AG) | Represents the estimated increase in interest expense associated with the incremental borrowings incurred on the Companys ABL Facility of $31.9 million which was used to finance the RTD Edmonton acquisition. The Company used the weighted-average interest rate of 3.4% for the six months ended July 5, 2014 and 3.5% for the year ended December 28, 2013 to calculate the estimated increase in interest expense related to incremental borrowings under the ABL Facility. The six months ended July 5, 2014 and the year ended December 28, 2013 included interest expense for six months and twelve months, respectively. A 0.125% change to interest rates on the Companys incremental ABL Facility borrowings would result in a change in pro forma interest expense of less than $0.1 million for both the six months ended July 5, 2014 and the year ended December 28, 2013. |
(AH) | Represents the income tax effect of the pro forma adjustments using the Canadian statutory income tax rate of 26.7%. This rate is an estimate and does not take into account future tax strategies that may apply to the combined Company. |
(AI) | Reflects the reclassification of RTD Edmontons historical bank charges to conform to the Companys basis of presentation. |
(AJ) | Represents an adjustment to RTD Edmontons historical results of operations related the consolidation of Tirecraft Western Canada Ltd., a wholly-owned subsidiary of RTD Edmonton that was acquired by the Company as part of the acquisition of RTD Edmonton, in accordance with U.S. GAAP. RTD Edmontons historical results of operations have not been adjusted to consolidate any other wholly-owned subsidiaries and investments for which RTD Edmonton had significant influence over as the Company did not take ownership of these investees as part of the acquisition of RTD Edmonton. |
RTD Calgary Pro Forma Adjustments
Adjustments included in the RTD Calgary columns in the accompanying unaudited pro forma condensed combined statements of operations are as follows. These adjustments are based on preliminary estimates, which may change as additional information is obtained:
(AK) | Represents estimated amortization of a finite-lived intangible asset acquired. The acquired intangible asset consisted of a customer list with a preliminary valuation of $13.6 million that is being amortized on an accelerated basis over an estimated useful life of 16 years. The estimated |
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useful life has been determined based upon various accounting studies, historical acquisition experience, economic factors and future cash flows. A projection of future cash flows was utilized in valuing the customer list intangible asset. The Company utilizes the income-forecast method of amortization which is based on the relative annual contribution of cash flows of the asset over its life based on these projected future cash flows. Thus, the amount of the discounted cash flows generated in each year of this projection is used to determine the annual amortization of the customer list for the applicable year, which is then recognized evenly each month in the respective annual period. The annual amortization for the first year represents approximately 11% of the value of the customer list and the annual amortization for the second year represents approximately 13% of the customer list value. The pro forma adjustments for the six months ended July 5, 2014 and the year ended December 28, 2013 include amortization for six months and twelve months, respectively. |
(AL) | Represents the estimated increase in interest expense associated with the incremental borrowings incurred on the Companys ABL Facility of $20.7 million which was used to finance the RTD Calgary acquisition. The Company used the weighted-average interest rate of 3.4% for the six months ended July 5, 2014 and 3.5% for the year ended December 28, 2013 to calculate the estimated increase in interest expense related to incremental borrowings under the ABL Facility. The six months ended July 5, 2014 and the year ended December 28, 2013 included interest expense for six months and twelve months, respectively. A 0.125% change to interest rates on the Companys incremental ABL Facility borrowings would result in a change in pro forma interest expense of less than $0.1 million for both the six months ended July 5, 2014 and the year ended December 28, 2013. |
(AM) | Represents the income tax effect of the pro forma adjustments using the Canadian statutory income tax rate of 26.7%. This rate is an estimate and does not take into account future tax strategies that may apply to the combined Company. |
(AN) | Reflects the reclassification of RTD Calgarys historical bank charges to conform to the Companys basis of presentation. |
RTD Pro Forma Adjustments
Adjustments included in the RTD column in the accompanying unaudited pro forma condensed combined statement of operations for the year ended December 28, 2013 are as follows:
(AO) | Represents estimated amortization of the finite-lived intangible assets acquired. The acquired intangible assets consisted of a customer list with a valuation of $41.2 million that is being amortized on an accelerated basis over an estimated useful life of 16 years, a tradename with a valuation of $1.9 million that is being amortized on a straight-line basis over an estimated useful life of five years and a favorable leases intangible asset with a valuation of $0.4 million that is being amortized on a straight-line basis over an estimated useful life of four years. The estimated useful lives have been determined based upon various accounting studies, historical acquisition experience, economic factors and future cash flows. The pro forma adjustment for the year ended December 28, 2013 included amortization for four months consisting of $2.4 million of customer list amortization and $0.2 million of amortization related to the tradename and favorable leases. A projection of future cash flows was utilized in valuing the customer list intangible asset. The Company utilizes the income-forecast method of amortization which is based on the relative annual contribution of cash flows of the asset over its life based on these projected future cash flows. Thus, the amount of the discounted cash flows generated in each year of this projection is used to determine the annual amortization of the customer list for the applicable year, which is then recognized evenly each month in the respective annual period. The annual amortization for the first year represents approximately 17% of the value of the customer list asset. |
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(AP) | Represents the reversal of the interest expense recognized by RTD related to debt that was not assumed by ATD Corporation and paid off in conjunction with the acquisition. |
(AQ) | Represents the estimated increase in interest expense associated with the incremental borrowings incurred on the Companys ABL Facility of $67.0 million which was used to finance the RTD acquisition. In addition, the incremental amortization of deferred financing costs was included to determine the total increase in interest expense. |
The estimated increase in interest expense is calculated as follows:
In thousands |
Fiscal Year Ended |
|||
Increase in interest expense on ABL Facility (1) |
778 | |||
Incremental amortization of deferred financing costs related to the ABL Facility (2) |
177 | |||
|
|
|||
Net adjustment |
$ | 955 | ||
|
|
(1) | Represents additional interest expense related to the incremental borrowings incurred on the Companys ABL Facility of $67.0 million used to finance the RTD acquisition. The Company used the weighted-average interest rate of 3.5% for the fiscal year ended December 28, 2013 to calculate the estimated increase in interest expense related to incremental borrowings under the ABL Facility for the period from January 1, 2013 to April 30, 2013, the acquisition date. |
(2) | Represents additional interest expense for the period from January 1, 2013 to April 30, 2013 for the amortization of deferred financing costs related to the Canadian FILO Facility of $592,000 amortized over 17 months and amortization of deferred financing costs related to the Canadian ABL Facility of $469,000 amortized over 53 months. |
A 0.125% change to interest rates on the Companys incremental U.S. ABL Facility borrowings would result in a change in pro forma interest expense of approximately $0.1 million for the year ended December 28, 2013.
(AR) | Represents the income tax effect of the pro forma adjustments using the Canadian statutory income tax rate of 26.7%. This rate is an estimate and does not take into account future tax strategies that may apply to the combined Company. |
(AS) | Represents the reversal of transaction expenses included in the historical results for ATD Corporation and RTD that are directly related to the acquisition and non-recurring. |
(AT) | Represents the reversal of amortization of inventory step-up included in the historical results for ATD Corporation that is directly related to the RTD acquisition and non-recurring. The carrying value of the acquired inventory was adjusted to the estimated fair market value, which is the estimated selling price less the sum of (a) costs of disposal and (b) a reasonable profit margin for completing the selling effort. The step-up in inventory value was amortized into cost of goods sold over the period of the Companys normal inventory turns, which approximated two months. |
Use of Offering Proceeds
(AU) | Reflects the shares to be sold in this offering and the application of the net proceeds of approximately $ therefrom to be received by us, assuming an initial public offering price of $ per share (the midpoint of the offering range shown on the cover of this prospectus), as described in Use of Proceeds, excluding the effect of the Additional Term Loan and the use of proceeds therefrom. |
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes included elsewhere in this prospectus. This discussion and analysis includes forward-looking statements that involve risks and uncertainties. You should read the Cautionary Note Regarding Forward-Looking Statements and Risk Factors sections of this prospectus for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. The terms Company, we, our or us, as used herein, refer to ATD Corporation and its consolidated subsidiaries unless otherwise stated or indicated by context. Amounts presented may not add due to rounding.
Company Overview
We are the largest distributor of replacement tires in North America based on dollar amount of wholesale sales and number of warehouses. We provide a wide range of products and value-added services to customers in each of the key market channels to enable tire retailers to more effectively service and grow sales to consumers. Through our network of more than 140 distribution centers in the United States and Canada, we offer access to an extensive breadth and depth of inventory, representing more than 40,000 SKUs, to approximately 80,000 customers. In 2013, we distributed more than 40 million replacement tires after giving effect to recent acquisitions. We estimate that our share of the replacement passenger and light truck tire market in 2013, after giving effect to our recently completed acquisitions, would have been approximately 14% in the United States, up from approximately 1% in 1996, and approximately 21% in Canada.
We serve a highly diversified customer base across multiple channels, comprised of local, regional and national independent tire retailers, mass merchandisers, warehouse clubs, tire manufacturer-owned stores, automotive dealerships and web-based marketers. We have a significant market presence in a number of these key market channels and we believe that we are the only replacement tire distributor in North America that services each of these key market channels. During fiscal 2013, our largest customer and top ten customers accounted for 3.1% and 10.9%, respectively, of our net sales. We believe we are a top supplier to many of our customers and have maintained relationships with our top 20 customers that exceed a decade on average.
We believe we distribute one of the broadest product offerings in our industry, supplying our customers with nine of the top ten leading passenger and light truck tire brands. We carry the flag brands from each of the four largest tire manufacturersBridgestone, Continental, Goodyear and Michelinas well as the Cooper, Hankook, Kumho, Nexen, Nitto and Pirelli brands. We also sell lower price point associate and proprietary brands of these and many other tire manufacturers, and through our acquisition of Hercules we also own and market our proprietary Hercules® brand, the number one private brand in North America in 2013 based on unit sales. In addition, we sell custom wheels and accessories and related tire supplies and tools. In fiscal 2013, tire sales accounted for 97.4% of our net sales, with sales of passenger and light truck tires accounting for 82.3% of our net sales. Tire supplies, tools and custom wheels and accessories represented approximately 2.6% of our net sales. We believe that our large and diverse product offering allows us to penetrate the replacement tire market across a broad range of price points.
Our growth strategy, coupled with our access to capital and our scalable platform, enables us to continue to expand organically in existing markets as well as in new geographic areas. We also expect to continue to employ a selective acquisition strategy to increase our share in the markets we currently service as well as to expand our distribution into new markets, utilizing our scale in an effort to realize significant synergies. In addition, we are investing in technology and each sales channel to fuel our future growth. As a result, we believe that we are well positioned to continue to achieve above-market growth in all market environments and to continue to enhance our profitability and cash flows.
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Industry Overview
The U.S. and Canadian replacement tire markets have historically experienced stable growth and favorable pricing dynamics. However, these markets are subject to changes in consumer confidence and economic conditions. As a result, tire consumers may opt to temporarily defer replacement tire purchases or purchase less costly brands during challenging economic periods when macroeconomic factors such as unemployment, high fuel costs and weakness in the housing market impact their financial health.
From 1955 through 2013, U.S. replacement tire unit shipments increased by an average of approximately 3% per year. We believe that we are experiencing the beginning of a recovery after a prolonged downturn, which began in 2008 for the replacement tire market. Replacement tire unit shipments were up 4.4% in the United States and 0.7% in Canada in 2013 as compared to 2012, as a rebound in the housing market, a decline in unemployment rates and increases in vehicle sales and vehicle miles driven impacted the U.S. and Canadian replacement tire markets favorably. The RMA projects that replacement tire shipments will increase by approximately 2% in the United States 2014 as compared to 2013, as demand drivers continue to strengthen.
Going forward, we believe that long-term growth in the U.S. and Canadian replacement tire markets will continue to be driven by favorable underlying dynamics, including:
| increases in the number and average age of passenger cars and light trucks; |
| increases in the number of miles driven; |
| increases in the number of licensed drivers as the U.S. and Canadian population continues to grow; |
| increases in the number of replacement tire SKUs; |
| growth of the high-performance tire market; and |
| shortening of tire replacement cycles due to changes in product mix that increasingly favor high- performance tires, which have shorter average lives. |
Recent Developments
Acquisitions and Expansion
As part of our ongoing business strategy, we intend to expand in existing markets as well as enter into previously underserved markets and new geographic areas. Since the second half of 2010, we opened new distribution centers in 23 locations throughout the contiguous United States. We expect to continue to evaluate additional geographic markets during the remainder of 2014 and beyond.
On June 27, 2014, we completed the following acquisitions:
| Trail Tire. We acquired the wholesale distribution business of Trail Tire pursuant to an Asset Purchase Agreement by and among TriCan and the shareholders and principals of Trail Tire. Trail Tire is a wholesale distributor of tires, tire parts, tire accessories and related equipment in Canada. |
| Extreme Wheel. We acquired the wholesale distribution business of Extreme Wheel pursuant to an Asset Purchase Agreement by and between TriCan and the shareholder and principal of Extreme Wheel. Extreme Wheel is a wholesale distributor of wheels and related accessories in Canada. |
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| Kirks. We acquired the wholesale distribution business of Kirks Tire pursuant to an Asset Purchase Agreement by and among TriCan and the shareholders and principals of Kirks Tire. Kirks Tire is engaged in (i) the wholesale distribution of tire, tire parts, tire accessories and related equipment and (ii) the retail sale and installation of tires, tire parts, and tire accessories and the manufacturing and sale of retread tires. We did not acquire Kirks Tires retail operations. |
| RTD Edmonton. We acquired the wholesale distribution business of RTD Edmonton pursuant to an Asset Purchase Agreement by and among TriCan and the shareholders and principals of RTD Edmonton. RTD Edmonton is a wholesale distributor of tires, tire parts, tire accessories and related equipment in Canada. |
| RTD Calgary. We acquired the wholesale distribution business of RTD Calgary pursuant to an Asset Purchase Agreement by and among TriCan and the shareholders and principals of RTD Calgary. RTD Calgary is a wholesale distributor of tires, tire parts, tire accessories and related equipment in Canada. |
Terrys Tire. On March 28, 2014, we completed the acquisition of Terrys Tire pursuant to a Stock Purchase Agreement between us and TTT Holdings, which owned all of the capital stock of Terrys Tire. Terrys Tire and its subsidiaries are engaged in the business of purchasing, marketing, distributing and selling tires, wheels and related tire and wheel accessories on a wholesale basis to tire dealers, wholesale distributors, retail chains, automotive dealers and others, retreading tires and selling retread and other commercial tires through commercial outlets to end users and selling tires directly to consumers via the Internet. Terrys Tire operated ten distribution centers spanning from Virginia to Maine and in Ohio. We believe the acquisition of Terrys Tire will enhance our market position in these areas and aligns very well with our distribution centers, especially our new distribution centers that we opened over the past two years in the Northeast and Ohio. In its most recent fiscal year ended December 31, 2013, Terrys Tire generated revenues and Adjusted EBITDA of approximately $502 million and $14 million, respectively and we expect the acquisition to generate annual operational synergies between $40 million and $45 million starting in 2015. For 2014, we expect to realize a portion of those synergies as we have begun the integration process.
Hercules. On January 31, 2014, we completed the acquisition of Hercules Holdings pursuant to an Agreement and Plan of Merger, dated January 24, 2014. Hercules Holdings owns all of the capital stock of Hercules. Hercules is engaged in the business of purchasing, marketing, distributing, and selling replacement tires for passenger cars, trucks, and certain off-road vehicles to tire dealers, wholesale distributors, retail distributors and others in the United States, Canada and internationally. Hercules operated 15 distribution centers in the United States, six distribution centers in Canada and one warehouse in northern China. Hercules also markets the Hercules® brand, which is one of the most sought-after proprietary tire brands in the industry. We believe the acquisition of Hercules will strengthen our presence in major markets such as California, Texas and Florida in addition to increasing our presence in Canada. Additionally, Hercules strong logistics and sourcing capabilities, including a long-standing presence in China, will also allow us to capitalize on the growing import market, as well as provide the ability to expand the international sales of the Hercules® brand. Finally, this acquisition will allow us to be a brand marketer of the Hercules® brand, which in 2013 had a 2% market share of the passenger and light truck market in North America and a 3% market share of highway truck tires in North America. In its most recent fiscal year ended October 31, 2013, Hercules generated revenues and Adjusted EBITDA of approximately $600 million and $27 million, respectively and we expect the acquisition to generate annual operational synergies between $30 million and $35 million starting in 2015. For 2014, we expect to realize a portion of those synergies as we have begun the integration process.
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The following table shows the calculation of Adjusted EBITDA from the most directly comparable GAAP measure, net income (loss), for Hercules fiscal year ended October 31, 2013 and Terrys Tires fiscal year ended December 31, 2013:
In millions |
Hercules |
Terrys Tire |
||||||
Net income (loss) |
$ | 6 | $ | (12 | ) | |||
Depreciation and amortization |
6 | 12 | ||||||
Interest expense |
7 | 10 | ||||||
Income tax provision (benefit) |
3 | | ||||||
Non-cash stock compensation |
2 | | ||||||
Other(1) |
3 | 4 | ||||||
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|
|
|
|||||
Adjusted EBITDA |
$ | 27 | $ | 14 |
(1) | Other includes management fees, restructuring initiatives, non-cash gains and losses on the disposal of fixed assets and exchange gains and losses on foreign currency. |
Kipling. On January 17, 2014, TriCan entered into and closed an Asset Purchase Agreement with Kipling Tire Co. LTD (Kipling) pursuant to which TriCan agreed to acquire the wholesale distribution business of Kipling. Kipling has operated as a retail-wholesale business since 1982. Kiplings wholesale business distributes tires from its Etobicoke facilities to approximately 400 retail customers in Southern Ontario. Kiplings retail operations were not acquired by TriCan and will continue to operate under its current ownership. This acquisition is expected to further strengthen TriCans presence in the Southern Ontario region of Canada.
RTD. On April 30, 2013, we completed the acquisition of RTD Holdco pursuant to a Share Purchase Agreement dated as of March 22, 2013, among TriCan, ATDI, RTD Holdco and RTD. RTD Holdco has no significant assets or operations other than its ownership of RTD. The operations of RTD constitute the operations of RTD Holdco. RTD is a wholesale distributor of tires, tire parts, tire accessories and related equipment in the Ontario and Atlantic provinces of Canada.
Credit Agreement Amendment
In addition, on June 16, 2014, we amended our credit agreement relating to our senior secured term loan facility to borrow an additional $420 million on the same terms as our Initial Term Loan. The proceeds from these additional borrowings were used to redeem all amounts outstanding under our Senior Secured Notes and pay related fees and expenses, as well as for working capital requirements and other general corporate purposes, including the financing of potential future acquisitions.
Proposed Additional Term Loan
In connection with this offering, ATDI also intends to borrow an additional $ million through the Additional Term Loan on the same terms as ATDIs existing Term Loan. We intend to use the net proceeds therefrom, along with the net proceeds of this offering, to repay all amounts outstanding under ATDIs 11.50% Senior Subordinated Notes due 2018.
Our Sponsor
Following the completion of this offering, the TPG Funds will own approximately % of our common stock, or % if the underwriters option to purchase additional shares of our common stock is fully exercised. As a result, TPG has and will continue to have significant influence over us, including with respect to our operations. TPG may have interests that differ from our other stockholders. See Risk FactorsRisks Related to our Common Stock and this OfferingTPG will continue to have significant influence over us after this offering, including control over decisions that require the approval of stockholders, which could limit your ability to influence the outcome of matters submitted to stockholders for a vote. and Certain Relationships and Related Party TransactionsAgreements with TPG and Management.
Results of Operations
Our fiscal year is based on either a 52- or 53-week period ending on the Saturday closest to each December 31. Therefore, the financial results of 53-week fiscal years, and the associated 14-week quarter, will
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not be comparable to the prior and subsequent 52-week fiscal years and the associated quarters having only 13 weeks. The 2011 fiscal year, which ended December 31, 2011, the 2012 fiscal year, which ended December 29, 2012, and the 2013 fiscal year, which ended December 28, 2013, each contain operating results for 52 weeks. The quarters ended July 5, 2014 and June 29, 2013 each contain operating results for 13 weeks. The six months ended July 5, 2014 contains operating results for 27 weeks while the six months ended June 29, 2013 contains operating results for 26 weeks. It should be noted that our quarter-end reporting dates are different from our recently acquired subsidiaries. Hercules, Terrys Tire, Trail Tire, Extreme Wheel, Kirks Tire, RTD Edmonton and RTD Calgary all have calendar quarter-end reporting dates with their second quarter of 2014 ending on June 30. Prior to the acquisitions, Hercules had an October 31 fiscal year end, Terrys Tire had a December 31 fiscal year end, RTD and Kirks Tire each had a January 31 fiscal year end and Trail Tire, Extreme Wheel, RTD Edmonton and RTD Calgary each had a February 28 fiscal year end, but each such subsidiary changed its year end to be the same as that of the Company, effective as of their respective acquisition dates. It should also be noted that, prior to fiscal 2013, our year-end reporting date was different from that of our TriCan subsidiary. For fiscal 2012, TriCan had a calendar year-end reporting date. TriCan converted to our fiscal year-end reporting date during fiscal 2013. The impact from these differences on the consolidated financial statements was not material.
Quarter Ended July 5, 2014 Compared to the Quarter Ended June 29, 2013
The following table sets forth the period change for each category of the statements of operations, as well as each category as a percentage of net sales:
Quarter |
Quarter |
Period Over Period |
Period Over % Change |
Percentage of Net Sales For the Respective Period Ended |
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In thousands |
July 5, 2014 |
June 29, 2013 |
Favorable |
Favorable |
July 5, |
June 29, |
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Net sales |
$ | 1,267,582 | $ | 955,075 | $ | 312,507 | 32.7 | % | 100.0 | % | 100.0 | % | ||||||||||||
Cost of goods sold |
1,063,376 | 802,492 | (260,884 | ) | (32.5 | %) | 83.9 | % | 84.0 | % | ||||||||||||||
Selling, general and administrative expenses |
204,003 | 137,312 | (66,691 | ) | (48.6 | %) | 16.1 | % | 14.4 | % | ||||||||||||||
Management fees |
14,967 | 1,255 | (13,712 | ) | (1,092.6 | %) | 1.2 | % | 0.1 | % | ||||||||||||||
Transaction expenses |
15,490 | 2,266 | (13,224 | ) | (583.6 | %) | 1.2 | % | 0.2 | % | ||||||||||||||
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Operating income (loss) |
(30,254 | ) | 11,750 | (42,004 | ) | (357.5 | %) | (2.4 | %) | 1.2 | % | |||||||||||||
Other income (expense): |
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Interest expense |
(32,223 | ) | (17,387 | ) | (14,836 | ) | (85.3 | %) | (2.5 | %) | (1.8 | %) | ||||||||||||
Loss on extinguishment of debt |
(17,113 | ) | | (17,113 | ) | (100.0 | %) | (1.4 | %) | | ||||||||||||||
Other, net |
3,752 | (1,935 | ) | 5,687 | 293.9 | % | 0.3 | % | (0.2 | %) | ||||||||||||||
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Income (loss) from continuing operations before income taxes |
(75,838 | ) | (7,572 | ) | (68,266 | ) | (901.6 | %) | (6.0 | %) | (0.8 | %) | ||||||||||||
Income tax provision (benefit) |
(26,370 | ) | (1,735 | ) | 24,635 | 1,419.9 | % | (2.1 | %) | (0.2 | %) | |||||||||||||
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Income (loss) from continuing operations |
(49,468 | ) | (5,837 | ) | (43,631 | ) | (747.5 | %) | (3.9 | %) | (0.6 | %) | ||||||||||||
Income (loss) from discontinued operations, net of tax |
(48 | ) | | (48 | ) | (100.0 | %) | (0.0 | %) | | ||||||||||||||
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Net income (loss) |
$ | (49,516 | ) | $ | (5,837 | ) | $ | (43,679 | ) | (748.3 | %) | (3.9 | %) | (0.6 | %) | |||||||||
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Net Sales
Net sales for the quarter ended July 5, 2014 were $1,267.6 million, a $312.5 million, or 32.7%, increase, as compared with the quarter ended June 29, 2013. The increase in net sales was primarily driven by the combined results of new distribution centers as well as the acquisitions of Hercules and Terrys Tire and our 2013 acquisitions of Wholesale Tire Distributors (WTD), TDI and RTD. These growth initiatives added $296.8
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million of incremental sales in the second quarter of 2014. In addition, we experienced an increase in comparable tire unit sales of $35.5 million primarily driven by an overall stronger sales unit environment. However, these increases were partially offset by lower net tire pricing of $16.8 million, primarily driven by manufacturer marketing specials, competitive pricing positions in certain U.S. markets, as well as a shift in product mix in our lower priced point offerings.
Cost of Goods Sold
Cost of goods sold for the quarter ended July 5, 2014 were $1,063.4 million, a $260.9 million, or 32.5%, increase, as compared with the quarter ended June 29, 2013. The increase in cost of goods sold was primarily driven by the combined results of new distribution centers as well as the acquisitions of Hercules, Terrys Tire, RTD, WTD and TDI. These growth initiatives added $263.6 million of incremental costs in the second quarter of 2014. Cost of goods sold for the quarter ended July 5, 2014 also includes $12.5 million related to the non-cash amortization of the inventory step-up recorded in connection with the acquisition of Terrys Tire as compared to $2.7 million during the quarter ended June 29, 2013. In addition, an overall stronger sales unit environment increased cost of goods sold by $12.0 million. These increases were partially offset by lower net tire pricing of $15.1 million.
Cost of goods sold as a percentage of net sales was 83.9% for the quarter ended July 5, 2014, a slight decrease compared with 84.0% for the quarter ended June 29, 2013. The decrease in cost of goods sold as a percentage of net sales was primarily driven by the margin contribution of the Hercules brand, a lower level of manufacturer price repositioning this year as compared to the prior year and an incremental benefit from manufacturer programs during the current year. This decrease was partially offset by the non-cash amortization of the $12.5 million inventory step-up recorded in connection with the Terrys Tire acquisition, which had a 1.0% impact on cost of goods sold as a percentage of net sales.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the quarter ended July 5, 2014 were $204.0 million, a $66.7 million, or 48.6%, increase as compared with the quarter ended June 29, 2013. The increase in selling, general and administrative expenses was primarily related to incremental costs associated with our new distribution centers as well as the acquisitions of Hercules, Terrys Tire, RTD, WTD and TDI. Combined, these factors added $51.9 million of incremental costs to the second quarter of 2014. In addition, we also experienced a $9.2 million increase in salaries and wage expense primarily related to higher sales volume and related headcount as well as higher incentive and commission compensation. Additionally, occupancy & vehicle expense increased $1.3 million due to higher cost as we expanded several of our distribution centers to better service our existing customers.
Selling, general and administrative expenses as a percentage of net sales were 16.1% for the quarter ended July 5, 2014; an increase compared with 14.4% for the quarter ended June 29, 2013. The increase in selling, general and administrative expenses as a percentage of net sales was primarily driven by an increase in costs associated with our growth expansion of recently opened and acquired distribution centers, as our consolidation of the Hercules distribution centers will not be finalized until the latter part of the third quarter and the consolidation of the Terrys Tires distribution centers did not commence until the latter part of second quarter and will extend thru the latter part of the third quarter. In addition, higher depreciation and amortization expense between periods resulted in a 0.2% increase in selling, general and administrative expenses as a percentage of net sales.
Management fees
Management fees for the quarter ended July 5, 2014 of $15.0 million represents a monitoring fee paid to a management company affiliated with our Sponsor, TPG, for certain management, consulting and financial services as well as fees paid to our outside board of directors. In addition, the quarter ended July 5, 2014 includes a $13.5 million fee paid to a management company affiliated with TPG in connection with the acquisitions of Terrys Tire and Hercules.
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Transaction Expenses
Transaction expenses for the quarter ended July 5, 2014 were $15.5 million and were primarily related to costs associated with our acquisitions of Hercules and Terrys Tire, as well as with expenses related to potential future acquisitions and other corporate initiatives. During the quarter ended June 29, 2013, transaction expenses of $2.3 million primarily related to costs associated with our acquisition of RTD in April 2013 and TriCan in November 2012, as well as with expenses related to potential future acquisitions and other corporate initiatives.
Interest Expense
Interest expense for the quarter ended July 5, 2014 was $32.2 million, a $14.8 million, or 85.3%, increase, compared with the quarter ended June 29, 2013. This increase was due to higher debt levels associated with our ABL Facility, FILO Facility, Additional Subordinated Notes and Term Loan, all as defined under Liquidity and Capital Resources, which were driven by our 2014 acquisitions and the redemption of our Senior Secured Notes. In addition, changes in the fair value of our interest rate swaps resulted in a $0.8 million increase in interest expense.
Loss on Extinguishment of Debt
Loss on extinguishment of debt for the quarter ended July 5, 2014 of $17.1 million related to the early redemption of all $250.0 million aggregate principal amount of our 9.75% Senior Secured Notes on June 16, 2014 at a redemption price of 104.875% of the principal amount. Additionally, the loss on extinguishment of debt includes approximately $4.9 million related to the write-off of the unamortized original issuance discount and unamortized deferred financing fees associated with the Senior Secured Notes.
Provision (Benefit) for Income Taxes
Our income tax benefit for the quarter ended July 5, 2014 was $26.4 million, based on pre-tax loss of $75.8 million; our effective tax rate under the discrete method was 34.8%. For the quarter ended June 29, 2013, our income tax benefit was $1.7 million, based on a pre-tax loss of $7.6 million; our effective tax rate was 22.9%.
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Six Months Ended July 5, 2014 Compared to the Six Months Ended June 29, 2013
The following table sets forth the period change for each category of the statements of operations, as well as each category as a percentage of net sales:
Six Months Ended |
Six Months Ended |
Period Over Period Change |
Period Over Period % Change |
Percentage of Net Sales For the Respective Period Ended |
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In thousands |
July 5, 2014 |
June 29, |
Favorable |
Favorable |
July 5, |
June 29, |
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Net sales |
$ | 2,343,051 | $ | 1,795,053 | $ | 547,998 | 30.5 | % | 100.0 | % | 100.0 | % | ||||||||||||
Cost of goods sold |
1,980,690 | 1,510,648 | (470,042 | ) | (31.1 | %) | 84.5 | % | 84.2 | % | ||||||||||||||
Selling, general and administrative expenses |
381,313 | 272,825 | (108,488 | ) | (39.8 | %) | 16.3 | % | 15.2 | % | ||||||||||||||
Management fees |
15,575 | 2,246 | (13,329 | ) | (593.5 | %) | 0.7 | % | 0.1 | % | ||||||||||||||
Transaction expenses |
20,176 | 3,289 | (16,887 | ) | (513.4 | %) | 0.9 | % | 0.2 | % | ||||||||||||||
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Operating income (loss) |
(54,703 | ) | 6,045 | (60,748 | ) | (1,004.9 | %) | -2.3 | % | 0.3 | % | |||||||||||||
Other income (expense): |
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Interest expense |
(56,622 | ) | (34,627 | ) | (21,995 | ) | (63.5 | %) | -2.4 | % | -1.9 | % | ||||||||||||
Loss on extinguishment of debt |
(17,113 | ) | | (17,113 | ) | (100.0 | %) | -0.7 | % | | ||||||||||||||
Other, net |
1,950 | (2,908 | ) | 4,858 | 167.1 | % | 0.1 | % | -0.2 | % | ||||||||||||||
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Income (loss) from continuing operations before income taxes |
(126,488 | ) | (31,490 | ) | (94,998 | ) | (301.7 | %) | -5.4 | % | -1.8 | % | ||||||||||||
Income tax provision (benefit) |
(42,976 | ) | (9,362 | ) | 33,614 | 359.0 | % | -1.8 | % | -0.5 | % | |||||||||||||
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Income (loss) from continuing operations |
(83,512 | ) | (22,128 | ) | (61,384 | ) | (277.4 | %) | -3.6 | % | -1.2 | % | ||||||||||||
Income (loss) from discontinued operations, net of tax |
(48 | ) | | (48 | ) | (100.0 | %) | 0.0 | % | | ||||||||||||||
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Net income (loss) |
$ | (83,560 | ) | $ | (22,128 | ) | $ | (61,432 | ) | (277.6 | %) | -3.6 | % | -1.2 | % | |||||||||
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Net Sales
Net sales for the six months ended July 5, 2014 were $2,343.1 million, a $548.0 million, or 30.5%, increase, as compared with the six months ended June 29, 2013. The increase in net sales was primarily driven by the combined results of new distribution centers as well as the acquisitions of Hercules and Terrys Tire and our 2013 acquisitions of WTD, TDI and RTD. These growth initiatives added $464.3 million of incremental sales during the six month period of 2014. In addition, we experienced an increase in comparable tire unit sales of $134.3 million primarily driven by an overall stronger sales unit environment and the inclusion of five additional selling days in our first quarter of 2014 which contributed approximately $47.0 million to the unit increase. However, these increases were partially offset by lower net tire pricing of $47.0 million, primarily driven by manufacturer marketing specials, competitive pricing positions in certain U.S. markets, as well as a shift in product mix in our lower priced point offerings.
Cost of Goods Sold
Cost of goods sold for the six months ended July 5, 2014 were $1,980.7 million, a $470.0 million, or 31.1%, increase, as compared with the six months ended June 29, 2013. The increase in cost of goods sold was primarily driven by the combined results of new distribution centers as well as the acquisitions of Hercules, Terrys Tire, RTD, WTD and TDI. These growth initiatives added $402.2 million of incremental costs during the six month period of 2014. Cost of goods sold for the six months ended July 5, 2014 also includes $31.6 million related to the non-cash amortization of the inventory step-up recorded in connection with the acquisitions of Terrys Tire, Hercules and WTD as compared to $4.9 million during the six months ended June 29, 2013. In
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addition, the inclusion of five additional selling days in our first quarter of 2014 and an overall stronger sales unit environment increased cost of goods sold by $95.8 million (of which approximately $41.0 million was due to the five additional selling days). These increases were partially offset by lower net tire pricing of $42.5 million.
Cost of goods sold as a percentage of net sales was 84.5% for the six months ended July 5, 2014, an increase compared with 84.2% for the six months ended June 29, 2013. The increase in cost of goods sold as a percentage of net sales was primarily driven by the $31.6 million non-cash amortization of the inventory step-up recorded in connection with the Terrys Tire, Hercules and WTD acquisitions. This increase had a 1.5% impact on cost of goods sold as a percentage of net sales. Excluding the non-cash amortization of the inventory step-up, the decrease in cost of goods sold as a percentage of net sales was primarily driven by the margin contribution of the Hercules brand, a lower level of manufacturer price repositioning this year as compared to the prior year and an incremental benefit from manufacturer programs during the current year.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the six months ended July 5, 2014 were $381.3 million, a $108.5 million, or 39.8%, increase as compared with the six months ended June 29, 2013. The increase in selling, general and administrative expenses was primarily related to incremental costs associated with our new distribution centers as well as the acquisitions of Hercules, Terrys Tire, RTD, WTD and TDI. Combined, these factors added $84.8 million of incremental costs to the six month period of 2014. In addition, we also experienced a $17.3 million increase in salaries and wage expense primarily due to higher sales volume and related headcount, higher incentive and commission compensation and the inclusion of five additional selling days in our first quarter of 2014, which contributed approximately $3.8 million to the year-over-year increase. Additionally, occupancy and vehicle expense increased $2.4 million due to higher cost as we expanded several of our distribution centers to better service our existing customers.
Selling, general and administrative expenses as a percentage of net sales were 16.3% for the six months ended July 5, 2014; an increase compared with 15.2% for the six months ended June 29, 2013. The increase in selling, general and administrative expenses as a percentage of net sales was primarily driven by an increase in costs associated with our growth expansion of recently opened and acquired distribution centers, as our consolidation of the Hercules distribution centers will not be finalized until the latter part of the third quarter and the consolidation of the Terrys Tires distribution centers did not commence until the latter part of the second quarter and will extend thru the latter part of the third quarter.
Management fees
Management fees for the six months ended July 5, 2014 of $15.6 million represents a monitoring fee paid to a management company affiliated with our Sponsor, TPG, for certain management, consulting and financial services as well as fees paid to our outside board of directors. In addition, the six months ended July 5, 2014 includes a $13.5 million fee paid to a management company affiliated with TPG in connection with the acquisitions of Terrys Tire and Hercules.
Transaction Expenses
Transaction expenses for the six months ended July 5, 2014 were $20.2 million and were primarily related to costs associated with our acquisitions of Hercules and Terrys Tire, as well as with expenses related to potential future acquisitions and other corporate initiatives. During the six months ended June 29, 2013, transaction expenses of $3.3 million primarily related to costs associated with our acquisitions of RTD in April 2013 and TriCan in November 2012, as well as with expenses related to potential future acquisitions and other corporate initiatives.
Interest Expense
Interest expense for the six months ended July 5, 2014 was $56.6 million, a $22.0 million, or 63.5%, increase compared with the six months ended June 29, 2013. This increase was due to higher debt levels
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associated with our ABL Facility, FILO Facility, Additional Subordinated Notes and Term Loan, all as defined under Liquidity and Capital Resources, which were driven by our 2014 acquisitions and the redemption of our Senior Secured Notes. In addition, changes in the fair value of our interest rate swaps resulted in a $1.2 million increase in interest expense.
Loss on Extinguishment of Debt
Loss on extinguishment of debt for the six months ended July 5, 2014 of $17.1 million related to the early redemption of all $250.0 million aggregate principal amount of our 9.75% Senior Secured Notes on June 16, 2014 at a redemption price of 104.875% of the principal amount. Additionally, the loss on extinguishment of debt includes approximately $4.9 million related to the write-off the of unamortized original issuance discount and unamortized deferred financing fees associated with the Senior Secured Notes.
Provision (Benefit) for Income Taxes
Our income tax benefit for the six months ended July 5, 2014 was $43.0 million, based on pre-tax loss of $126.5 million; our effective tax rate under the discrete method was 34.0%. For the six months ended June 29, 2013, our income tax benefit was $9.4 million, based on a pre-tax loss of $31.5 million; our effective tax rate was 29.7%. The effective rate of the year-to-date tax provision is lower than the statutory income tax rate primarily due to earnings in a foreign jurisdiction taxed at rates lower than the statutory U.S. federal rate and non-deductible transaction costs, which lowered the effective tax rate by 0.5% and 0.5%, respectively.
Fiscal 2013 Compared to Fiscal 2012
The following table sets forth the period change for each category of the statements of operations, as well as each category as a percentage of net sales:
Fiscal Year Ended |
Fiscal Year Ended |
Period Over |
Period Over |
Percentage of Net Sales For |
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In thousands |
December 28, |
December 29, |
Favorable |
Favorable |
December 28, |
December 29, |
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Net sales |
$ | 3,839,269 | $ | 3,455,864 | $ | 383,405 | 11.1 | % | 100.0 | % | 100.0 | % | ||||||||||||
Cost of goods sold |
3,188,409 | 2,887,421 | (300,988 | ) | (10.4 | %) | 83.0 | % | 83.6 | % | ||||||||||||||
Selling, general and administrative expenses |
574,987 | 506,558 | (68,429 | ) | (13.5 | %) | 15.0 | % | 14.7 | % | ||||||||||||||
Transaction expenses |
6,719 | 5,246 | (1,473 | ) | (28.1 | %) | 0.2 | % | 0.2 | % | ||||||||||||||
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Operating income (loss) |
69,154 | 56,639 | 12,515 | 22.1 | % | 1.8 | % | 1.6 | % | |||||||||||||||
Other income (expense): |
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Interest expense |
(74,316 | ) | (72,910 | ) | (1,406 | ) | (1.9 | %) | (1.9 | %) | (2.1 | %) | ||||||||||||
Other, net |
(5,196 | ) | (3,895 | ) | (1,301 | ) | (33.4 | %) | (0.1 | %) | (0.1 | %) | ||||||||||||
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Income (loss) from operations before income taxes |
(10,358 | ) | (20,166 | ) | 9,808 | 48.6 | % | (0.3 | %) | (0.6 | %) | |||||||||||||
Income tax provision (benefit) |
(3,982 | ) | (5,965 | ) | (1,983 | ) | (33.2 | %) | (0.1 | %) | (0.2 | %) | ||||||||||||
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Net income (loss) |
$ | (6,376 | ) | $ | (14,201 | ) | $ | 7,825 | 55.1 | % | (0.2 | %) | (0.4 | %) | ||||||||||
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Net Sales
Net sales for fiscal 2013 were $3,839.3 million, a $383.4 million or 11.1% increase compared with fiscal 2012. The increase in net sales was primarily driven by the combined results of new distribution centers as well as the acquisition of TriCan and Firestone of Denham Springs, Inc. d/b/a Consolidated Tire & Oil (CTO) in fiscal 2012 and RTD, TDI and WTD in fiscal 2013. These growth initiatives added $464.4 million of incremental sales during fiscal 2013. In addition, despite one less selling day in fiscal 2013 as compared to fiscal 2012, we experienced an increase in comparable tire unit sales of $3.6 million primarily driven by an overall stronger sales unit environment particularly during the fourth quarter of 2013. However, these increases were partially offset by lower net tire pricing of $92.0 million, which included $68.8 million related to passenger and light truck tires and $15.5 million related to medium truck tires, primarily driven by manufacturer price repositioning, as well as a slight shift in product mix in our lower priced point offerings specifically our entry level imported products.
Cost of Goods Sold
Cost of goods sold for fiscal 2013 were $3,188.4 million, a $301.0 million or a 10.4% increase compared with fiscal 2012. The increase in cost of goods sold was primarily driven by the combined results of new distributions centers as well as the acquisition of TriCan and CTO in fiscal 2012 and RTD, TDI and WTD in fiscal 2013. These growth initiatives added $379.1 million of incremental costs during fiscal 2013. In addition, despite one less selling day in fiscal 2013 as compared to fiscal 2012, we experienced an overall stronger sales unit environment, particularly during fourth quarter of 2013, which increased cost of goods sold by $0.9 million. Cost of goods sold for fiscal 2013 also includes $5.4 million related to non-cash amortization of the inventory step-up recorded in connection with the acquisitions of TriCan, RTD, TDI and WTD as compared to $4.1 million during fiscal 2012. These increases were partially offset by lower net tire pricing of $78.6 million.
Cost of goods sold as a percentage of net sales was 83.0% for fiscal 2013, a decrease compared with 83.6% from fiscal 2012. The decrease in cost of goods sold as a percentage of net sales was primarily driven by a higher level of manufacturer program benefits in the current year, which was driven by an approximate 4% unit growth in the U.S., but was partially offset by a higher level of negative FIFO layers in 2013 as compared to 2012, which resulted from manufacturer price reductions.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for fiscal 2013 were $575.0 million, a $68.4 million or 13.5% increase compared with fiscal 2012. The increase in selling, general and administrative expenses was primarily related to incremental costs associated with our new distribution centers as well as the acquisition of TriCan and CTO in fiscal 2012 and RTD, TDI and WTD in fiscal 2013. Combined, these factors added $69.6 million of incremental costs to fiscal 2013, including increased amortization expense of $12.1 million from newly established intangible assets. In addition, we experienced a $5.3 million increase to vehicle and occupancy expenses due to a higher overall consumption of fuel and other vehicle related expenses as well as increases in occupancy costs as we expanded several of our distribution centers to better service our existing customers. Depreciation expense added an additional $4.7 million of costs to fiscal 2013 as we increased our capital expenditure costs for information system technologies. These increases were partially offset by a decrease in salaries and wage expense of $9.0 million, which related to lower commission compensation, as well as, improved operating efficiencies and headcount leverage in most of our distribution centers.
Selling, general and administrative expenses as a percentage of net sales was 15.0% for fiscal 2013; an increase compared with 14.7% during fiscal 2012. The increase in selling, general and administrative expenses as a percentage of net sales was substantially driven by an increase in non-cash depreciation and amortization expense.
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Transaction Expenses
Transaction expenses for fiscal 2013 were $6.7 million and were primarily related to costs associated with our acquisitions of RTD, TDI and WTD as well as expenses related to potential future acquisitions and other corporate initiatives. Transaction expenses for fiscal 2012 were $5.2 million, which primarily related to acquisition costs associated with our acquisition of TriCan in November 2012 and CTO in May 2012 as well as with expenses related to potential future acquisitions and corporate initiatives. In addition, we incurred $1.3 million for exit costs associated with our decision to relocate an existing distribution center into an expanded distribution center during fiscal 2012.
Interest Expense
Interest expense for fiscal 2013 was $74.3 million, a $1.4 million or 1.9% increase compared with fiscal 2012. The increase is primarily due to higher average debt levels on our ABL Facility as well as our FILO Facility, resulting from our acquisitions of TriCan at the end of fiscal 2012 as well as RTD, TDI and WTD during fiscal 2013. In addition, interest expense for fiscal 2012 included $2.8 million relating to the write-off of deferred financing costs associated with the amendment of our ABL Facility in November 2012 that did not repeat in fiscal 2013. During fiscal 2013, we also recorded $0.7 million associated with the fair value changes of our interest rate swaps. The comparable amount recorded associated with these swaps during fiscal 2012 was $1.3 million.
Provision (Benefit) for Income Taxes
Our income tax benefit for fiscal 2013 was $4.0 million. The benefit, which was based on a pre-tax loss of $10.4 million, includes $66.2 million of amortization expense that is not deductible for income tax purposes. Our income tax benefit for 2012 was $6.0 million, which was based on pre-tax loss of $20.2 million, primarily resulting from a higher state effective tax rate as well as additional amortization expense related to the valuation of intangible assets acquired, which were recorded in connection with the Merger. Our effective tax rate for fiscal years 2013 and 2012 was 38.4% and 29.5%, respectively. The effective tax rate for fiscal 2013 was higher than the statutory tax rate primarily due to the adjustment to the transaction costs related to 2013 acquisitions, the release of the valuation allowance related to various state net operating losses, and the rate differences between U.S. and Canada. The effective tax rate for fiscal 2012 was lower than the statutory tax rate primarily due to the adjustment to the transaction costs related to the acquisition of TriCan, the impact from certain amortization expense that is non-deductible for tax purposes, and the rate differences between U.S. and Canada.
Fiscal 2012 Compared to Fiscal 2011
The following table sets forth the period change for each category of the statements of operations, as well as each category as a percentage of net sales:
Fiscal Year Ended |
Fiscal Year Ended |
Period Over |
Period Over |
Percentage of Net Sales For the Respective Period Ended |
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In thousands |
December 29, |
December 31, |
Favorable |
Favorable |
December 29, |
December 31, |
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Net sales |
$ | 3,455,864 | $ | 3,050,240 | $ | 405,624 | 13.3 | % | 100.0 | % | 100.0 | % | ||||||||||||
Cost of goods sold |
2,887,421 | 2,535,020 | (352,401 | ) | (13.9 | %) | 83.6 | % | 83.1 | % | ||||||||||||||
Selling, general and administrative expenses |
506,558 | 437,260 | (69,298 | ) | (15.8 | %) | 14.7 | % | 14.3 | % | ||||||||||||||
Transaction expenses |
5,246 | 3,946 | (1,300 | ) | (32.9 | %) | 0.2 | % | 0.1 | % | ||||||||||||||
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Operating income (loss) |
56,639 | 74,014 | (17,375 | ) | (23.5 | %) | 1.6 | % | 2.4 | % | ||||||||||||||
Other income (expense): |
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Interest expense |
(72,910 | ) | (67,572 | ) | (5,338 | ) | (7.9 | %) | (2.1 | %) | (2.2 | %) | ||||||||||||
Other, net |
(3,895 | ) | (2,110 | ) | (1,785 | ) | (84.6 | %) | (0.1 | %) | (0.1 | %) | ||||||||||||
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Income (loss) from operations before income taxes |
(20,166 | ) | 4,332 | (24,498 | ) | (565.5 | %) | (0.6 | %) | 0.1 | % | |||||||||||||
Income tax provision (benefit) |
(5,965 | ) | 4,464 | 10,429 | 233.6 | % | (0.2 | %) | 0.1 | % | ||||||||||||||
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Net income (loss) |
$ | (14,201 | ) | $ | (132 | ) | $ | (14,069 | ) | (10,658.3 | %) | (0.4 | %) | 0.0 | % | |||||||||
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Net Sales
Net sales for fiscal 2012 were $3,455.9 million, a $405.6 million or 13.3% increase compared with fiscal 2011. The increase in net sales was partially driven by higher net tire pricing of $167.1 million. The pricing increase, which included $127.0 million related to passenger and light truck tires and $28.1 million related to medium truck tires, resulted from our passing through tire manufacturer price increases predominately established during 2011, as well as selling a higher mix of flag brand product and a lower mix of Chinese manufactured product. The combined results of new distribution centers opened since the beginning of 2011 as well as the acquisitions of TriCan, CTO and Bowlus Service Company d/b/a North Central Tire (NCT) added $181.5 million of incremental sales during fiscal 2012. In addition, an increase in comparable tire unit sales across all tire categories contributed $40.4 million, primarily driven by passenger and light truck tires. However, the increase in comparable tire unit sales was slightly impacted by destocking of lower price point inventories throughout the marketplace in anticipation of the expiration of tariffs imposed on Chinese tire imports that ceased at the end of September 2012. As a result, comparable net sales of the Chinese tire imports decreased by $34.1 million.
Cost of Goods Sold
Cost of goods sold for fiscal 2012 were $2,887.4 million, a $352.4 million or a 13.9% increase compared with fiscal 2011. The increase in cost of goods sold was primarily driven by the combined results of new distribution centers opening since the beginning of 2011, as well as the acquisitions of TriCan, CTO, and NCT. These growth initiatives added $159.2 million of incremental costs during fiscal 2012. In addition, higher net tire pricing of $126.3 million contributed to the increase. The pricing increase, which included $103.6 million related to passenger and light truck tires and $23.6 million related to medium truck tires, resulted from tire manufacturer price increases predominately established during 2011, as well as selling a higher mix of flag brand product and a lower mix of Chinese manufactured product. In addition, an increase in comparable tire unit sales contributed $22.8 million, primarily driven by passenger and light truck tires. Fiscal 2012 also includes $4.1 million related to the non-cash amortization of the inventory step-up recorded in connection with the acquisition of TriCan.
Cost of goods sold as a percentage of net sales was 83.6% for fiscal 2012, an increase compared with 83.1% from fiscal 2011. The increase in the cost of goods sold as a percentage of net sales was primarily driven by a lower level of manufacturer price increases implemented during 2012 as compared to 2011, coupled with selective discounting by certain tire manufacturers during 2012 for the intention of spurring unit sales. These price increases generate favorable inventory cost layers that are passed through to our customers in the period instituted. In addition, competitive pricing pressures have increased as distributors vie for customers in a sluggish market.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for fiscal 2012 were $506.6 million, a $69.3 million or 15.8% increase compared with fiscal 2011. The increase in selling, general and administrative expenses was primarily related to incremental costs associated with our new distribution centers opened since the beginning of 2011 as well as the acquisitions of TriCan, CTO and NCT. Combined, these factors added $28.0 million of incremental costs to fiscal 2012, including increased amortization expense of $5.0 million from newly established intangible assets. In addition, we experienced an increase to salaries and wage expense of $14.1 million, primarily due to higher sales volume and related headcount; a $9.8 million increase to vehicle expense due to a higher price per gallon of fuel, higher overall consumption of fuel and other vehicle related expenses; as well as a $6.0 million increase in occupancy costs as we expanded several of our distribution centers to better service our existing customers. Depreciation expense added an additional $5.7 million of costs to fiscal 2012 as we increased our capital expenditure costs primarily for information system technologies.
Selling, general and administrative expenses as a percentage of net sales was 14.7% for fiscal 2012; an increase compared with 14.3% during fiscal 2011. The increase in selling, general and administrative expenses as
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a percentage of net sales was primarily driven by an increase in costs associated with our growth expansion of recently opened distribution centers as well as an increase in non-cash depreciation and amortization expense.
Transaction Expenses
Transaction expenses for fiscal 2012 were $5.2 million, which primarily related to acquisition costs associated with our acquisition of TriCan in November 2012 and CTO in May 2012 as well as with expenses related to potential future acquisitions and corporate initiatives. In addition, we incurred $1.3 million for exit costs associated with our decision to relocate an existing distribution center into an expanded distribution center during fiscal 2012. Transaction expenses for fiscal 2011 were $3.9 million, which primarily related to acquisition fees as well as costs incurred in connection with both the amendment of our ABL Facility and the registration of our Senior Secured Notes with the SEC. Additionally, we incurred $1.1 million for exit costs associated with our decision to relocate two existing distribution centers into two expanded distribution centers during fiscal 2011.
Interest Expense
Interest expense for fiscal 2012 was $72.9 million, a $5.3 million or 7.9% increase compared with fiscal 2011. The increase is primarily due to higher average debt levels on our ABL Facility partially offset by lower average interest rates on the outstanding debt. In addition, $2.8 million of the year-over-year increase relates to the write-off of deferred financing costs associated with the amendment of our ABL Facility in November 2012 due to a change in lenders in the syndication group for the amended ABL Facility. During fiscal 2012, we also recorded $1.3 million associated with the fair value changes of our interest rate swaps. The comparable amount recorded associated with these swaps during fiscal 2011 was $0.9 million.
Provision (Benefit) for Income Taxes
Our income tax benefit for fiscal 2012 was $6.0 million. The benefit, which was based on a pre-tax loss of $20.2 million, includes $58.6 million of amortization expense that is not deductible for income tax purposes. Our income tax provision for 2011 was $4.5 million, which was based on pre-tax income of $4.3 million, primarily resulting from a higher state effective tax rate as well as additional amortization expense related to the valuation of intangible assets acquired, which were recorded in connection with the Merger. Our effective tax rate for fiscal years 2012 and 2011 was 29.5% and 103.1%, respectively. The effective tax rate for fiscal 2012 was lower than the statutory tax rate primarily due to the unfavorable adjustment to the transaction costs related to the acquisition of TriCan, the impact from certain amortization expense that is non-deductible for tax purposes, and the rate differences between U.S. and Canada. The effective tax rate for fiscal 2011 was higher than the statutory tax rate primarily due to a 0.5% increase in our state effective tax rate, a result based on our growing presence in jurisdictions with higher than average tax rates, and the impact from certain amortization expense that is non-deductible for tax purposes.
Liquidity and Capital Resources
Overview
The following table contains several key measures to gauge our financial condition and liquidity:
In thousands |
July 5, 2014 |
December 28, |
December 29, |
December 31, |
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Cash and cash equivalents |
$ | 27,533 | $ | 35,760 | $ | 34,700 | $ | 23,682 | ||||||||
Working capital |
859,525 | 541,051 | 556,646 | 457,443 | ||||||||||||
Total debt |
1,944,297 | 967,000 | 951,204 | 835,808 | ||||||||||||
Total stockholders equity |
649,059 | 680,054 | 692,753 | 642,773 | ||||||||||||
Debt-to-capital ratio (1) |
75.0 | % | 58.7 | % | 57.9 | % | 56.5 | % | ||||||||
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(1) | Debt-to-capital ratio = total debt / (total debt plus total stockholders equity) |
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We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. In doing so, we review and analyze our current cash on hand, the number of days our sales are outstanding, inventory turns, capital expenditure commitments and income tax rates. Our cash requirements consist primarily of the following:
| Debt service requirements |
| Funding of working capital |
| Funding of capital expenditures |
Our primary sources of liquidity include cash flows from operations and our availability under our ABL Facility and FILO Facility. We currently do not intend nor foresee a need to repatriate funds from our Canadian subsidiaries to the U.S., and no provision for U.S. income taxes has been made with respect to such earnings. We expect our cash flow from U.S. operations, combined with availability under our U.S. ABL Facility, to provide sufficient liquidity to fund our current obligations, projected working capital requirements and capital spending in the U.S. during the next twelve month period. In addition, we expect our cash flow from U.S. operations and our availability under our U.S. ABL Facility to continue to provide sufficient liquidity to fund our ongoing obligations, projected working capital requirements, restructuring obligations and capital spending in the U.S. during the foreseeable future. We expect cash flows from our Canadian operations, combined with availability under our Canadian ABL Facility, to provide sufficient liquidity to fund our current obligations, projected working capital requirements and capital spending in Canada during the next twelve month period and thereafter for the foreseeable future.
We are significantly leveraged. Accordingly, our liquidity requirements are significant, primarily due to our debt service requirements. As of July 5, 2014, our total indebtedness was $1,944.3 million with a debt-to-capital ratio of 75.0%. As of July 5, 2014, we have an additional $198.4 million of availability under our U.S. ABL Facility and an additional $70.8 million of availability under our Canadian ABL Facility. The availability under our U.S. and Canadian ABL Facilities is determined in accordance with our borrowing base.
Our liquidity and our ability to fund our capital requirements is dependent on our future financial performance, which is subject to general economic, financial and other factors that are beyond our control and many of which are described under Risk Factors. If those factors significantly change or other unexpected factors adversely affect us, our business may not generate sufficient cash flow from operations or we may not be able to obtain future financings to meet our liquidity needs. We anticipate that to the extent additional liquidity is necessary to fund our operations, it would be funded through borrowings under our U.S. and Canadian ABL Facilities or through the incurrence of additional indebtedness, additional equity financings or a combination of these potential sources of liquidity. We may not be able to obtain this additional liquidity on terms acceptable to us or at all.
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Cash Flows
The following table sets forth the major categories of cash flows:
In thousands |
Six months July 5, 2014 |
Six months ended June 29, 2013 |
Year ended |
Year ended |
Year ended |
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Cash provided by (used in) continuing operating activities |
$ | (167,545 | ) | $ | 29,033 | $ | 100,982 | $ | 10,072 | $ | (90,699 | ) | ||||||||
Cash provided by (used in) discontinued operations |
350 | | | | | |||||||||||||||
Cash provided by (used in) investing activities |
(855,423 | ) | (88,532 | ) | (118,435 | ) | (167,821 | ) | (92,249 | ) | ||||||||||
Cash provided by (used in) financing activities |
1,013,358 | 63,000 | 22,998 | 168,824 | 186,263 | |||||||||||||||
Effect of exchange rate changes on cash |
1,033 | (2,548 | ) | (4,485 | ) | (57 | ) | | ||||||||||||
Net increase (decrease) in cash and cash equivalents |
(8,227 | ) | 953 | 1,060 | 11,018 | 3,315 | ||||||||||||||
Cash and cash equivalentsbeginning of period |
35,760 | 34,700 | 34,700 | 23,682 | 20,367 | |||||||||||||||
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Cash and cash equivalentsend of period |
$ | 27,533 | $ | 35,653 | $ | 35,760 | $ | 34,700 | $ | 23,682 | ||||||||||
Cash payments for interest |
$ | 58,025 | $ | 33,036 | $ | 68,179 | $ | 64,324 | $ | 61,732 | ||||||||||
Cash payments (receipts) for taxes, net |
$ | 3,817 | $ | 2,464 | $ | 23,740 | $ | 6,510 | $ | (8,101 | ) | |||||||||
Capital expenditures financed by debt |
$ | | $ | | $ | 128 | $ | 515 | $ | |
Operating Activities
Net cash used in continuing operating activities for the six months ended July 5, 2014 was $167.5 million compared with cash provided by continuing operating activities of $29.0 million during the six months ended June 29, 2013. During the current period, working capital requirements resulted in a cash outflow of $177.7 million, primarily driven by an increase in customer accounts receivable of $38.3 million and an increase in inventory levels of $100.1 million as a result of stocking new distribution centers opened and building out the product offering provided through the Hercules acquisition, and to a lesser extent, due to the build of inventory levels for the achievement of certain manufacturer first half program incentives.
Net cash provided by continuing operating activities for the six months ended June 29, 2013 was $29.0 million. During the current period, working capital requirements resulted in a cash inflow of $3.8 million, primarily driven by an increase in accounts payable associated with the timing of vendor payments and a decrease in customer accounts receivable. These amounts were partially offset by changes in inventory levels which resulted in a cash outflow during the current period as a result of stocking new distribution centers opened during the year, seasonal changes in inventory stocking levels and our recent acquisitions.
Net cash provided by operating activities for fiscal 2013 was $101.0 million compared with $10.1 million for fiscal 2012. The increase is primarily driven by cash earnings during the year. In addition, working capital requirements resulted in a net cash inflow of $9.6 million during fiscal 2013, primarily driven by a change in accounts payable associated with the timing of vendor payments which resulted in a cash inflow of $29.5 million partially offset by a cash outflow of $27.6 million related to changes in inventory levels as a result of stocking new distribution centers opened and acquired during the year as well as seasonal changes in inventory stocking levels (including the Canadian winter business).
Net cash provided by operating activities for fiscal 2012 was $10.1 million compared with net cash used in operating activities of $90.7 million for fiscal 2011. During fiscal 2012, working capital requirements resulted in a cash outflow of $73.2 million, primarily driven by the continued expansion of our distribution centers into new domestic geographic markets. In addition, inventory resulted in a cash outflow of $32.2 million as a result of stocking seven new distribution centers opened during 2012 and our recent acquisitions. Accounts payable and accrued expenses changes also resulted in a cash outflow of $38.1 million primarily associated with the earlier timing of vendor payments and changes in accrued incentive compensation.
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Net cash used in operating activities for fiscal 2011 was $90.7 million. During fiscal 2011, working capital requirements resulted in a cash outflow of $174.5 million, primarily driven by the continued expansion of our distribution centers into new domestic geographic markets. Cash outflows of $151.9 million related to inventory reflected our decision to increase manufacturer safety stock amounts as a result of tight supply levels with most of our manufacturers, the impact of manufacturer price increases on the replenishment of our inventory as well as the impact of new, acquired or expanded distribution centers. In addition, the combined impact of stocking new distribution centers and our recent acquisitions also contributed to the inventory increase. As well, higher sales volumes led to a $47.4 million increase to accounts receivable. However, these amounts were partially offset by a $19.2 million increase in accounts payable and accrued expenses primarily associated with the timing of vendor payments and accrued interest on our Senior Secured Notes.
Investing Activities
Net cash used in investing activities for the six months ended July 5, 2014 was $855.4 million, compared with $88.5 million during the six months ended June 29, 2013. The change was primarily associated with cash paid for acquisitions, which resulted in a $757.3 million increase in the current period. In addition, we invested $34.2 million and $23.8 million in property and equipment purchases during the six months ended July 5, 2014 and June 29, 2013, respectively, which included information technology upgrades, information technology application development and warehouse racking.
Net cash used in investing activities for fiscal 2013 was $118.4 million compared to $167.8 million during fiscal 2012. The change was primarily associated with cash paid for acquisitions, which resulted in a $38.3 million decrease during fiscal 2013. In addition, we invested $47.1 million and $52.4 million in property and equipment purchases during fiscal 2013 and fiscal 2012, respectively, which included information technology upgrades, IT application development and warehouse racking relating to existing and new distribution centers. During fiscal 2013 we received proceeds from the sale of assets held for sale of $7.8 million compared to $3.7 million during fiscal 2012.
Net cash used in investing activities for fiscal 2012 was $167.8 million compared to $92.2 million during fiscal 2011. The change was primarily associated with cash paid for acquisitions, which resulted in a $55.6 million increase. In addition, we invested $52.4 million and $31.0 million in property and equipment purchases during fiscal 2012 and fiscal 2011, respectively, which included information technology upgrades, IT application development and warehouse racking.
Financing Activities
Net cash provided by financing activities for the six months ended July 5, 2014 was $1,013.4 million, compared with $63.0 million during the six months ended June 29, 2013. The change was primarily related to proceeds received from the issuance of our Additional Subordinated Notes and Term Loan during the six months ended July 5, 2014. These proceeds were used to finance a portion of the Hercules and Terrys Tire acquisitions as well to redeem all amounts outstanding under our Senior Secured Notes. In addition, higher net borrowings from our ABL Facility and FILO Facility, specifically our U.S. ABL Facility, contributed to the period-over-period increase. The higher net borrowings under our ABL Facility and FILO Facility were due to the increase in cash outflow for working capital requirements between periods and cash paid for acquisitions. Additionally, the Company received an equity contribution of $50.0 million from investment funds affiliated with TPG and certain co-investors during the six months ended July 5, 2014.
Net cash provided by financing activities for fiscal 2013 was $23.0 million compared with $168.8 million during fiscal 2012. The decrease was primarily related to lower net borrowings from our ABL Facility, specifically our U.S. ABL Facility due to the reduction in cash outflow for working capital requirements between periods and favorable cash earnings partially offset by cash paid for acquisition. In addition, cash provided by financing activities for fiscal 2012 included a $60.0 million equity contribution received from the TPG Funds and certain co-investors that did not repeat during fiscal 2013.
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Net cash provided by financing activities for fiscal 2012 was $168.8 million compared with $186.3 million during fiscal 2011. The decrease was primarily related to lower net borrowings from our ABL Facility due to the reduction in cash outflow for working capital requirements between periods as well as the change in outstanding checks between periods. These decreases were partially offset by a $60.0 million equity contribution received from the TPG Funds and certain co-investors during 2012.
Supplemental Disclosures of Cash Flow Information
Cash payments for interest during the six months ended July 5, 2014 were $58.0 million, compared with $33.0 million paid during the six months ended June 29, 2013. The increase is primarily due to the timing of our period end on July 5, 2014, and as such, included an additional quarterly interest payment on our ABL Facility and FILO Facility as compared to the prior year. Additionally, higher levels of indebtedness incurred in connection with the issuance of our Additional Subordinated Notes and under our Term Loan also contributed to the year-over-year increase.
Net cash payments for taxes during the six months ended July 5, 2014 were $3.8 million, compared with $2.5 million during the six months ended June 29, 2013. The difference between the periods primarily relates to the balance and timing of income tax extension payments and income tax payments due with returns.
Cash payments for interest for fiscal 2013 were $68.2 million compared with $64.3 million during fiscal 2012. The increase is primarily due to higher average debt levels during fiscal 2013. In addition, we paid an additional $0.4 million during fiscal 2013 related to our interest rate swaps.
Cash payments for interest for fiscal 2012 were $64.3 million compared with cash payments for interest for fiscal 2011 of $61.7 million. The increase is primarily due to higher average debt levels during fiscal 2012 partially offset by lower average interest rates on the outstanding debt during the year. We also paid an additional $0.7 million during fiscal 2012 related to our interest rate swaps.
Cash payments for taxes during fiscal 2013 were $23.7 million compared with $6.5 million during fiscal 2012. The difference between periods primarily relates to the balance and timing of estimated income tax payments and income tax payments due with returns.
Cash payments for taxes during fiscal 2012 were $6.5 million, net of a receipt of $1.2 million related to a federal income tax refund. The remaining balance included payments for 2012 estimated tax payments and 2011 tax return payments. Cash receipts for taxes for fiscal 2011 were $8.1 million. During fiscal 2011, we utilized a federal net operating loss to recover a portion of our prior federal income tax paid. As a result, we received a $9.1 million tax refund in the fourth quarter of 2011 based on the use of this net operating loss carryback.
Indebtedness
The following table summarizes our outstanding debt at July 5, 2014:
In thousands |
Matures |
Interest |
Outstanding |
|||||
U.S. ABL Facility |
2017 | 3.4% | $ | 641,639 | ||||
Canadian ABL Facility |
2017 | 4.5 | 53,165 | |||||
U.S. FILO Facility |
2017 | 5.8 | 80,000 | |||||
Canadian FILO Facility |
2017 | 6.0 | 10,266 | |||||
Term Loan |
2018 | 5.8 | 717,693 | |||||
Senior Secured Notes (2) |
2017 | 9.75 | | |||||
Senior Subordinated Notes |
2018 | 11.50 | 421,361 | |||||
Capital lease obligations |
20152027 | 2.713.9 | 12,577 | |||||
Other |
20142021 | 2.310.6 | 7,596 | |||||
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Total debt |
1,944,297 | |||||||
LessCurrent maturities |
(10,120 | ) | ||||||
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Long-term debt |
$ | 1,934,177 | ||||||
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(1) | Interest rates for each of the U.S. ABL Facility and the Canadian ABL Facility are the weighted-average interest rate at July 5, 2014. |
(2) | The proceeds from the additional Term Loan borrowings were used in part to redeem our Senior Secured Notes. See Senior Secured Notes. |
ABL Facility
On January 31, 2014, in connection with the Hercules acquisition, we entered into the Second Amendment to Sixth Amended and Restated Credit Agreement (Credit Agreement) which provides for (i) U.S. revolving credit commitments of $850.0 million (of which up to $50.0 million can be utilized in the form of commercial and standby letters of credit), subject to U.S. borrowing base availability (the U.S. ABL Facility) and (ii) Canadian revolving credit commitments of $125.0 million (of which up to $10.0 million can be utilized in the form of commercial and standby letters of credit), subject to Canadian borrowing base availability (the Canadian ABL Facility and, collectively with the U.S. ABL Facility, the ABL Facility). In addition, the Credit Agreement provides the U.S. borrowers under the agreement with a first-in last-out facility (the U.S. FILO Facility) in an aggregate principal amount of up to $80.0 million, subject to a borrowing base specific thereto and the Canadian borrowers under the agreement with a first-in last-out facility (the Canadian FILO Facility and collectively with the U.S. FILO Facility, the FILO Facility) in an aggregate principal amount of up to $15.0 million, subject to a borrowing base specific thereto. The U.S. ABL Facility provides for revolving loans available to ATDI, its 100% owned subsidiary Am-Pac Tire Dist. Inc., Hercules and any other U.S. subsidiary that we designate in the future in accordance with the terms of the agreement. The Canadian ABL Facility provides for revolving loans available to TriCan, RTD and WTD and any other Canadian subsidiaries that we designate in the future in accordance with the terms of the agreement. Provided that no default or event of default then exists or would arise therefrom, we have the option to request that the ABL Facility be increased by an amount not to exceed $175.0 million (up to $25.0 million of which may be allocated to the Canadian ABL Facility), subject to certain rights of the administrative agent, swingline lender and issuing banks with respect to the lenders providing commitments for such increase. The maturity date for the ABL Facility is November 16, 2017. The maturity date for the FILO Facility is January 31, 2017.
As of July 5, 2014, we had $641.6 million outstanding under the U.S. ABL Facility. In addition, we had certain letters of credit outstanding in the aggregate amount of $10.0 million, leaving $198.4 million available for additional borrowings under the U.S. ABL Facility. The outstanding balance of the Canadian ABL Facility at July 5, 2014 was $53.1 million, leaving $70.8 million available for additional borrowings. As of July 5, 2014, the outstanding balance of the U.S. FILO Facility was $80.0 million and the outstanding balance of the Canadian FILO Facility was $10.3 million.
Borrowings under the U.S. ABL Facility bear interest at a rate per annum equal to, at our option, either (a) an Adjusted LIBOR rate determined by reference to LIBOR, adjusted for statutory reserve requirements, plus an applicable margin of 2.0% as of July 5, 2014 or (b) a base rate determined by reference to the highest of (1) the prime commercial lending rate published by the Bank of America, N.A. as its prime rate for commercial loans, (2) the federal funds effective rate plus 1/2 of 1% and (3) the one month-Adjusted LIBOR rate plus 1.0% per annum, plus an applicable margin of 1.0% as of July 5, 2014. The applicable margins under the U.S. ABL Facility are subject to step ups and step downs based on average excess borrowing availability under the ABL Facility.
Borrowings under the Canadian ABL Facility bear interest at a rate per annum equal to either (a) a Canadian base rate determined by reference to the highest of (1) the base rate as published by Bank of America, N.A. (acting through its Canada branch) as its base rate, (2) the federal funds rate effective plus 1/2 of 1% per annum and (3) the one month-LIBOR rate plus 1.0% per annum, plus an applicable margin of 1.0% as of July 5, 2014, (b) a Canadian prime rate determined by reference to the highest of (1) the prime rate as published by Bank of America, N.A. (acting through its Canada branch) as its prime rate, (2) the sum of 1/2 of 1% plus the Canadian overnight rate and (3) the sum of 1% plus the rate of interest per annum equal to the average rate applicable to Canadian Dollar bankers
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acceptances as published by Reuters Monitor Money Rates Service for a 30 day interest period, plus an applicable margin of 1.0% as of July 5, 2014, (c) a rate of interest per annum equal to the average rate applicable to Canadian Dollar bankers acceptances having an identical or comparable term as the proposed loan amount displayed and identified as such on the display referred to as the CDOR Page of Reuters Monitor Money Rates Service as at approximately 10:00 a.m. Toronto time on such day, plus an applicable margin of 2.0% as of July 5, 2014 or (d) an Adjusted LIBOR rate determined by reference to LIBOR, adjusted for statutory reserve requirements, plus an applicable margin of 2.0% as of July 5, 2014. The applicable margins under the Canadian ABL Facility are subject to step ups and step downs based on average excess borrowing availability under the ABL Facility.
Borrowings under the U.S. FILO Facility bear interest at a rate per annum equal to, at our option, either (a) an Adjusted LIBOR rate determined by reference to LIBOR, adjusted for statutory reserve requirements, plus an applicable margin of 3.5% as of July 5, 2014 or (b) a base rate determined by reference to the highest of (1) the prime commercial lending rate published by the Bank of America, N.A. as its prime rate for commercial loans, (2) the federal funds effective rate plus 1/2 of 1% and (3) the one month-Adjusted LIBOR rate plus 1.0% per annum, plus an applicable margin of 2.5% as of July 5, 2014. The applicable margins under the U.S. FILO Facility are subject to step ups and step downs based on average excess borrowing availability under the ABL Facility.
Borrowings under the Canadian FILO Facility bear interest at a rate per annum equal to either (a) a Canadian base rate determined by reference to the highest of (1) the base rate as published by Bank of America, N.A. (acting through its Canada branch) as its base rate, (2) the federal funds rate effective plus 1/2 of 1% per annum and (3) the one month-LIBOR rate plus 1.0% per annum, plus an applicable margin of 2.5% as of July 5, 2014, (b) a Canadian prime rate determined by reference to the highest of (1) the prime rate as published by Bank of America, N.A. (acting through its Canada branch) as its prime rate, (2) the sum of 1/2 of 1% plus the Canadian overnight rate and (3) the sum of 1% plus the rate of interest per annum equal to the average rate applicable to Canadian Dollar bankers acceptances as published by Reuters Monitor Money Rates Service for a 30 day interest period, plus an applicable margin of 2.5% as of July 5, 2014, (c) a rate of interest per annum equal to the average rate applicable to Canadian Dollar bankers acceptances having an identical or comparable term as the proposed loan amount displayed and identified as such on the display referred to as the CDOR Page of Reuters Monitor Money Rates Service as at approximately 10:00 a.m. Toronto time on such day, plus an applicable margin of 3.5% as of July 5, 2014 or (d) an Adjusted LIBOR rate determined by reference to LIBOR, adjusted for statutory reserve requirements, plus an applicable margin of 3.5% as of July 5, 2014. The applicable margins under the Canadian FILO Facility are subject to step ups and step downs based on average excess borrowing availability under the ABL Facility.
The U.S. and Canadian borrowing base at any time equals the sum (subject to certain reserves and other adjustments) of:
| 85% of eligible accounts receivable of the U.S. or Canadian loan parties, as applicable; plus |
| The lesser of (a) 70% of the lesser of cost or fair market value of eligible tire inventory of the U.S. or Canadian loan parties, as applicable, and (b) 85% of the net orderly liquidation value of eligible tire inventory of the U.S. or Canadian loan parties, as applicable; plus |
| The lesser of (a) 50% of the lower of cost or market value of eligible non-tire inventory of the U.S. or Canadian loan parties, as applicable, and (b) 85% of the net orderly liquidation value of eligible non-tire inventory of the U.S. or Canadian loan parties, applicable. |
The U.S. FILO and the Canadian FILO borrowing base at any time equals the sum (subject to certain reserves and other adjustments) of:
| 5% of eligible accounts receivable of the U.S or Canadian. loan parties, as applicable; plus |
| 10.0% of the net orderly liquidation value of the eligible tire and non-tire inventory of the U.S. or Canadian loan parties, as applicable. |
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All obligations under the U.S. ABL Facility and the U.S. FILO Facility are unconditionally guaranteed by Holdings and substantially all of ATDIs existing and future, direct and indirect, wholly-owned domestic material restricted subsidiaries, other than Tire Pros Francorp. The Canadian ABL Facility and the Canadian FILO Facility are unconditionally guaranteed by the U.S. loan parties, TriCan, RTD, WTD and any future, direct and indirect, wholly-owned, material restricted Canadian subsidiaries. Obligations under the U.S. ABL Facility and the U.S. FILO Facility are secured by a first-priority lien on inventory, accounts receivable and related assets and a second-priority lien on substantially all other assets of the U.S. loan parties, subject to certain exceptions. Obligations under the Canadian ABL Facility and the Canadian FILO Facility are secured by a first-priority lien on inventory, accounts receivable and related assets of the U.S. loan parties and the Canadian loan parties and a second-priority lien on substantially all other assets of the U.S. loan parties and the Canadian loan parties, subject to certain exceptions.
The ABL Facility and the FILO Facility contain customary covenants, including covenants that restrict our ability to incur additional debt, grant liens, enter into guarantees, enter into certain mergers, make certain loans and investments, dispose of assets, prepay certain debt, declare dividends, modify certain material agreements, enter into transactions with affiliates or change our fiscal year. The terms of the ABL Facility and the FILO Facility generally restrict distributions or the payment of dividends in respect of our stock subject to certain exceptions requiring compliance with certain availability levels and fixed charge coverage ratios under the ABL Facility and other customary negotiated exceptions, in each case, as further described in Description of Indebtedness. If the amount available for additional borrowings under the ABL Facility is less than the greater of (a) 10.0% of the lesser of (x) the aggregate commitments under the ABL Facility and (y) the aggregate borrowing base and (b) $25.0 million, then we would be subject to an additional covenant requiring us to meet a fixed charge coverage ratio of 1.0 to 1.0. As of July 5, 2014, our additional borrowing availability under the ABL Facility was above the required amount and we were therefore not subject to the additional covenants.
Senior Secured Term Loan
In connection with the acquisition of Terrys Tire, on March 28, 2014, ATDI entered into a credit agreement that provided for a senior secured term loan facility in the aggregate principal amount of $300.0 million (the Initial Term Loan). The Initial Term Loan was issued at a discount of 0.25% which, combined with certain debt issuance costs paid at closing, resulted in net proceeds of approximately $290.9 million. The Initial Term Loan will accrete based on an effective interest rate of 6% to an aggregate accreted value of $300.0 million, the full principal amount at maturity. The net proceeds from the Initial Term Loan were used to finance a portion of the Terrys Tire purchase price. The maturity date for the Initial Term Loan is June 1, 2018.
On June 16, 2014, ATDI amended the Initial Term Loan (the Incremental Amendment) to borrow an additional $340.0 million (the Incremental Term Loan) on the same terms as the Initial Term Loan. Pursuant to the Incremental Amendment, ATDI also borrowed an additional $80.0 million (the Delayed Draw Term Loan and collectively with the Initial Term Loan and the Incremental Term Loan, the Term Loan) on the same terms as the Initial Term Loan. The proceeds from the Incremental Term Loan, net of related debt issuance costs paid at closing, amounted to approximately $335.7 million, and were used, in part, to redeem all $250.0 million aggregate principal amounts of notes outstanding under ATDIs Senior Secured Notes and related fees and expenses as more fully described below, and the remaining proceeds will be used for working capital requirements and other general corporate purposes, including the financing of potential future acquisitions. We received the proceeds from the Delayed Draw Term Loan at the end of the second quarter of 2014. The maturity date for the Term Loan is June 1, 2018.
Borrowings under the Term Loan bear interest at a rate per annum equal to, at our option, initially, either (a) a Eurodollar rate determined by reference to LIBOR, plus an applicable margin of 4.75% at July 5, 2014 or (b) a base rate determined by reference to the highest of (1) the federal funds rate plus 1/2 of 1%, (2) the prime commercial lending rate published by the Bank of America, N.A. as its prime rate for commercial loans and (3) the one month Eurodollar rate plus 1.0%, plus an applicable margin of 3.75% as of July 5, 2014. The
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Eurodollar rate is subject to an interest rate floor of 1.0%. The applicable margins under the Term Loan are subject to a step down based on a consolidated net leverage ratio, as defined in the credit agreement for the Term Loan.
All obligations under the Term Loan are unconditionally guaranteed by Holdings and, subject to certain customary exceptions, all of ATDIs existing and future, direct and indirect, wholly-owned domestic material subsidiaries. Obligations under the Term Loan are secured by a first-priority lien on substantially all property, assets and capital stock of ATDI except accounts receivable, inventory and related intangible assets and a second-priority lien on all accounts receivable and related intangible assets.
The Term Loan contains customary covenants, including covenants that restrict our ability to incur additional debt, create liens, enter into guarantees, enter into certain mergers, make certain loans and investments, dispose of assets, prepay certain debt, declare dividends, modify certain material agreements, enter into transactions with affiliates, change the nature of our business or change our fiscal year. The terms of the Term Loan generally restrict distributions or the payment of dividends in respect of our stock subject to certain exceptions such as the amount of 50% of net income (reduced by 100% of net losses) for the period beginning January 1, 2014 and other customary negotiated exceptions, in each case, as further described in Description of Indebtedness.
We are required to make principal payments equal to 0.25% of the aggregate principal amount outstanding under the Term Loan on the last business day of each March, June, September and December, commencing with the last business day of June 2014. In addition, subject to certain exceptions, we are required to repay the Term Loan in certain circumstances, including with 50% (which percentage will be reduced to 25% and 0%, as applicable, subject to attaining certain senior secured net leverage ratios) of our annual excess cash flow, as defined in the Term Loan agreement. The Term Loan also contains repayment provisions related to non-ordinary course asset or property sales when certain conditions are met, and related to the incurrence of debt that is not permitted under the credit agreement or incurred to refinance all or any portion of the Term Loan.
Proposed Additional Term Loan
In connection with this offering, ATDI also intends to borrow an additional $ million through the Additional Term Loan on the same terms as the Term Loan. We intend to use the net proceeds therefrom, along with the net proceeds of this offering, to repay all amounts outstanding under our 11.50% Senior Subordinated Notes due June 1, 2018. The expected maturity date for the Additional Term Loan is June 1, 2018.
Senior Secured Notes
On May 28, 2010, ATDI issued Senior Secured Notes (Senior Secured Notes) due June 1, 2017 in an aggregate principal amount at maturity of $250.0 million. The Senior Secured Notes were issued at a discount from their principal amount at maturity and generated net proceeds of approximately $240.7 million after debt issuance costs (which represents a non-cash financing activity of $9.3 million). The Senior Secured Notes will accrete based on an effective interest rate of 10% to an aggregate accreted value of $250.0 million, the full principal amount at maturity. The Senior Secured Notes bear interest at a fixed rate of 9.75%. Interest on the Senior Secured Notes is payable semi-annually in arrears on June 1 and December 1 of each year, commencing on December 1, 2010. The Senior Secured Notes may be redeemed at any time at the option of ATDI, in whole or in part, upon not less than 30 nor more than 60 days notice at a redemption price of 107.313% of the principal amount being redeemed if the redemption date occurs between June 1, 2013 and May 31, 2014, 104.875% of the principal amount being redeemed if the redemption date occurs between June 1, 2014 and May 31, 2015, 102.438% of the principal amount being redeemed if the redemption date occurs between June 1, 2015 and May 31, 2016 and 100.0% of the principal amount being redeemed if the redemption date occurs thereafter.
The Senior Secured Notes are unconditionally guaranteed by Holdings and substantially all of ATDIs existing and future, direct and indirect, wholly-owned domestic material restricted subsidiaries, other than Tire Pros Francorp and TDI, subject to certain exceptions. The Senior Secured Notes are also collateralized by a
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second-priority lien on accounts receivable and related assets and a first-priority lien on substantially all other assets (other than inventory), in each case of Holdings, ATDI and the guarantor subsidiaries, subject to certain exceptions.
The indenture governing the Senior Secured Notes contains covenants that, among other things, limits ATDIs ability and the ability of its restricted subsidiaries to incur additional debt or issue preferred stock; pay certain dividends or make certain distributions in respect of ATDIs capital stock or repurchase or redeem ATDIs capital stock; make certain loans, investments or other restricted payments; place restrictions on the ability of certain of ATDIs subsidiaries to pay dividends or make other payments to ATDI; transfer or sell certain assets; guarantee indebtedness or incur certain other contingent obligations; incur certain liens; consolidate, merge or sell all or substantially all of ATDIs assets; enter into certain transactions with ATDIs affiliates; and designate ATDIs subsidiaries as unrestricted subsidiaries.
On May 16, 2014, ATDI delivered a Notice of Full Redemption, providing for the redemption of all $250.0 million aggregate principal amount of the Senior Secured Notes on June 16, 2014 (the Redemption Date) at a price equal to 104.875% of the principal amount of the Senior Secured Notes redeemed plus accrued and unpaid interest, if any, to, but excluding the Redemption Date (the Redemption Price). On June 16, 2014, using proceeds from the Incremental Term Loan, the Senior Secured Notes were redeemed for a Redemption Price of $263.2 million.
Senior Subordinated Notes
In connection with the consummation of the Hercules acquisition, on January 31, 2014, ATDI completed the sale to certain purchasers of the Additional Senior Subordinated Notes. The net proceeds to ATDI from the sale of the Additional Senior Subordinated Notes were approximately $221.1 million.
The Additional Senior Subordinated Notes were issued pursuant to the Seventh Supplemental Indenture, dated as of January 31, 2014, among ATDI, the Guarantors and the Trustee (the Seventh Supplemental Indenture) to the Senior Subordinated Indenture. The Additional Senior Subordinated Notes have identical terms to the Initial Subordinated Notes, except the Additional Senior Subordinated Notes accrue interest from January 31, 2014. The Additional Senior Subordinated Notes and the Initial Subordinated Notes, as defined below, are treated as a single class of securities for all purposes under the Subordinated Indenture. However, the Additional Senior Subordinated Notes were issued with separate CUSIP numbers from the Initial Subordinated Notes and are not fungible for U.S. federal income tax purposes with the Initial Subordinated Notes. Interest on the Additional Senior Subordinated Notes is payable semi-annually in arrears on June 1 and December 1 of each year, commencing on June 1, 2014. The Additional Senior Subordinated Notes will mature on June 1, 2018.
On May 28, 2010, ATDI issued $200.0 million in aggregate principal amount of its 11.50% Senior Subordinated Notes due June 1, 2018, (the Initial Subordinated Notes and, collectively with the Additional Senior Subordinated Notes, the Senior Subordinated Notes). Interest on the Initial Subordinated Notes is payable semi-annually in arrears on June 1 and December 1 of each year, commencing on December 1, 2010.
The Senior Subordinated Notes may be redeemed at any time at the option of ATDI, in whole or in part, upon not less than 30 nor more than 60 days notice at a redemption price of 104.0% of the principal amount being redeemed if the redemption date occurs between June 1, 2013 and May 31, 2014, 102.0% of the principal amount being redeemed if the redemption date occurs between June 1, 2014 and May 31, 2015 and 100.0% of the principal amount being redeemed if the redemption date occurs thereafter.
The Senior Subordinated Notes are unconditionally guaranteed by Holdings and substantially all of ATDIs existing and future, direct and indirect, wholly-owned domestic material restricted subsidiaries, other than Tire Pros Francorp, subject to certain exceptions. The indenture governing the Senior Subordinated Notes contains covenants that, among other things, limits ATDIs ability and the ability of its restricted subsidiaries to incur additional debt or issue preferred stock; pay certain dividends or make certain distributions in respect of ATDIs capital stock or repurchase or redeem ATDIs capital stock; make certain loans, investments or other
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restricted payments; place restrictions on the ability of certain of ATDIs subsidiaries to pay dividends or make other payments to ATDI; transfer or sell certain assets; guarantee indebtedness or incur certain other contingent obligations; incur certain liens without securing the Senior Subordinated Notes; consolidate, merge or sell all or substantially all of ATDIs assets; enter into certain transactions with ATDIs affiliates; and designate ATDIs subsidiaries as unrestricted subsidiaries. The terms of the Senior Subordinated Notes generally restrict distributions or the payment of dividends in respect of our stock subject to certain exceptions such as the amount of 50% of net income (reduced by 100% of net losses) for the period beginning April 4, 2010 and other customary negotiated exceptions.
In connection with this offering, ATDI also intends to borrow an additional $ million through the Additional Term Loan on the same terms as ATDIs existing Term Loan. We intend to use the net proceeds therefrom, along with the net proceeds of this offering, to repay all amounts outstanding under the Senior Subordinated Notes.
Contractual Commitments
As of July 5, 2014, we had certain cash obligations associated with contractual commitments. The amounts due under these commitments are as follows:
In millions |
Total | Less than 1 year |
13 years |
45 years |
After 5 years |
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Long-term debt (variable rate) (2) |
$ | 1,502.8 | $ | | $ | | $ | 1,502.8 | $ | | ||||||||||
Long-term debt (fixed rate) (3) |
428.9 | 1.5 | 3.4 | 423.8 | 0.2 | |||||||||||||||
Estimated interest payments (1) |
476.8 | 75.7 | 242.3 | 150.7 | 8.1 | |||||||||||||||
Operating leases, net of sublease income |
573.7 | 61.9 | 178.6 | 129.6 | 203.6 | |||||||||||||||
Capital leases |
12.6 | 0.1 | 0.9 | 1.1 | 10.5 | |||||||||||||||
Uncertain tax positions |
0.6 | | 0.6 | (0.1 | ) | 0.1 | ||||||||||||||
Deferred compensation obligation |
3.5 | | | | 3.5 | |||||||||||||||
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Total contractual cash obligations |
$ | 2,998.9 | $ | 139.2 | $ | 425.8 | $ | 2,207.9 | $ | 226.0 | ||||||||||
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(1) | Represents the annual interest expense on fixed and variable rate debt. Projections of interest expense for the U.S. ABL Facility, the Canadian ABL Facility, the U.S. FILO Facility, the Canadian FILO Facility and the Term Loan are based on the weighted-average interest rate of 3.4%, 4.5%, 5.8%, 6.0% and 5.8%, respectively as of July 5, 2014. Based on the combined outstanding balance of the U.S. ABL Facility, the Canadian ABL Facility, the U.S. FILO Facility, the Canadian FILO Facility and the Term Loan as of July 5, 2014, a hypothetical increase of 1% in such interest rate percentage would result in an increase to our annual interest payments of approximately $15.0 million. |
(2) | Includes U.S. ABL Facility ($641.6), U.S FILO Facility ($80.0), Canadian ABL Facility ($53.2), Canadian FILO Facility ($10.3) and Term Loan ($717.7). |
(3) | Includes Senior Subordinated Notes ($421.4) and other debt ($7.5). |
Off-Balance Sheet Arrangements
We have no significant off balance sheet arrangements other than liabilities related to certain leases of the Winston Tire Company (Winston). These leases were guaranteed when we sold Winston in 2001. As of July 5, 2014, our total obligations as guarantor on these leases are approximately $1.6 million extending over five years. However, we have secured assignments or sublease agreements for the vast majority of these commitments with contractually assigned or subleased rentals of approximately $1.4 million as of July 5, 2014. A provision has been made for the net present value of the estimated shortfall. The accrual for lease liabilities could be materially affected by factors such as the credit worthiness of lessors, assignees and sublessees and our success at negotiating early termination agreements with lessors. These factors are significantly dependent on general economic conditions. While we believe that our current estimates of these liabilities are adequate, it is possible that future events could require significant adjustments to those estimates.
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Critical Accounting Policies and Estimates
Managements Discussion and Analysis of Financial Condition and Results of Operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of financial statements in conformity with those accounting principles requires management to use judgment in making estimates and assumptions based on the relevant information available at the end of each period. These estimates and assumptions have a significant effect on reported amounts of assets and liabilities, revenue and expenses as well as the disclosure of contingent assets and liabilities because they result primarily from the need to make estimates and assumptions on matters that are inherently uncertain. Actual results may differ from estimates. The following is a summary of certain accounting estimates and assumptions made by management that we consider critical.
Allowance for Doubtful Accounts
The allowance for doubtful accounts represents the best estimate of probable loss inherent within our accounts receivable balance. Estimates are based upon both the creditworthiness of specific customers and the overall probability of losses based upon an analysis of the overall aging of receivables as well as past collection trends and general economic conditions. Estimating losses from doubtful accounts is inherently uncertain because the amount of such losses depends substantially on the financial condition of our customers. If the financial condition of our customers were to deteriorate beyond estimates, and impair their ability to make payments, we would be required to write off additional accounts receivable balances, which would adversely impact our financial position.
Inventories
Inventories are stated at the lower of cost, determined on the FIFO method, or fair market value and consist primarily of automotive tires, custom wheels, and related tire supplies and tools. We perform periodic assessments to determine the existence of obsolete, slow-moving and non-saleable inventories and record necessary provisions to reduce such inventories to net realizable value. If actual market conditions are less favorable than those projected by management, we could be required to reduce the value of our inventory or record additional reserves, which would adversely impact our financial position.
Goodwill and Indefinite-Lived Intangible Assets
We have a history of growth through acquisitions. Assets and liabilities of acquired businesses are recorded at their estimated fair values as of the date of acquisition. Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired businesses. Goodwill and intangible assets with indefinite useful lives are tested and reviewed annually for impairment during the fourth quarter or whenever there is a significant change in events or circumstances that indicate that the fair value of the asset may be less than the carrying amount of the asset.
Recoverability of goodwill is determined using a two step process. The first step compares the carrying amount of the reporting unit to its estimated fair value. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired and the second step of the impairment test is not necessary. To the extent that the carrying value of the reporting unit exceeds its estimated fair value, a second step is performed, wherein the reporting units carrying value of goodwill is compared to the implied fair value of goodwill. To the extent that the carrying value exceeds the implied fair value, impairment exists and must be recognized. We have only one reporting segment which encompasses all operations including new acquisitions.
Recoverability of other intangible assets with indefinite useful lives is measured by a comparison of the carrying amount of the intangible assets to the estimated fair value of the respective intangible assets. Any excess of the carrying value over the estimated fair value is recognized as an impairment loss equal to that excess.
The determination of estimated fair value requires management to make assumptions about estimated cash flows, including profit margins, long-term forecasts, discount rates, royalty rates and terminal growth rates. Management developed these assumptions based on the best information available as of the date of the
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assessment. We completed our assessment of goodwill and intangible assets with indefinite useful lives as of November 30, 2013 and determined that no impairment existed at that date. Based on the results of our goodwill impairment assessment, the fair value of our one reporting unit significantly exceeded the carrying value. Therefore, we do not believe there is any risk of the Company failing step one of the goodwill impairment test in the near future. Although no impairment has been recorded to date, there can be no assurances that future impairments will not occur. Future adverse developments in market conditions or our current or projected operating results could cause the fair value of our goodwill and intangible assets with indefinite useful lives to fall below carrying value, which would result in an impairment charge that would adversely affect our financial position.
Long-Lived Assets
Management reviews long-lived assets, which consist of property, leasehold improvements, equipment and definite-lived intangibles, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. For long-lived assets to be held and used, management evaluates recoverability by comparing the carrying value of the asset to future net undiscounted cash flows expected to be generated by the asset. If the undiscounted cash flows are less than the carrying value of the asset, an impairment loss is recognized for the amount by which the carrying value of the asset exceeds the fair value of the asset. For long-lived assets for which we have committed to a disposal plan, we report such assets at the lower of the carrying value or fair value less the cost to sell.
In determining the fair value of long-lived assets, we make judgments relating to the expected useful lives of long-lived assets and our ability to realize any undiscounted cash flows in excess of the carrying amounts of such assets. Factors that impact these judgments include the ongoing maintenance and improvements of the assets, changes in the expected use of the assets, changes in economic conditions, changes in operating performance and anticipated future cash flows. If actual fair value is less than our estimates, long-lived assets may be overstated on the balance sheet, which would adversely impact our financial position.
Self-Insured Reserves
We are self-insured for automobile liability, workers compensation and the health care claims of our team members, although we maintain stop-loss coverage with third-party insurers to limit our total liability exposure. We establish reserves for losses associated with claims filed, as well as claims incurred but not yet reported, using actuarial methods followed in the insurance industry and our historical claims experience. If amounts ultimately paid differ significantly from our estimates, it could adversely impact our financial position.
Exit Cost Reserves
During the normal course of business, we continually assess the location and size of our distribution centers in order to determine our optimal geographic footprint and overall structure. As a result, we have certain facilities that we have closed or intend to close and we record reserves for certain exit costs associated with these facilities. These exit cost reserves are recorded in an amount equal to future minimum lease payments and related ancillary costs from the date of closure to the end of the lease term, net of estimated sublease rentals we reasonably expect to obtain for the property. We estimate future cash flows based on contractual lease terms, the geographic market in which the facility is located, inflation, the ability to sublease the property and other economic conditions. We estimate sublease rentals based on the geographic market in which the property is located, our experience subleasing similar properties and other economic conditions. If actual exit costs associated with closing these facilities differ from our estimates, it could adversely impact our financial position.
Income Taxes and Valuation Allowances
We record a tax provision for the anticipated tax consequences of the reported results of operations. The provision is computed using the asset and liability method of accounting, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
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In addition, we recognize future tax benefits, such as net operating losses and tax credits, to the extent that realizing these benefits is considered in our judgment to be more likely than not. Deferred tax assets and liabilities are measured using currently enacted tax rates that apply to taxable income in effect for the years in which those tax items are expected to be realized or settled. We regularly review the recoverability of our deferred tax assets considering historic profitability, projected future taxable income, and timing of the reversals of existing temporary differences as well as the feasibility of our tax planning strategies. Where appropriate, we record a valuation allowance if available evidence suggests that it is more likely than not that some portion or all of a deferred tax asset will not be realized. Changes to valuation allowances are recognized in earnings in the period such determination is made.
The application of income tax law is inherently complex and involves a significant amount of management judgment regarding interpretation of relevant facts and laws in the jurisdiction in which we operate. In addition, we are required to make certain assumptions regarding our income tax positions and the likelihood that such tax positions will be sustained if challenged. Resolution of these uncertainties in a manner inconsistent with managements expectations could have a material impact on amounts we recognize in our consolidated balance sheets and adversely impact our financial position.
Revenue Recognition
Revenue is recognized and earned when all of the following criteria are satisfied: (a) persuasive evidence of a sales arrangement exists; (b) price is fixed or determinable; (c) collectability is reasonably assured; and (d) delivery has occurred or service has been rendered. We recognize revenue when the title and the risk and rewards of ownership have substantially transferred to the customer, which is upon delivery under free-on-board destination terms.
We permit customers from time to time to return certain products but there is no contractual right of return. We continuously monitor and track such returns and record an estimate of such future returns, based on historical experience and recent trends. While such returns have historically been within managements expectations and the provisions established have been adequate, we cannot guarantee that we will continue to experience the same return rates that we have in the past. If future returns increase significantly, it could adversely impact our results of operations.
Manufacturer Rebates
We receive rebates from tire manufacturers pursuant to a variety of rebate programs. These rebates are recorded in accordance with accounting standards applicable to cash consideration received from vendors. Many of the tire manufacturer programs provide that we receive rebates when certain measures are achieved, generally related to the volume of our purchases. We account for these rebates as a reduction to the price of the product, which reduces the carrying value of our inventory, and our cost of goods sold when product is sold. During the year, we record amounts earned for annual rebates based on purchases management considers probable for the full year. These estimates are periodically revised to reflect rebates actually earned based on actual purchase levels. Tire manufacturers may change the terms of some or all of these programs, which could increase our cost of goods sold and decrease our net income, particularly if these changes are not passed along to the customer.
Customer Rebates
We offer rebates to our customers under a number of different programs. These rebates are recorded in accordance with authoritative guidance related to accounting for consideration given by a vendor to a customer. These programs typically provide customers with rebates, generally in the form of a reduction to the amount they owe us, when certain measures are achieved, generally related to the volume of product purchased from us. We record these rebates through a reduction in the related price of the product, which decreases our net sales. During the year, we estimate rebate amounts based on the rebate rates we expect customers will achieve for the full year. These estimates are periodically revised to reflect rebates actually earned by customers.
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Cooperative Advertising and Marketing Programs
We participate in cooperative advertising and marketing programs, or co-op advertising, with our vendors. Co-op advertising funds are provided to us generally based on the volume of purchases made with vendors that offer such programs. A portion of the funds received must be used for specific advertising and marketing expenditures incurred by us or our customers. The co-op advertising funds received by us from our vendors are accounted for in accordance with authoritative guidance related to accounting for cash consideration received from a vendor, which requires that we record the funds received as a reduction of cost of sales or as an offset to specific costs incurred in selling the vendors products. The co-op advertising funds that are provided to our customers are accounted for in accordance with authoritative guidance related to accounting for cash consideration given by a vendor to a customer, which requires that we record the funds paid as a reduction of revenue since no separate identifiable benefit is received by us.
Stock Based Compensation
We account for stock-based compensation awards in accordance with ASC 718Compensation, which requires a fair-value based method for measuring the value of stock-based compensation. Fair value is measured once at the date of grant and is not adjusted for subsequent changes. Our stock-based compensation plans include programs for stock options and restricted stock awards.
We estimate the grant date fair value, and the resulting stock-based compensation expense, using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires the use of highly subjective assumptions which determine the fair value of stock-based awards. These assumptions include:
Expected TermThe expected term represents the period that stock-based awards are expected to be outstanding. We used the simplified method to determine the expected term, which is calculated as the average of the time-to-vesting and the contractual life of the options.
Expected VolatilitySince we are currently privately held and do not have any trading history for our common stock, the expected volatility was estimated based on the average volatility for comparable publicly traded peer companies over a period equal to the expected term of the stock option grants. When selecting comparable publicly traded peer companies on which we based our expected stock price volatility, we selected companies with comparable characteristics to us, including enterprise value, risk profiles, and with historical share price information sufficient to meet the expected life of the stock-based awards. The historical volatility data was computed using the daily closing prices for the selected companies shares during the equivalent period of the calculated expected term of the stock-based awards. We will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock price becomes available.
Risk-Free Interest RateThe risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of option.
Expected DividendWe have never paid dividends on our common stock and have no plans to pay dividends on our common stock. Therefore, we used an expected dividend yield of zero.
In addition to the Black-Scholes assumptions, we estimate our forfeiture rate based on an analysis of our actual forfeitures and will continue to evaluate the adequacy of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover behavior, and other factors. The impact from any forfeiture rate adjustment would be recognized in full in the period of adjustment and if the actual number of future forfeitures differs from our estimates, we might be required to record adjustments to stock-based compensation in future periods. These assumptions represent our best estimates, but these estimates involve inherent uncertainties and the application of managements judgment. As a result, if factors change and we use different assumptions, our equity-based compensation expense could be materially different in the future.
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The following table provides, by grant date, the number of stock options awarded from May 28, 2010, the date of the Merger, through the date of this prospectus and the exercise price for each set of grants, as well as the estimated fair value of the underlying common shares on the grant date:
Grant Date |
Options Granted |
Exercise Price |
Fair Value At Issuance |
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August 30, 2010 |
40,824,000 | $ | 1.00 | $ | 1.00 | |||||||
October 14, 2010 |
1,248,000 | $ | 1.00 | $ | 1.00 | |||||||
March 24, 2011 |
200,000 | $ | 1.00 | $ | 1.00 | |||||||
June 6, 2011 |
1,500,000 | $ | 1.00 | $ | 1.00 | |||||||
January 1, 2012 |
777,600 | $ | 1.14 | $ | 1.14 | |||||||
January 23, 2012 |
1,500,000 | $ | 1.14 | $ | 1.14 | |||||||
February 15, 2013 |
3,466,903 | $ | 1.20 | $ | 1.20 | |||||||
April 28, 2014 |
4,528,833 | $ | 1.50 | $ | 1.50 |
In the absence of a public trading market, our board of directors, based in part on input from management and the Sponsor, as well as the review of contemporaneous third-party valuation reports, determined a reasonable estimate of the then-current fair value of our common stock for purposes of determining fair value of our stock options on the date of grant. We determined the fair value of our common stock utilizing methodologies, approaches and assumptions consistent with the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. Our approach considered contemporaneous common stock valuations in determining the equity value of our company using a weighted combination of various methodologies, each of which can be categorized under either of the following two valuation approaches: the income approach and the market approach.
In addition, we exercised judgment in evaluating and assessing the foregoing based on several factors including:
| the nature and history of our business; |
| our current and historical operating performance; |
| our expected future operating performance; |
| our financial condition at the grant date; |
| the lack of marketability of our common stock; |
| the value of companies we consider peers based on a number of factors, including, but not limited to, similarity to us with respect to industry, business model, stage of growth, intangible value, company size, geographic diversification, profitability, financial risk and other factors; |
| likelihood of achieving a liquidity event, such as an initial public offering or a merger or acquisition of our company given prevailing market conditions; |
| industry information such as market size and growth; and |
| macroeconomic conditions. |
The board of directors and management intended all options granted to be exercisable at a price per share not less than the per share fair value of our common stock underlying those options on the date of grant. We generally grant options to participants with an exercise price equal to the then current fair value of the common stock.
Foreign Currency Translation
All foreign currency denominated balance sheet accounts are translated at year end exchange rates and revenue and expense accounts are translated at weighted-average rates of exchange prevailing during the year. Gains and losses resulting from the translation of foreign currency are recorded in the accumulated other comprehensive income (loss) component of stockholders equity. Transactional foreign currency gains and losses are included in other expense, net in the accompanying consolidated statements of comprehensive income (loss).
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Recent Accounting Pronouncements
In July 2012, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment which amended the guidance on the annual impairment testing of indefinite-lived intangible assets other than goodwill. The amended guidance will allow a company the option to first assess qualitative factors to determine whether it is more-likely-than-not that the fair value of an indefinite-lived intangible asset is less than its carrying amount. If, based on the qualitative assessment, it is more-likely-than-not that the fair value of an indefinite-lived intangible asset is less than its carrying amount, quantitative impairment testing is required. However, if a company concludes otherwise, quantitative impairment testing is not required. This new guidance will be effective for fiscal years beginning after September 15, 2012, with early adoption permitted. We adopted this guidance on December 30, 2012 (the first day of our 2013 fiscal year); however, we performed our annual impairment test in the fourth quarter of 2013.
In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income which amended the guidance for reporting reclassifications out of accumulated other comprehensive income. The amended guidance requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is entirely reclassified to net income, as required by U.S. GAAP. For other amounts, that are not required by U.S. GAAP to be entirely reclassified to net income, an entity is required to cross-reference other disclosures that will provide additional detail concerning these amounts. The amendments are effective for reporting periods beginning after December 15, 2012. We adopted this guidance on December 30, 2012 and its adoption did not have an effect on our consolidated financial statements.
In July 2013, the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exits. ASU 2013-11 clarifies guidance and eliminates diversity in practice on the presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. This new guidance is effective for annual reporting periods beginning on or after December 15, 2013 and subsequent interim periods. We are currently assessing the impact, if any, on our consolidated financial statements.
In April 2014, the FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, (ASU 2014-08). Under ASU 2014-08, only disposals representing a strategic shift in operations that have a major effect on a companys operations and financial results should be presented as discontinued operations. Additionally, ASU 2014-08 requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The amendments in ASU 2014-08 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. However, ASU 2014-08 should not be applied to a component that is classified as held for sale before the effective date even if the component is disposed of after the effective date. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in financial statement previously issued. We are currently assessing the impact, if any on our consolidated financial statements.
In May 2014, FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which provides guidance for revenue recognition. ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets and supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. This ASU also supersedes some cost guidance included in Subtopic 605-35, Revenue RecognitionConstructionType and ProductionType Contracts. The standards core principle is that a company should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under todays guidance.
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These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 is effective for us beginning in fiscal year 2018 and, at that time we may adopt the new standard under the full retrospective method or the modified retrospective method. Early adoption is not permitted. We are currently evaluating the method and impact the adoption of ASU 2014-09 will have on our condensed consolidated financial statements and disclosures.
Quantitative and Qualitative Disclosures about Market Risk.
Interest Rate Risk
Our ABL Facility, FILO Facility and Term Loan are exposed to fluctuations in interest rates which could impact our results of operations and financial condition. Interest on the ABL Facility, FILO Facility and Term Loan are tied to, at our option, either a base rate, or a prime rate, or LIBOR. At July 5, 2014, the total amount outstanding under our ABL Facility, FILO Facility and Term Loan that was subject to interest rate changes was $1,502.8 million.
To manage this exposure, we use interest rate swap agreements in order to hedge the changes in our variable interest rate debt. Interest rate swap agreements utilized by us in our hedging programs are viewed as risk management tools, involve little complexity and are not used for trading or speculative purposes. To minimize the risk of counterparty non-performance, interest rate swap agreements are made only through major financial institutions with significant experience in such instruments.
At July 5, 2014, $1,102.8 million of the total outstanding balance of our ABL Facility, FILO Facility and Term Loan that was not hedged by an interest rate swap agreement and thus subject to interest rate changes. Based on this amount, a hypothetical increase of 1% in such interest rate percentages would result in an increase to our annual interest expense by $11.0 million.
Foreign Currency Exchange Rate Risk
The financial position and results of operations for TriCan, our 100% owned subsidiary acquired during 2012, are impacted by movements in the exchange rates between the Canadian dollar and the U.S. dollar. As of July 5, 2014, we did not have any foreign currency derivatives in place. We assess the market risk of changes in foreign currency exchange rates utilizing a sensitivity analysis that measures the potential impact on our earnings. During the year ended December 28, 2013 and the six months ended July 5, 2014, a hypothetical 10% fluctuation in the U.S. dollar to Canadian dollar exchange rate would have affected our net income (loss) by $0.1 million and $0.7 million, respectively.
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Our Company
We are the largest distributor of replacement tires in North America based on dollar amount of wholesale sales and number of warehouses. We provide a wide range of products and value-added services to customers in each of the key market channels to enable tire retailers to more effectively service and grow sales to consumers. Through our network of more than 140 distribution centers in the United States and Canada, we offer access to an extensive breadth and depth of inventory, representing more than 40,000 SKUs, to approximately 80,000 customers. In 2013, we distributed more than 40 million replacement tires after giving effect to recent acquisitions. We estimate that our share of the replacement passenger and light truck tire market in 2013, after giving effect to our recently completed acquisitions, would have been approximately 14% in the United States, up from approximately 1% in 1996, and approximately 21% in Canada.
We serve a highly diversified customer base across multiple channels, comprised of local, regional and national independent tire retailers, mass merchandisers, warehouse clubs, tire manufacturer-owned stores, automotive dealerships and web-based marketers. We have a significant market presence in a number of these key market channels and we believe that we are the only replacement tire distributor in North America that services each of these key market channels. During fiscal 2013, our largest customer and top ten customers accounted for 3.1% and 10.9%, respectively, of our net sales. We believe we are a top supplier to many of our customers and have maintained relationships with our top 20 customers that exceed a decade on average.
We believe we distribute one of the broadest product offerings in our industry, supplying our customers with nine of the top ten leading passenger and light truck tire brands. We carry the flag brands from each of the four largest tire manufacturersBridgestone, Continental, Goodyear and Michelinas well as the Cooper, Hankook, Kumho, Nexen, Nitto and Pirelli brands. We also sell lower price point associate and proprietary brands of these and many other tire manufacturers, and through our acquisition of Hercules we also own and market our proprietary Hercules® brand, the number one private brand in North America in 2013 based on unit sales. In addition, we sell custom wheels and accessories and related tire supplies and tools. In fiscal 2013, tire sales accounted for 97.4% of our net sales, with sales of passenger and light truck tires accounting for 82.3% of our net sales. Tire supplies, tools and custom wheels and accessories represented approximately 2.6% of our net sales. We believe that our large and diverse product offering allows us to penetrate the replacement tire market across a broad range of price points.
Our growth strategy, coupled with our access to capital and our scalable platform, enables us to continue to expand organically in existing markets as well as in new geographic areas. We also expect to continue to employ a selective acquisition strategy to increase our share in the markets we currently service as well as to expand our distribution into new markets, utilizing our scale in an effort to realize significant synergies. In addition, we are investing in technology and each sales channel to fuel our future growth. As a result, we believe that we are well positioned to continue to achieve above-market growth in all market environments and to continue to enhance our profitability and cash flows.
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Geographic Footprint
In fiscal 2009, our net income was $4.9 million and in fiscal 2013 our net loss was $6.4 million. This decrease in net income was primarily the result of increased interest expense related to our acquisition by investment funds affiliated with TPG in 2010, as well as interest associated with our eight acquisitions from 2010 through 2013, and non-cash amortization expense related to our intangible assets. From fiscal 2009 to fiscal 2013, our net sales increased from $2.2 billion to $3.8 billion, reflecting a compound annual growth rate of 15.3%, and Adjusted EBITDA increased from $101.0 million to $195.5 million, reflecting a compound annual growth rate of 17.9%. See Selected Consolidated Financial and Other Data for a presentation of net sales and Adjusted EBITDA data for each of our fiscal years in this period. Over the same period, our unit volume grew from approximately 19.5 million to approximately 26.0 million while, according to the RMA, unit volume in the North American replacement tire market grew from approximately 238.9 million to approximately 246.0 million. Our superior growth was driven by our organic initiatives and our acquisitions.
For the six months ended July 5, 2014 and the year ended December 28, 2013 our net sales were $2.6 billion and $5.1 billion, respectively, our net loss from continuing operations was $77.0 million and $47.5 million, respectively, and our Adjusted EBITDA was $93.1 million and $251.5 million, respectively, in each case including the pro forma effects of our recent acquisitions. Additional information regarding Adjusted EBITDA and pro forma Adjusted EBITDA, including a reconciliation of Adjusted EBITDA to income (loss) from continuing operations and a reconciliation of pro forma Adjusted EBITDA to pro forma net income (loss) from continuing operations, is included in Summary Consolidated Financial and Other Data. Additional information regarding the pro forma effects of our recent acquisitions is included in Summary Consolidated Financial and Other Data and Unaudited Pro Forma Combined Condensed Financial Information.
We have a substantial amount of debt, which requires significant interest and principal payments. See Risk FactorsAs of July 5, 2014, on a pro forma basis after giving effect to this offering and the application of the net proceeds therefrom, we would have had total indebtedness of approximately $ million, and our substantial indebtedness could adversely affect our financial condition and growth strategy.
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Our Industry
According to Modern Tire Dealer, the U.S. replacement tire market generated annual retail sales of approximately $37.3 billion in 2013. Passenger tires, medium truck tires and light truck tires accounted for 66.9%, 16.9% and 13.1%, respectively, of the total U.S. market. Farm, specialty and other types of tires accounted for the remaining 3.1% of the total U.S. market. The Canadian replacement tire market generated annual retail sales of approximately $3.7 billion in 2012. Passenger and light truck tires accounted for 53% while commercial tires accounted for 20% of the total Canadian replacement tire market. Farm, specialty and other types of tires accounted for the remaining 27% of the total Canadian replacement tire market. According to a Tire Review survey conducted in 2013, U.S. tire dealers buy 55.4% of their consumer tires from wholesale distributors like us and 27.7% direct from tire manufacturers, with the remaining volume coming from various other sources.
In the United States and Canada, replacement tires are sold to consumers through several different channels, including local, regional and national independent tire retailers, mass merchandisers, warehouse clubs, tire manufacturer-owned stores, automotive dealerships and web-based marketers. Between 1990 and 2013, independent tire retailers and automotive dealerships have enjoyed the largest increase in U.S. replacement tire market share, according to Modern Tire Dealer, moving from 54% to 60.5% and 1% to 7.5% of the market, respectively. In 2012, replacement tire sales to independent tire retailers and automotive dealerships represented approximately 44% and 18%, respectively, of Canadian replacement tire market share. Mass merchandisers, warehouse clubs, manufacturer-owned stores and web-based marketers comprise the remaining market share in both the United States and Canada.
Since 2000, the number of specific tire sizes in the market has increased by 61%. One driver of this increase was above-market growth in high-performance tires. The increase in the number of tire sizes coupled with the large number of brands in the market place has driven SKU proliferation in the replacement tire market. As a result of the SKU proliferation and due to their capital and physical space constraints, many tire retailers are unable to carry sufficient inventory to meet the demands of their customers. This trend has helped increase the need for distributors in the replacement tire market.
The U.S. and Canadian replacement tire markets have historically experienced stable growth and favorable pricing dynamics. However, these markets are subject to changes in consumer confidence and economic conditions. As a result, tire consumers may opt to temporarily defer replacement tire purchases or purchase less costly brands during challenging economic periods when macroeconomic factors such as unemployment, high fuel costs and weakness in the housing market impact their financial health.
From 1955 through 2013, U.S. replacement tire unit shipments increased by an average of approximately 3% per year. We believe that we are experiencing the beginning of a recovery after a prolonged downturn, which began in 2008 for the replacement tire market. Replacement tire unit shipments were up 4.4% in the United States and 0.7% in Canada in 2013 as compared to 2012, as a rebound in the housing market, a decline in unemployment rates and increases in vehicle sales and vehicle miles driven impacted the U.S. and Canadian replacement tire markets favorably. The RMA projects that replacement tire shipments will increase by approximately 2% in the United States in 2014 as compared to 2013, as demand drivers continue to strengthen.
Going forward, we believe that long-term growth in the U.S. and Canadian replacement tire markets will continue to be driven by favorable underlying dynamics, including:
| increases in the number and average age of passenger cars and light trucks; |
| increases in the number of miles driven; |
| increases in the number of licensed drivers as the U.S. and Canadian population continues to grow; |
| increases in the number of replacement tire SKUs; |
| growth of the high-performance tire market; and |
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| shortening of tire replacement cycles due to changes in product mix that increasingly favor high- performance tires, which have shorter average lives. |
Our Competitive Strengths
We believe the following key strengths have enabled us to become the largest distributor of replacement tires in North America and position us to achieve future revenue growth in excess of the long-term growth rates of the U.S. and Canadian replacement tire industry:
Leading Position in a Large and Highly Fragmented Marketplace. We are the largest distributor of replacement tires in North America with an estimated market share in 2013 of approximately 14%, after giving effect to our recently completed acquisitions, in a $37.3 billion market in the United States. Our estimated market share in 2013 of the replacement passenger and light truck tire market in Canada was approximately 21%, after giving effect to our recently completed acquisitions. We believe our scale provides us key competitive advantages relative to our smaller, and generally regionally-focused, competitors. These include the ability to: efficiently stock and deliver a wide variety of tires; invest in services, including sales tools and technologies, to support our customers; and realize operating efficiencies from our scalable infrastructure. We believe our leading market position and presence in each of the key market channels, combined with our commitment to distribution, as opposed to the retail operations engaged in by our customers, enhances our ability to expand our sales footprint cost effectively both in our existing markets and in new domestic geographic markets.
Scale Advantage from Extensive and Efficient Distribution Network. We believe we have the largest independent replacement tire distribution network in North America with more than 140 distribution centers (excluding distribution centers acquired in our recent acquisitions that are expected to be closed as part of the integration process) and approximately 1,000 delivery vehicles. Our distribution footprint services geographic regions in the United States that represented more than 90% of the replacement tire market for passenger and light truck tires in 2013, and we believe our geographic coverage in Canada is also very extensive. Our extensive distribution footprint, combined with sophisticated inventory management and logistics technologies, enable us to deliver the vast majority of orders on a same or next day basis, which is critical for tire retailers who are typically limited by physical inventory capacity and working capital constraints. Our delivery technologies allow us to more effectively and efficiently organize and optimize our route systems to provide timely product delivery. Our distribution systems are integrated with our proprietary business-to-business ATDOnline® order fulfillment system that captures more than 65% of our orders electronically, and our Oracle ERP system provides a scalable platform that can support future growth and ongoing cost reduction initiatives, including warehouse and truck management systems, which we believe will allow us to continue reducing warehouse and delivery costs per unit.
Broad Product Offering from Diverse Supplier Base. We believe we offer the most comprehensive selection of passenger and light truck tires in the industry through a diverse group of suppliers. We supply nine of the top ten leading passenger and light truck tire brands, and we carry the flag brands from each of the four largest tire manufacturersBridgestone, Continental, Goodyear and Michelinas well as the Cooper, Hankook, Kumho, Nexen, Nitto and Pirelli brands. Our tire product line includes a full suite of flag, associate and proprietary brand tires, allowing us to service a broad range of price points from entry-level imported products to the faster-growing high-performance category. Through our acquisition of Hercules, we also own and market our proprietary Hercules® brand, the number one private brand in North America in 2013 based on unit sales. In addition to tires, we also offer custom wheels and accessories and related tire supplies and tools. We believe that our broad product offering drives increased sales among existing customers, attracts new customers and increases customer retention.
Broad Range of Value-Added Services. We provide a wide range of services that enable our tire retailer customers to operate their businesses more profitably. These services include convenient access to and timely delivery of the broadest product offerings available in the industry, as well as fundamental business support services, such as administration of tire manufacturer affiliate programs and credit, training and access to consumer market data, which enable our tire retailer customers to better service their individual markets. We
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provide our U.S. customers with convenient 24/7 access to our extensive product offerings through our proprietary business-to-business web portal, ATDOnline®. Our online services also include TireBuyer.com®, which allows our U.S. independent tire retailers the ability to participate in the Internet marketing of tires to consumers. We also provide select, qualified U.S. independent tire retailers with the opportunity to participate in our Tire Pros® franchise program through which they receive advertising and marketing support and the benefits of a national brand identity. We believe our value-added services as well as the integration between our infrastructure and our customers operations enable us to maintain high rates of customer retention and build strong customer loyalty.
Diversified Customer Base and Longstanding Customer Relationships Across Multiple Channels. We serve a highly diversified customer base in each of the key market channels, including local, regional and national independent tire retailers, mass merchandisers, warehouse clubs, tire manufacturer-owned stores, automotive dealerships and web-based marketers. We believe we are the only distributor of replacement tires in North America that services each of these key market channels. Our business is diversified across the key market channels and reflects the evolving complexity of the North American replacement tire market, with independent tire retailers accounting for 76% of our net sales in 2013 as compared to 85% of our net sales in 2009. We believe we are a top supplier to many of our customers and maintain relationships with our top 20 customers that exceed a decade on average. We believe the diversity of our customer base and the strength of our customer relationships present an opportunity to grow market share regardless of macroeconomic and replacement tire market conditions.
Consistent Financial Performance and Strong Cash Flow Generation. Our financial performance has benefited from substantial growth that has been achieved through a combination of organic initiatives and acquisitions. Over the ten-year period from fiscal 2003 to fiscal 2013, our net sales grew at a compound annual rate of 13.2%, reflecting our strong revenue base, evolving business mix, scalable operating model and successful growth strategies.
The following chart shows our net sales for each fiscal year in the period from 2003 to 2013:
In addition, we believe the low capital intensity of our business combined with the efficient management of our working capital, due in part to our advanced inventory management systems in the United States that we are also in the process of implementing in Canada, and close vendor relationships, will enable us to generate strong cash flows. In addition, as a result of our presence in each major channel within the replacement tire market and based upon our ability to rationalize our operating costs, as necessary, we experienced only moderate margin contraction during the recent economic downturn.
Experienced Management Team Supported by Strong Equity Sponsorship. Our senior management team, led by our President and Chief Executive Officer William E. Berry, has an average of over 20 years of
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experience in the replacement tire distribution industry. Although we have experienced net losses for the past three years, management has implemented successful initiatives in a leveraged environment, including the execution of a disciplined acquisition strategy, which has contributed to our gross profit expansion and above-market net sales growth during that period. In addition, we have reduced costs through the integration of operating systems and introduction of standard operating practices, particularly in the United States, resulting in improved operating efficiencies, reduced headcount and improved operating profit at existing and acquired locations. We also benefit from the extensive management and business experience provided by our Sponsor, TPG.
Our Business Strategy
Our objective is to further expand our position as the largest distributor of replacement tires in North America and establish our company as the leading distributor in each of the key market channels that we serve, while continuing to provide our customers with a range of value-added services such as frequent and timely delivery of inventory, the broadest and deepest range of products, and other business support services. We intend to accomplish this objective, drive above-market growth and further enhance our profitability and cash flows by executing on the following key operating strategies:
Grow Organically in Excess of Market. It is at the core of our strategy to grow our profits and cash flows organically through further penetration of all of our key market channels, through greenfield expansion, through further penetration of our Hercules® brand, the number one private brand in North America in 2013 based on unit sales, through further establishment and expansion of TireBuyer.com®, and through further expansion and development of our value-added services.
Expand Penetration in Each of the Key Market Channels. We have a significant presence in each of the key market channels, including local, regional and national independent tire retailers, mass merchandisers, warehouse clubs, tire manufacturer-owned stores, automotive dealerships and web-based marketers. We regularly seek opportunities to grow our market share in each channel by customizing our sales strategies to suit the particular needs of that channel, and are focused on training and deploying sales personnel to help build our sales, particularly in the faster-growing automotive dealership channel, and strengthen and expand our relationships with retailers. We have observed an increase in sales through web-based marketers and seek to grow our presence in that channel through our Internet site, TireBuyer.com.
Continue Greenfield Expansion in Existing and New Geographic Markets. While we already have the largest distribution footprint in the North American replacement tire market, servicing geographic regions of the United States that represented more than 90% of the replacement tire market for passenger and light truck tires in 2013 and with geographic coverage in Canada that we believe is also very extensive, we believe there are numerous further underserved areas in both our existing geographic markets as well as in areas not currently serviced by us that are favorably situated to support and grow additional distribution centers. Since 2010, we have successfully opened 23 greenfield distribution centers, and we intend to continue to expand our existing footprint in the United States and Canada in areas where we see opportunities.
Expand Our Hercules® Brand. Through our recently completed acquisition of Hercules, we now market the proprietary Hercules® brand, the number one private brand in North America in 2013 based on unit sales. We believe our expansive distribution network in the United States and Canada, combined with our greater access to capital, will allow us to both expand product availability and increase market share of the Hercules® brand. Further, we expect that Hercules multi-decade Asian sourcing experience, including its 250,000 square foot warehouse in northern China, will enhance our supply and distribution capabilities.
Grow TireBuyer.com® into a Premier Internet Tire Provider. TireBuyer.com® is our Internet site that enables our U.S. independent tire retailer customers to connect with consumers. TireBuyer.com® allows our broad base of independent tire retailers to participate in a greater share of the growing Internet tire
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market. We believe that TireBuyer.com® complements and services our participating U.S. independent tire retailers by providing them access to a sales and marketing channel previously unavailable to them. In 2012, the TireBuyer.com® site was re-launched on a newer, faster and more flexible platform, which has enhanced the overall consumer experience and resulted in increased traffic to the site.
Continue to Develop and Expand our Value-Added Services. Our Tire Pros® franchise program enables us to deliver advertising and marketing support to tire retailers operating as Tire Pros® franchisees. The Tire Pros® franchise program allows participating local tire retailers to enjoy the benefits of a national brand identity with minimal investment, while still maintaining their local identities. In return, we benefit from increasing volume penetration among, and further aligning ourselves with, our franchisees. We are focused on continuing to upgrade and improve the Tire Pros® franchise program and seek opportunities to develop similar programs in the future. In addition, individual manufacturers offer a variety of relatively complex programs for tire retailers that sell their products, providing cooperative advertising funds, volume discounts and other incentives. As part of our service to our customers, we assist them in managing the administration of these programs through dedicated staff. We believe these enhancements, combined with other aspects of our customer service, provide significant value to our customers.
Selectively Pursue Acquisitions. We expect to continue to employ a selective acquisition strategy to increase our share in the markets we currently service as well as to expand our distribution into new markets, utilizing our scale in an effort to realize significant synergies. Over the past six years we have successfully acquired and integrated nine businesses representing, in the aggregate, over $850 million in annual revenue through 2013, and on a pro forma basis, including our recently completed acquisitions of Hercules and Terrys Tire, the 2013 annual revenue of businesses acquired is over $2 billion in the aggregate. We believe our position as the largest distributor of replacement tires in North America, combined with our access to capital and our scalable platform, has allowed us to make acquisitions at very attractive post-synergy valuations.
Leverage Our Infrastructure in Existing Markets. Through infrastructure expansions over the past several years in the United States, we have developed a scalable platform with available incremental distribution capacity. Our distribution infrastructure enables us to efficiently add new customers, such as corporate accounts, and service growing channels, such as automotive dealerships, thereby increasing profitability by leveraging the utilization of our existing assets. We expect to complete the implementation of a similar platform in Canada near the beginning of 2015. We believe our relative penetration in existing markets is largely a function of the services we offer and the length of time we have operated locally. Specifically, in new geographic markets, we have experienced growth in market share over time, and in markets that we have served the longest, we generally have market share well in excess of our national average.
Utilize Technology Platform to Continue to Increase Distribution Efficiency. We intend to continue to invest in our inventory and warehouse management systems and logistics technology in order to further increase our efficiency and profit margins and improve customer service. For example, we operate on our Oracle ERP platform in the United States and are in the process of implementing it in Canada. We continue to evaluate and incorporate technical solutions including utilization of handheld scanning for receiving, picking and delivery of products to our customers. We believe these increased efficiencies will continue to enhance our reputation with our customers for providing timely service, while also reducing costs. Additionally, we continue to roll out customized electronic solutions and POS system integration for our larger customers.
Maintain a Comprehensive and Deep Tire Portfolio to Meet Our Customers Needs. We provide a wide range of products covering a broad range of price points, from entry-level imported products to offerings in the faster-growing high-performance tire market, through a full suite of flag, associate and proprietary brand tires. We acquired the Hercules® brand in January 2014 and intend to further expand its market presence throughout North America. We intend to continue to focus on high-performance tires, given the growth in demand for such tires,
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while maintaining our emphasis on providing broad and entry level tire offerings. Our comprehensive tire portfolio is designed to satisfy all of our customers needs and allow us to become the supplier of choice, thereby increasing customer penetration and retention across all channels.
Products
We provide our customers with a comprehensive portfolio of tires, tire supplies and tools as well as custom wheels and accessories. During 2013, tire sales accounted for 97.4% of our net sales. Tire supplies, tools and custom wheels and accessories represented approximately 2.6% of our net sales.
Tires
We sell a broad selection of replacement tires, from well-known flag brands, which typically carry a premium price and profit per tire, to entry-level imported brands. We believe our ability to offer tires across multiple industry tiers provides us with a competitive advantage by enabling us to service a broad range of price points in the replacement tire market. Sales of passenger and light truck tires accounted for 82.3% of our net sales in fiscal 2013. The remainder of our tire sales was for medium trucks, farm vehicles and other specialty tires.
Flag brands. Flag brands, which have the greatest brand recognition as a result of both strong sales and strong marketing support from tire manufacturers, are generally premium-quality and premium-priced offerings. The flag brands we sell have high consumer recognition and generate higher per-tire profit than associate or proprietary brands. We carry the flag brands from each of the four largest tire manufacturersBridgestone, Continental, Goodyear and Michelinas well as the Cooper, Hankook, Kumho, Nexen, Nitto and Pirelli brands. Within our flag brand product portfolio, we also carry high-performance tires.
Associate brands. Associate brands are primarily lower-priced tires manufactured by well-known manufacturers offered under different brand names. Our associate brands, such as Fuzion®, allow us to offer tires in a wider price range. In addition, associate brands are attractive to our tire retailer customers as they are regularly subject to incentive programs offered by tire manufacturers.
Proprietary and exclusive brands. Through our acquisition of Hercules, we own and market our proprietary Hercules® brand, the number one private brand in North America in 2013 based on unit sales. The Hercules® brand includes a full line of tires for passenger cars as well as light and medium trucks. Additionally, our Capitol® and Ironman® brands are lower-priced tires made by tire manufacturers exclusively for, and marketed by, us. These brands, in which we hold or control the trademark, strengthen our entry-level priced product offering and allow us to sell value-oriented tires to tire retailers, increasing our overall market penetration.
Entry level imported brands. Entry level imported brands are exclusively lower-priced tires manufactured offshore, and predominately by Asia-based manufacturers. Our entry level imported brands allow us to offer tires in a wider price range including opening price point products.
Custom Wheels and Accessories
Custom wheels directly complement our tire products as many custom wheel consumers purchase tires when purchasing wheels. Customers can order custom wheels and accessories from us separately or in addition to their regular tire orders without the added complexity of being serviced by an additional vendor. We offer over 25 different wheel brands, along with installation and service accessories. Of these brands, five are proprietary: ICW® Racing, Pacer®, Drifz®, Cruiser Alloy® and O.E. Performance®. Other nationally available brands that complement our offering include: Gear Alloy, Motiv LuxuryAlloys, TIS (Twenty Inches Strong) and Dropstars, which also includes Monster Energy Edition wheel styles, Advanti Racing, Black Rock, BMF, Cragar, Dick Cepek, Fondmetal, Focal, Platinum, Lexani, Mickey Thompson, Mamba, Konig and Ultra Wheel. Collectively, these brands represent one of the most comprehensive wheel offerings in the industry. Sourcing of product is worldwide through a number of manufacturers.
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Tire Supplies and Tools
We supply our customers with a wide array of tire supplies and tools which enable them to better service their customers as well as help them become more profitable businesses. Our tire supplies and tools are the most popular brand names from leading manufacturers. These products broaden our portfolio and leverage our customer relationships.
Customers
We serve a highly diversified customer base comprised of local, regional and national independent tire retailers, mass merchandisers, warehouse clubs, tire manufacturer-owned stores, automotive dealerships and web-based marketers. We sell to approximately 80,000 customers (approximately 73,000 in the U.S. and 7,000 in Canada). In fiscal 2013, our largest customer and our top ten customers accounted for less than 3.1% and 10.9%, respectively, of our net sales. We believe we are a top supplier to many of our customers and maintain relationships with our top 20 customers that exceed a decade on average.
Suppliers
We purchase our tires from several sources, including the four largest tire manufacturers, Bridgestone, Continental, Goodyear and Michelin, from whom we bought 58.6% of our tire products in fiscal 2013. In general, we do not have long-term supply agreements with tire manufacturers, instead relying on oral arrangements or written agreements that are renegotiated annually and can be terminated on short notice. However, we have conducted business with our major tire suppliers for an average of over 20 years, and we believe that we have good relationships with all of our major suppliers. In recent years, tire manufacturers have reduced the number of tire retailers they service directly. As a result of this change, tire retailers have increasingly relied on us, and we have become a more critical link between manufacturers and tire retailers.
There are a number of worldwide manufacturers of wheels and other automotive products. Most of the wheels we purchase are proprietary brands, namely, Pacer®, Cruiser Alloy®, Drifz®, O.E. Performance® and ICW® Racing, and are produced by a variety of manufacturers.
Distribution System
We have designed our distribution system to deliver products from a wide variety of tire manufacturers to our tire retailer customers. In recent years, we believe tire manufacturers have reduced the number of tire retailers they service directly and tire retailers have reduced the inventory they hold. At the same time, the depth and breadth of replacement SKUs has continued to expand. As a result of these changes, tire retailers have increasingly relied on us and we have become a more critical link in enabling tire retailers to more efficiently manage their business.
We utilize a sophisticated inventory and delivery system to distribute our products to most customers on a same or next day basis. In our U.S. distribution centers, we use sophisticated bin locator systems, material handling equipment and routing software that link customer orders to our inventory and delivery routes. We believe this distribution system, which is integrated with our proprietary business-to-business ATDOnline® ordering and reporting system, provides us a competitive advantage by allowing us to ship customer orders quickly and efficiently while also reducing labor costs. Our logistics and routing technology uses third-party software packages and GPS systems, including dynamic routing and Roadnet 5000, to optimize route design and delivery capacity. Coupled with our fleet of approximately 1,000 delivery vehicles, this technology enables us to cost effectively make multiple daily or weekly shipments to customers as necessary.
Approximately 80% of our U.S. tire purchases are shipped directly by tire manufacturers to our U.S. distribution centers. The remainder is shipped by manufacturers to our redistribution centers located in Maiden, North Carolina and Bakersfield, California and we have begun to roll out these technologies in Findley, Ohio. These redistribution centers warehouse slower-moving and foreign-manufactured products, which are forwarded to our U.S. distribution centers as needed.
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Information Systems
Through infrastructure expansions over the past several years, we have developed a scalable platform with incremental capacity available. We are currently completing the U.S. implementation of an Oracle ERP system that supports future growth and ongoing cost reduction initiatives, including warehouse and truck management systems, which we believe will allow us to continue reducing warehouse and delivery costs per unit. The ERP implementation, which is nearing completion in the United States, has largely replaced our legacy computer system. We continue to implement technical solutions across the United States including handheld scanning for receiving, picking and delivery of product to our customers. In addition, we are preparing to implement a similar Oracle ERP platform in Canada near the beginning of 2015. Additionally, we continue to roll out customized electronic solutions and POS system integration for our larger customers.
Inventory Control
We believe that we maintain levels of inventory that are adequate to meet our customers needs on a same day or next day basis. Since customers look to us to fulfill their needs on short notice, inventory levels are a primary focus of our business model. As a result, backlog of orders is not considered material to, or a significant factor in, evaluating and understanding our business. Our inventory levels are determined using sales data derived from distribution centers (on a combined basis, an individual basis or by geographic region) as well as from vendors who supply the distribution centers and retail customer stores that are served by the distribution centers. All distribution centers stock a base inventory and may expand beyond preset inventory levels as deemed appropriate by their general managers. Computer systems monitor inventory levels for all stock items and quantities are periodically re-balanced from center-to-center.
Marketing and Customer Service
Our marketing efforts are focused on driving growth through customer service, additional product placement and market expansion. We provide a range of services which enable our tire retailer customers to operate their businesses more profitably. These services include frequent and timely delivery of inventory, as well as fundamental business support services, such as administration of tire manufacturer affiliate programs and credit, training and access to consumer market data, which enable our tire retailer customers to better service their individual markets. In addition, we provide our U.S. customers with an online web portal with convenient 24/7 access to our inventory, an Internet site that allows our U.S. tire retailer customers to participate in the Internet marketing of tires to customers as well as a franchise program in the United States where we deliver advertising and marketing support to our tire retailer customers.
Sales Force
We have structured our sales organization to best serve our existing customers and develop new prospective customers such as automotive dealerships. As the manufacturers have reduced their own sales staffs, our sales force has assumed the consultative role manufacturers previously provided to tire retailers. Our tire sales force consists of sales personnel at each distribution center plus a sales administrative team located at our field support center in Huntersville, North Carolina.
Sales teams, consisting of salespeople and customer service representatives, focus on tire retailers located within the service area of the distribution center and include a combination of tire-, wheel- and supplies-focused sales personnel. Some sales personnel visit targeted customers to advance our business opportunities and those of our customers, while other sales personnel remain at our facility, making client contact by telephone to advance specific products or programs. Customer service representatives manage incoming calls from customers and provide assistance with order placement, inventory inquiries and general customer support.
The Huntersville-based sales administrative team directs sales personnel at the distribution centers and manages our corporate account customers, including large national and regional retail tire and service companies. This team also manages our Huntersville-based call center, which provides call management assistance to the
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U.S. distribution centers during peak times of the day, thereby minimizing customer wait time, and also provides support upon any disruption in a distribution centers local telephone service. They also serve as the primary point of contact for product and technical inquiries from TireBuyer.com® shoppers.
Automotive dealerships are focused on growing their service business in an effort to expand profitability, and we believe they view having replacement tire capabilities as an important service element. Between 1990 and 2013, U.S. automotive dealerships enjoyed a large increase in market share according to Modern Tire Dealer, moving from 1% of the U.S. replacement tire market to 7.5% of the market. Over the past few years we have steadily trained and deployed sales personnel to help build our sales at these accounts. We continue to invest and focus resources in this channel to strengthen and expand our relationships with the automobile manufacturers and further grow our share of tire sales to their dealerships.
Our aftermarket wheel sales group employs sales and technical support personnel in the field and performance specialists in each region. The responsibilities of this sales group include cultivating new prospective wheel and supplies customers as well as coordinating with tire sales professionals to cover existing accounts. The technical support professionals provide answers to customer questions regarding wheel style and fitment and supplies.
Tire Retailer Programs
Through our Tire Pros® franchise program we deliver advertising and marketing support to U.S. tire retailer customers operating as Tire Pros® franchisees. U.S. independent tire retailers participating in this franchise program enjoy the benefits of a national brand identity with minimal investment, while still maintaining their local identity. We anticipate increasing volume penetration among, and further aligning ourselves with, franchisees.
Individual manufacturers offer a variety of programs for tire retailers that sell their products, such as Bridgestones Affiliated Retailer Network, Continentals Gold, Goodyears G3X, Kumhos Fuel and Michelins Alliance. These programs, which are relatively complex, provide cooperative advertising funds, volume discounts and other incentives. As part of our service to our customers, we assist in the administration of these programs for the manufacturers and enhance these programs through dedicated staff to assist tire retailers in managing their participation. We believe these enhancements, combined with other aspects of our customer service, provide significant value to our customers.
We also offer our U.S. tire retailer customers ATDServiceBAY®, which makes available a comprehensive suite of benefits including nationwide tire and service warranties (through third-party warranty providers), a nationally accepted, private-label credit card (through GE Money), access to consumer market data and training and marketing programs to provide our tire retailer customers with the support and service that are critical to succeed in todays increasingly competitive marketplace.
Order Fulfillment
ATDOnline® provides our U.S. customers with web-based online ordering and 24/7 access to our inventory availability and pricing. Orders are processed automatically and printed in the appropriate distribution center within minutes of entry through ATDOnline®. Our customers are able to track expected deliveries and retrieve copies of their signed delivery receipts. ATDOnline® also allows customers to track account balances and participate in tire manufacturer incentive programs. As a key element of our order fulfillment strategy, ATDOnline provides an a robust solution for order-tracking, logistics management, distribution, installation and payment services. We encourage our customers to use this system because it represents a more efficient method of order entry and information access than traditional order systems. In fiscal 2013, approximately 65% of our total order volume was ordered through ATDOnline®, up from 56% in fiscal 2007. In 2014, we updated this site to provide a more modern platform with many upgrades and capabilities.
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TireBuyer.com® is our Internet site that enables our U.S. independent tire retailer customers to connect with consumers. Consumers using TireBuyer.com® purchase products from us and then select a qualified independent tire retailer participating in our TireBuyer.com® program for installation of their tires or wheels. We then deliver the purchased products to the selected tire retailer for local installation. The tire retailer charges the consumer for the installation costs upon product installation. We employ a third-party provider to handle the online billing and payment process. We do not handle customers credit card or other sensitive information.
We account for revenues from TireBuyer.com® in the same manner as other orders received from tire retailer customers. The TireBuyer.com® transaction structure allows us to retain our distribution focus, while strengthening our relationship with our tire retailer customers by providing them access to a sales and marketing channel previously unavailable to them. In 2012, the TireBuyer.com® site was re-launched on a newer, faster and more flexible platform, which has enhanced the overall consumer experience and resulted in increased traffic to the site.
Trademarks
The proprietary brand names under which we market our products are trademarks of our company. We value our brand names because they help develop brand identification. All of our trademarks are of perpetual duration as long as they are periodically renewed. We currently intend to maintain all of them in force. The principal proprietary brand names under which we market our products are: HERCULES® tires, IRONMAN® tires, CAPITOL® tires, NEGOTIATOR® tires, REGUL® tires, DYNATRAC® tires, CRUISERALLOY® custom wheels, DRIFZ® custom wheels, ICW® custom wheels, PACER® custom wheels and O.E. PERFORMANCE® custom wheels. Our other trademarks include: AMERICAN TIRE DISTRIBUTORS®, ATD®, TRICAN TIRE DISTRIBUTORS INC®, REGIONAL TIRE DISTRIBUTORS®, ATDONLINE®, ATDSERVICEBAY®, TIREBUYER.COM® and TIRE PROS®.
Competition
The U.S. and Canadian tire distribution industry is highly competitive and fragmented. In these markets, replacement tires are sold to consumers through several different market channels, including local, regional and national independent tire retailers, mass merchandisers, warehouse clubs, tire manufacturer-owned stores, automotive dealerships and web-based marketers. We compete with a number of tire distributors on a regional basis.
Our main competitors include TBC/Treadways Wholesale (owned by Sumitomo), which has retail operations that compete with its distribution customers, and TCI Tire Centers (owned by Michelin). In the automotive dealership channel, our principal competitor is Dealer Tire, which is focused principally on administering replacement tire programs for selected automobile manufacturers dealerships. In the online channel, our principal competitor is Tire Rack, which is principally focused on high-performance offerings, acting as both a retailer and a wholesaler.
Seasonality
Although the effects of seasonality in the United States are not significant to our business, we have historically experienced an increase in net sales in the second and third fiscal quarters and an increase in working capital in the first fiscal quarter. In Canada, however, as a result of the winter driving season we recognize a larger percentage of sales and EBITDA during the second half of the year.
Environmental Matters
Our operations and properties are subject to federal, state, foreign and local laws and regulations relating to the use, storage, handling, generation, transportation, treatment, emission, release, discharge and disposal of hazardous materials, substances and waste as well as relating to the investigation and clean-up of contaminated
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properties, including off-site disposal locations. We do not incur significant costs complying with environmental laws and regulations. However, we could be subject to material environmental costs, liabilities or claims in the future, especially in the event of the adoption of new environmental laws or changes in existing laws and regulations or in their interpretation.
Employees
As of December 28, 2013, our operations employed approximately 3,800 people, approximately 3,400 of which are located in the United States and the balance located within our Canadian distribution centers. None of our employees are represented by a union. We believe our employee relations are satisfactory.
Properties
Our principal properties are geographically situated to meet sales and operating requirements. We believe that our properties have been well maintained, are generally in good condition and are suitable for the conduct of our business. As of July 5, 2014, we operated 124 distribution centers located in 43 states in the United States and 26 distribution centers in Canada, aggregating approximately 15.3 million square feet. We expect some of the distribution centers acquired in our recent acquisitions to be closed as part of the integration process. Of these centers, two are owned by us and the remaining properties are leased. We also lease our principal executive office, located in Huntersville, North Carolina. This lease is scheduled to expire in 2022. In addition, we have some non-essential properties which we are attempting to sell or sublease.
Several of our property leases contain provisions prohibiting a change of control of the lessee or permitting the landlord to terminate the lease or increase rent upon a change of control of the lessee. Based primarily upon our belief that (i) we maintain good relations with the substantial majority of our landlords, (ii) most of our leases are at market rates and (iii) we have historically been able to secure suitable leased property at market rates when needed, we believe that these provisions will not have a material adverse effect on our business or financial position.
Legal Proceedings
We are involved from time to time in various lawsuits, including class action lawsuits arising out of the ordinary conduct of our business. Although no assurances can be given, we do not expect that any of these matters will have a material adverse effect on our business or financial condition. We are also involved in various litigation proceedings incidental to the ordinary course of our business. We believe, based on consultation with legal counsel, that none of these will have a material adverse effect on our financial condition or results of operations.
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Executive Officers and Directors
Below is a list of the names, ages as of July 5, 2014, positions and a brief account of the business experience of the individuals who serve as our executive officers and directors as of the date of this prospectus.
Name |
Age |
Position | ||
William E. Berry |
59 | President, Chief Executive Officer and Director | ||
Jason T. Yaudes |
41 | Executive Vice President and Chief Financial Officer | ||
David L. Dyckman |
49 | Executive Vice President and Chief Operating Officer | ||
J. Michael Gaither |
61 | Executive Vice President, General Counsel and Secretary | ||
William P. Trimarco |
55 | Executive Vice President, Product Strategy and Supply | ||
James M. Micali |
66 | Director | ||
Kevin Burns |
50 | Director | ||
Peter McGoohan |
32 | Director | ||
W. James Farrell |
72 | Director | ||
Gary M. Kusin |
63 | Director | ||
David Krantz |
44 | Director |
We anticipate that an additional director who is not affiliated with us or any of our stockholders and is independent under the rules of the NYSE will be appointed to the board of directors prior to the effectiveness of the registration statement of which this prospectus forms a part.
William E. Berry, President and Chief Executive Officer, Director.
Mr. Berry has served on the Board of Directors since May 2010 and as our Chief Executive Officer since April 2009 and has been our President since May 2003. He was our Chief Operating Officer from May 2003 to April 2009, Executive Vice President and Chief Financial Officer from January 2002 to May 2003, and Senior Vice President of Finance for the Southeast Division from May 1998 to January 2002. Mr. Berry joined us in May 1998 as a result of our merger with Itco, where he served as Controller from 1984 to 1998, Executive Vice President in charge of business development and sales and marketing from 1996 to 1998 and prior to that was Senior Vice President of Finance. Prior to that, Mr. Berry held a variety of financial management positions for a subsidiary of the Dr. Pepper Company and also spent three years in a public accounting firm. He holds a bachelors degree in business administration from Virginia Tech. As our President and Chief Executive Officer, Mr. Berry brings to the Board leadership, industry, operations, risk management, financial and accounting and strategic planning experience, as well as in-depth knowledge of our business.
Jason T. Yaudes, Executive Vice President and Chief Financial Officer
Mr. Yaudes has been our Executive Vice President and Chief Financial Officer since January 2012. Mr. Yaudes joined us in September 2006 as Vice President and Controller and has been Senior Vice President and Controller since December 2011. Prior to joining us, Mr. Yaudes worked with Timco Aviation Services, Inc. holding several positions ranging from Senior Financial Reporting Manager to Chief Accounting Officer. Between 1996 and 2002, Mr. Yaudes worked with the accounting firm of Arthur Andersen as a Manager in the Audit and Business Advisory Services group. Mr. Yaudes holds a bachelors degree from Appalachian State University.
David L. Dyckman, Executive Vice President and Chief Operating Officer
Mr. Dyckman has been our Executive Vice President and Chief Operating Officer since January 2012. He was our Executive Vice President and Chief Financial Officer from January 2006 to January 2012. Prior to joining us, Mr. Dyckman was Executive Vice President and Chief Financial Officer of Thermadyne Holdings Corporation from January 2005 to December 2005, and Chief Financial Officer and Vice President of Corporate Development
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for NN, Inc. from April 1998 to December 2004. Mr. Dyckman holds a bachelors degree and an M.B.A. from Cornell University. Mr. Dyckman also serves on the Board of Directors for PetroChoice Holdings, Inc.
J. Michael Gaither, Executive Vice President, General Counsel and Secretary
Mr. Gaither has been our General Counsel and Secretary since 1991 and has been an Executive Vice President since May 1999. He was our Treasurer from February 2001 to June 2003 and Senior Vice President from 1991 to May 1999. Prior to joining us, he was a lawyer in private practice. He holds a bachelors degree from Duke University and a J.D. from the University of North Carolina-Chapel Hill. Mr. Gaither also serves as a member of the Board of Advisers for the Duke University Divinity School.
William P. Trimarco, Executive Vice President, Product Strategy and Supply
Mr. Trimarco has been Executive Vice President, Product Strategy and Supply since June 2014. Mr. Trimarco joined the company in February 2014 as a result of the acquisition of Hercules, where he had been President and Chief Executive Officer since March 2009. Prior to joining Hercules, Mr. Trimarco worked at Larson-Juhl for 27 years. Larson-Juhl, a Berkshire-Hathaway company, is the global leader in manufacturing and distributing of custom picture framing products. Mr. Trimarco started as Operations Manager of Larson-Juhl in 1982 and held numerous positions including President of U.S. Operations and President-International. Mr. Trimarco holds a Bachelor of Science degree in Finance from the University of Illinois.
James M. Micali, Director
Mr. Micali has served on the Board of Directors since May 2010. Mr. Micali has been Senior Advisor to, and limited partner of, Azalea Fund III of the private equity firm Azalea Capital LLC since 2008. He served as Of Counsel with the law firm Ogletree Deakins LLC in Greenville, SC, from 2008 to 2011. He was Chairman and President of Michelin North America, Inc. from 1996 until his retirement in August 2008 and was a member of Michelin Groups Executive Council from 2001 to 2008. Prior to that time, he was Executive Vice President, Legal and Finance, of Michelin North America from 1990 to 1996 and General Counsel and Secretary from 1985 to 1990. Mr. Micali is a director of SCANA Corporation and lead Independent Director of Sonoco Products Company. Mr. Micali holds a bachelors degree from Lake Forest College and a J.D. from Boston College Law School. Through his executive positions, including as Chairman and President of Michelin North America and his work as a lawyer, Mr. Micali brings to the Board leadership, industry, legal, risk management, financial and strategic planning experience. Mr. Micali also possesses board experience, having previously served on the board of Lafarge North America from 2004 to 2007 and Ritchie Bros., Inc. from 2008 to 2012.
Kevin Burns, Director
Mr. Burns has served on the Board of Directors since May 2010. Mr. Burns joined TPG in 2003. Since March 2008, he has led TPGs Manufacturing and Industrial Sector and in 2013 he became leader of TPGs Global Operations. Prior to joining TPG, from 1998 to 2003 he served as Executive Vice President and Chief Materials Officer of Solectron Corporation. Prior to joining Solectron, Mr. Burns served as Vice President of Worldwide Operations of the Power Generation Business Unit of Westinghouse Corporation, and President of Westinghouse Security Systems. Prior to Westinghouse, Mr. Burns was a consultant at McKinsey & Co., Inc. and spent three years at the General Electric Corporation in various operating roles. Mr. Burns holds a B.S. in Mechanical and Metallurgical Engineering (cum laude) from the University of Connecticut and an M.B.A from the Wharton School of Business. He currently serves as Chairman of the Board of Isola Group, and is on the Boards of Armstrong World Industries, Nexeo Solutions, FleetPride, Inc. and Chobani. Mr. Burns brings to the Board leadership, operations, financial and strategic planning experience. Mr. Burns also possesses board experience.
Peter McGoohan, Director
Mr. McGoohan has served on the Board of Directors since January 2013. Mr. McGoohan is a TPG Vice President. He is focused on the firms industrials/manufacturing, energy and financial services investing efforts. Prior to joining TPG Capital in 2007, Mr. McGoohan was an investment banker at Goldman Sachs. Mr. McGoohan
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received his M.B.A. from the Stanford Graduate School of Business and is a summa cum laude graduate of Vanderbilt University. Mr. McGoohan brings to the Board risk management, financial and strategic planning experience.
W. James Farrell, Director
Mr. Farrell has served on the Board of Directors since October 2010. Mr. Farrell also serves as a Senior Advisor to TPG. Mr. Farrell retired as Chairman and CEO of Illinois Tool Works Inc. (ITW), based in Glenview, Illinois on May 5, 2006. ITW is a multi-national manufacturer of highly engineered fasteners, components, assemblies and systems. ITW is comprised of approximately 875 decentralized operations in 54 countries with more than 65,000 employees and 2008 Revenues of approximately $16 billion. Mr. Farrell currently serves on the board of directors of Abbott Laboratories. Mr. Farrell holds a bachelors degree in Electrical Engineering from the University of Detroit. Mr. Farrell brings to the Board leadership, risk management, operations, financial and strategic planning experience. Mr. Farrell also possesses board experience.
Gary M. Kusin, Director
Mr. Kusin has served on the Board of Directors since October 2010. Mr. Kusin has been a Senior Advisor to TPG since 2006. Mr. Kusin previously served as a President and Chief Executive Officer of FedEx Kinkos Office and Print Services from 2001 to 2006. Mr. Kusin was responsible for the strategic growth and transformation of Kinkos and oversaw the ultimate sale to FedEx. Mr. Kusin then assisted FedEx in the transition of Kinkos into FedEx Kinkos. During that two year transition Mr. Kusin served on the nine person Strategic Management Committee for FedEx Corporation worldwide. Prior to joining Kinkos in 2001, Mr. Kusin was chief executive officer of HQ Global Workplaces, the world leader in serviced offices, now a part of Regus. In 1995, Mr. Kusin co-founded Laura Mercier Cosmetics, a makeup line now sold through leading specialty and department stores worldwide, which he sold to Neiman-Marcus in 1998. Prior to co-founding Laura Mercier Cosmetics, starting in 1983, Mr. Kusin was president and co-founder of Babbages Inc., the leading consumer software specialty store chain in the United States, which now operates under the name GameStop. Earlier in his career, he was vice president and general merchandise manager for the Sanger-Harris division of Federated Department Stores, today operating as Macys. Mr. Kusin currently serves on the board of directors of Petco, Sabre Corporation, Savers and Fleetpride. Mr. Kusin served as a Director of Electronic Arts Inc. from 1995 to 2011 and as a Director of RadioShack Corporation from 2004 to 2005. Mr. Kusin holds a bachelors degree from the University of Texas and an M.B.A. from the Harvard Business School. Mr. Kusin brings to the Board leadership, risk management, operations, financial and strategic planning experience. Mr. Kusin also possesses company board experience.
David Krantz, Director
Mr. Krantz has served on the Board of Directors since March 2011. He is CEO of YP Holdings LLC. Prior to YP Holdings LLC, Mr. Krantz was President and CEO of AT&T Interactive. In addition to AT&T Interactive, Mr. Krantz has held several other senior leadership positions with AT&T. Prior to joining AT&T, Mr. Krantz held senior leadership positions at GoDigital Networks, a telecommunications equipment company, AOL/Netscape, Pacific Bell, and Sprint. Mr. Krantz holds a bachelors degree in Finance and Management from the University of Virginias McIntire School of Commerce and earned an M.B.A. from Harvard University. Mr. Krantz brings to the Board leadership, industry, financial and strategic planning experience.
Board Composition and Director Independence
Our business and affairs are managed under the direction of the board of directors. Our board currently consists of seven directors and the TPG Funds have the right to nominate, and have nominated, all of the directors that serve on the board. Currently, our directors serve for terms of one year, or until their successors are duly elected and qualified. Our certificate of incorporation that will be in effect upon closing of this offering provides that our board of directors shall consist of at least three directors but not more than 15 directors and that
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the number of directors may be fixed from time to time by resolution of our board of directors. Under the amended and restated stockholders agreement described below, we have agreed to take necessary action to maintain the size of the board of directors at no greater than directors, subject to applicable laws and regulations. Our board of directors will be divided into three classes, as follows:
| Class I, which will initially consist of , whose terms will expire at our annual meeting of stockholders to be held in 2015; |
| Class II, which will initially consist of , whose terms will expire at our annual meeting of stockholders to be held in 2016; and |
| Class III, which will initially consist of , whose terms will expire at our annual meeting of stockholders to be held in 2017. |
Upon the expiration of the initial term of office for each class of directors, each director in such class shall be elected for a term of three years and serve until a successor is duly elected and qualified or until his or her earlier death, resignation or removal. Any additional directorships resulting from an increase in the number of directors or a vacancy may be filled by the directors then in office.
We anticipate that an additional director who is not affiliated with us or any of our stockholders and is independent under the rules of the NYSE will be appointed to the board of directors prior to the effectiveness of the registration statement of which this prospectus forms a part.
In connection with this offering, we will enter into an amended and restated stockholders agreement with the TPG Funds governing their nomination rights with respect to our board of directors following this offering. Under the agreement, we are required to take all necessary action to cause the board of directors to include individuals designated by the TPG Funds in the slate of nominees recommended by the board of directors for election by our stockholders, as follows:
| for so long as the TPG Funds own at least 50% of the shares of our common stock held by them following the closing of this offering, they will be entitled to designate five individuals for nomination to serve on our board of directors; |
| when the TPG Funds own less than 50% but at least 10% of the shares of our common stock held by them following the closing of this offering, they will be entitled to designate three individuals for nomination; |
| when the TPG Funds own less than 10% but at least 5% of the shares of our common stock held by them following the closing of this offering, they will be entitled to designate two individuals for nomination; and |
| when the TPG Funds own less than 5% but at least 3% of the shares of our common stock held by them following the closing of this offering, they will be entitled to designate one individual for nomination. |
The TPG Funds will have also have the exclusive right to remove their designees and to fill vacancies created by the removal or resignation of their designees, and we are required to take all necessary action to cause such removals and fill such vacancies at the request of the TPG Funds.
Following the completion of this offering, we expect to be a controlled company under the rules of the NYSE because more than 50% of our outstanding voting power will be held by the TPG Funds. See Principal and Selling Stockholders. We intend to rely upon the controlled company exception relating to the board of directors and committee independence requirements under the rules of the NYSE. Pursuant to this exception, we will be exempt from the rules that would otherwise require that our board of directors consist of a majority of independent directors and that our compensation committee and nominating and governance committee be composed entirely of
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independent directors. The controlled company exception does not modify the independence requirements for the audit committee, and we intend to comply with the requirements of the Exchange Act and the rules of the NYSE, which require that our audit committee have at least one independent director upon consummation of this offering, consist of a majority of independent directors within 90 days following the effective date of the registration statement of which this prospectus forms a part and exclusively of independent directors within one year following the effective date of the registration statement of which this prospectus forms a part.
Our board of directors has determined that is an independent director under the rules of the NYSE. In making this determination, the board of directors considered the relationships that each such non-employee director has with our company and all other facts and circumstances that the board of directors deemed relevant in determining their independence, including beneficial ownership of our common stock.
Board Committees
Upon the completion of this offering, our board of directors will have three standing committees: the audit committee; the compensation committee; and the nominating and corporate governance committee. Each of the committees operates under its own written charter adopted by the board of directors, each of which will be available on our website upon closing of this offering. Under our amended and restated stockholders agreement, the TPG Funds have the right to appoint a director to serve on each of our committees, subject to NYSE and SEC rules.
Audit Committee
Following this offering, our audit committee will be composed of , with serving as chairman of the committee. We anticipate that, prior to the completion of this offering, our audit committee will determine that meets the definition of independent director under the rules of the NYSE and under Rule 10A-3 under the Exchange Act. Within 90 days following the effective date of the registration statement of which this prospectus forms a part, we anticipate that the audit committee will consist of a majority of independent directors, and within one year following the effective date of the registration statement of which this prospectus forms a part, the audit committee will consist exclusively of independent directors. None of our audit committee members simultaneously serves on the audit committees of more than three public companies, including ours. Our board of directors has determined that is an audit committee financial expert within the meaning of the SECs regulations and applicable listing standards of the NYSE. The audit committees responsibilities upon completion of this offering will include:
| appointing, approving the compensation of, and assessing the qualifications, performance and independence of our independent registered public accounting firm; |
| pre-approving audit and permissible non-audit services, and the terms of such services, to be provided by our independent registered public accounting firm; |
| reviewing the internal audit plan with the independent registered public accounting firm and members of management responsible for preparing our financial statements; |
| reviewing and discussing with management and the independent registered public accounting firm our annual and quarterly financial statements and related disclosures as well as critical accounting policies and practices used by us; |
| reviewing the adequacy of our internal control over financial reporting; |
| reviewing all related person transactions for potential conflict of interest situations and approving all such transactions; |
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| establishing policies and procedures for the receipt and retention of accounting-related complaints and concerns; |
| recommending, based upon the audit committees review and discussions with management and the independent registered public accounting firm, the inclusion of our audited financial statements in our Annual Report on Form 10-K; |
| reviewing and assessing the adequacy of the committee charter and submitting any changes to the board of directors for approval; |
| monitoring our compliance with legal and regulatory requirements as they relate to our financial statements and accounting matters; |
| preparing the audit committee report required by the rules of the SEC to be included in our annual proxy statement; and |
| reviewing and discussing with management and our independent registered public accounting firm our earnings releases. |
Compensation Committee
Following this offering, our compensation committee will be composed of , with serving as chairman of the committee. The compensation committees responsibilities upon completion of this offering will include:
| annually reviewing and approving corporate goals and objectives relevant to the compensation of our chief executive officer and our other executive officers; |
| evaluating the performance of our chief executive officer in light of such corporate goals and objectives and determining and approving the compensation of our chief executive officer; |
| reviewing and approving the compensation of our other executive officers; |
| appointing, compensating and overseeing the work of any compensation consultant, legal counsel or other advisor retained by the compensation committee; |
| conducting the independence assessment outlined in the rules of the NYSE with respect to any compensation consultant, legal counsel or other advisor retained by the compensation committee; |
| reviewing and assessing the adequacy of the committee charter and submitting any changes to the board of directors for approval; |
| reviewing and establishing our overall management compensation philosophy and policy; |
| overseeing and administering our equity compensation and similar plans; |
| reviewing and approving our policies and procedures for the grant of equity-based awards; |
| reviewing and making recommendations to the board of directors with respect to director compensation; and |
| reviewing and discussing with management the compensation discussion and analysis to be included in our annual proxy statement or Annual Report on Form 10-K. |
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Nominating and Corporate Governance Committee
Following this offering, our nominating and corporate governance committee will be composed of , with serving as chairman of the committee. The nominating and corporate governance committees responsibilities upon completion of this offering will include:
| developing and recommending to the board of directors criteria for board and committee membership; |
| establishing procedures for identifying and evaluating board of director candidates, including nominees recommended by stockholders; |
| identifying individuals qualified to become members of the board of directors; |
| recommending to the board of directors the persons to be nominated for election as directors and to each of the boards committees; |
| developing and recommending to the board of directors a set of corporate governance principles; |
| articulating to each director what is expected, including reference to the corporate governance principles and directors duties and responsibilities; |
| reviewing and recommending to the board of directors practices and policies with respect to directors; |
| reviewing and recommending to the board of directors the functions, duties and compositions of the committees of the board of directors; |
| reviewing and assessing the adequacy of the committee charter and submitting any changes to the board of directors for approval; |
| provide for new director orientation and continuing education for existing directors on a periodic basis; |
| performing an evaluation of the performance of the committee; and |
| overseeing the evaluation of the board of directors and management. |
Director Experience and Qualifications
The Board of Directors believes that each director should possess a combination of skills, professional experience, and diversity of viewpoints necessary to oversee our business. In addition, it believes that there are certain attributes that every director should possess, as reflected in its membership criteria. Accordingly, the Board of Directors considers the qualifications of directors and director candidates individually and in the broader context of its overall composition and our current and future needs.
Among other things, the Board of Directors has determined that it is important to have individuals with the following skills and experiences:
| leadership experience, as directors with experience in significant leadership positions possess strong abilities to motivate and manage others and to identify and develop leadership qualities in others; |
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| knowledge of our industry, particularly distribution strategy and vendor and customer relations, which is relevant to understanding our business and strategy; |
| operations experience, as it gives directors a practical understanding of developing, implementing and assessing our business strategy and operating plan; |
| risk management experience, which is relevant to oversight of the risks facing our business; |
| financial/accounting experience, particularly knowledge of finance and financial reporting processes, which is relevant to understanding and evaluating our capital structure, financial statements and reporting requirements; and |
| strategic planning experience, which is relevant to the Board of Directors review of our strategies and monitoring their implementation and results. |
Board Oversight of Risk Management
While the full board of directors has the ultimate oversight responsibility for the risk management process, its committees oversee risk in certain specified areas. In particular, our audit committee oversees management of enterprise risks as well as financial risks. Our compensation committee is responsible for overseeing the management of risks relating to our executive compensation plans and arrangements and the incentives created by the compensation awards it administers. Our nominating and corporate governance committee oversees risks associated with corporate governance, business conduct and ethics, and is responsible for overseeing the review and approval of related party transactions. Pursuant to the board of directors instruction, management regularly reports on applicable risks to the relevant committee or the full board of directors, as appropriate, with additional review or reporting on risks conducted as needed or as requested by the board of directors and its committees.
Code of Conduct
We have adopted a code of conduct that applies to all of our employees, including our principal executive officer and principal financial officer. In connection with this offering, we will make our code of conduct available on our website. We intend to disclose any amendments to our codes, or any waivers of their requirements, on our website.
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Compensation Discussion and Analysis
This discussion and analysis of our compensation program for our named executive officers should be read in conjunction with the accompanying tables below and text disclosing the compensation awarded to, earned by or paid to our named executive officers.
This section provides an analysis of our executive compensation program, the material compensation decisions made under this program during fiscal 2013, and the material factors considered in making those decisions during fiscal 2013. This section is followed by a series of tables containing specific information about the compensation earned in fiscal 2013 by the following individuals, referred to as our named executive officers:
William E. Berry, President and Chief Executive Officer;
Jason T. Yaudes, Executive Vice President and Chief Financial Officer;
J. Michael Gaither, Executive Vice President and General Counsel;
David L. Dyckman, Executive Vice President and Chief Operating Officer; and
Phillip E. Marrett, Executive Vice President, Product Planning and Positioning(1).
(1) | Mr. Marrett will cease to be our Executive Vice President, Product Planning and Positioning as of July 31, 2014 and will serve as a consultant to us through the end of 2014. |
Decision-making Responsibility
Decisions regarding the compensation of our named executive officers are made by our board of directors, after taking into account recommendations from management regarding compensation opportunities for the fiscal year, as further described below.
Compensation Philosophy and Objectives
The overall goal of our board of directors in compensating our executive officers is to attract, retain and motivate key executives of superior ability who are critical to our future success. Our board of directors believes that both the short-term and long-term incentive compensation paid to our named executive officers should be directly aligned with our performance, and that compensation should be structured to ensure that a significant portion of our named executive officers compensation opportunities is directly related to the achievement of financial and operational goals and other factors that impact stockholder value.
The compensation decisions of our board of directors with respect to our named executive officers salaries, annual incentives and long-term incentive compensation awards are influenced by the executives level of responsibility and function, our overall performance and profitability and our boards assessment of the competitive marketplace (as determined based on our board members business experience). Our board of directors also takes into account each named executive officers tenure and individual performance, our overall annual budget, and changes in the cost of living.
Our executive compensation package consists of base salary, target annual bonus, and long-term incentives, as well as additional benefits and perquisites. We have no set policy for allocating pay between the various elements of compensation and instead evaluate our named executive officers compensation opportunities on a case-by-case basis after taking into account the factors described above. To achieve competitive positioning for the annual cash compensation component of our executive compensation program,
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our board of directors sets base salaries at a level it believes to be competitive but places more emphasis on annual bonus opportunities because they are more directly linked to our performance. Thus, our compensation is focused less on fixed pay and more on performance-based opportunities, while still intending to remain competitive overall. Targeted annual cash bonus opportunities are based on, among other things, our budgeted financial goals and other factors, which may fluctuate from year to year.
Our board of directors also believes that the best way to directly align the interests of our executives with the interests of our stockholders is to provide opportunities for our executives to maintain an appropriate level of equity ownership throughout their tenure with us. Our compensation program achieves this objective through our use of equity-based long-term incentive awards.
Our executive compensation program is continually evaluated for effectiveness in achieving the stated objectives of our board of directors as well as to reflect the economic environment within which we operate.
Overview of Executive Compensation Components
In fiscal 2013, our executive compensation program consisted of several compensation elements, as noted in the table below and as further described below.
Pay Element |
What the Pay Element Rewards |
Purpose of the Pay Element | ||
Base Salary |
Core competence of the executive relative to skills, experience and contributions to us. | Provides fixed compensation based on competitive market practice. | ||
Annual Cash Incentive |
Contributions toward our achievement of specified financial targets and other key performance criteria. | Provides focus on meeting annual goals that lead to our short- and long-term success. | ||
Stock Options |
Appreciation in the value of our shares after the stock options are granted.
Achievement of specified financial targets.
Retention and continued contributions to our success. |
Provides focus on our performance as follows:
aligns the interests of our executives with the interests of our stockholders;
rewards the achievement of performance goals (for performance-based options); and
encourages retention of our named executive officers with vesting schedules that apply to our time- and performance-based options. | ||
Retirement Benefits |
Participation in our 401(k) plan and our nonqualified deferred compensation plan incentivizes employee retirement savings and continued service to the Company. | Provides attractive tax-deferred retirement savings vehicles for eligible executives and promotes retention of our executives over a longer-term time horizon. |
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Pay Element |
What the Pay Element Rewards |
Purpose of the Pay Element | ||
Welfare Benefits |
Executives participate in employee benefit plans generally available to our employees, including medical, health, life insurance and disability plans. | These benefits are part of our broad-based total compensation program. | ||
Certain named executive officers are also provided with supplemental health benefits, which reward executives for their service in leadership roles. | Encourages our executive officers to protect their health. | |||
Additional Benefits and Perquisites |
Certain named executive officers are reimbursed for club memberships and all our named executive officers are provided with a vehicle allowance. These benefits reward executives for their service in leadership roles. | Consistent with offering our executives a competitive compensation program. | ||
Termination Benefits |
Our named executive officers are parties to employment agreements that provide them with severance benefits if the named executive officers employment is terminated without cause or the officer leaves for good reason, each as defined in the agreements. These arrangements reward executives for their continued service to the Company and subject them to restrictive covenants that protect the Companys interests. | Termination benefits are designed to retain executives and provide security for our named executive officers so their focus remains on driving the Companys performance. |
The use of these programs enables us to reinforce our pay for performance philosophy, as well as strengthen our ability to attract and retain highly qualified executives. We believe that this combination of programs provides an appropriate mix of fixed and variable pay, balances short-term operational performance with long-term stockholder value, and encourages executive recruitment and retention.
Elements of Compensation and Determination of Pay Levels
Base Salary
Historically, base salary levels have reflected a combination of factors including the executives experience and tenure, our overall annual budget, the executives individual performance, and changes in responsibility. Our board of directors does not target base salary at any particular percent of total compensation. Our board of directors reviews salary levels annually using the factors described above and takes into account salary recommendations made by our Chief Executive Officer and other senior members of management. In fiscal 2013, there were no base salary increases granted to our named executive officers that took effect in fiscal 2013. In December 2013, our board of directors approved an increase in Mr. Yaudes base salary from $350,000 to $400,000 that took effect on January 1, 2014 in recognition of Mr. Yaudes increased responsibilities and success in his role as our Chief Financial Officer.
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Annual Incentive Plan
Our annual incentive plan provides our named executive officers with an opportunity to earn annual cash bonuses based on our achievement of certain pre-established performance goals.
As in setting base salaries, our board of directors, after taking into account recommendations from our Chief Executive Officer and other senior members of management, considers a combination of the factors described above in establishing the annual target bonus opportunities for our named executive officers, which vary from year to year. Budgeted EBITDA (as defined below) is the primary factor considered, as target bonus opportunities are adjusted annually when our board of directors sets our annual budget, which includes our Budgeted EBITDA goals, for the year. Budgeted EBITDA is a non-GAAP financial measure that refers to our net income or loss from our consolidated statements of comprehensive income before interest income and expense, income taxes, depreciation and amortization, which is then further adjusted to exclude certain non-cash, non-recurring, cost reduction and other adjustment items. Target bonus opportunities are defined as a percentage of the overall bonus pool, which is set as described below. We do not target annual bonus opportunities at any particular percentage of base salary or total compensation.
In December of each year, our board of directors sets a bonus pool for the following year for all executives covered by our annual incentive plan, the size of which is equal to a designated percentage of Budgeted EBITDA actually achieved by us. Budgeted EBITDA was selected as the performance metric for our annual incentive plan because we believe it is an important measure of our financial performance and our ability to create free cash flow. No bonus pool is funded if actual performance falls below 90% of the Budgeted EBITDA goal. The pool grows pro-rata for actual performance between 90% and 100% of the Budgeted EBITDA goal. Above 100% of the Budgeted EBITDA goal, the pool grows by approximately 20% of each incremental dollar. The bonus pool is divided among participants in our annual incentive plan based on each participants designated percentage of the bonus pool, as described above.
We set the Budgeted EBITDA goal for fiscal 2013 bonus opportunities at a level that was intended to reflect improvement in performance over the prior fiscal year, specific market conditions and better-than-average growth within our competitive industry. For fiscal 2013, the targeted bonus pool was $10.1 million, subject to adjustment, based upon a Budgeted EBITDA target of $214.8 million. The percentage of the targeted bonus pool designated for each named executive officer for fiscal 2013 was: Mr. Berry, 15.3%; Mr. Dyckman, 6.9%; and Messrs. Yaudes, Gaither and Marrett, 5.3% each. For fiscal 2013, we achieved 91.0% of the Budgeted EBITDA goal, which resulted in a total bonus pool paid of $5.6 million. The amount of the actual bonuses paid to our named executive officers for fiscal 2013 are included in the Summary Compensation Table under the heading Non-Equity Incentive Plan Compensation.
Stock Options
We provide our named executive officers with long-term incentive opportunities in the form of stock options. All outstanding stock options were granted under the ATD Corporation Management Equity Incentive Plan, as amended from time to time, which we refer to as the 2010 Plan.
Each of our named executive officers received a grant of stock options following the Sponsors acquisition of the Company in fiscal 2010 that was intended to cover a multi-year period and generally align the interests of our senior management team with those of the Sponsor. The sizes of those grants were determined by our board of directors based on its experience, after consultation with our Chief Executive Officer, taking into account the fact that they were intended to serve as incentives over a longer-term period. We do not make annual stock option grants to our named executive officers and have only made additional stock option grants to our named executive officers in limited circumstances.
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In fiscal 2012, we granted additional stock options to Mr. Yaudes in connection with his promotion to Executive Vice President and Chief Financial Officer. The size of this grant was determined by our board of directors and was intended to generally align Mr. Yaudes aggregate stock option holdings with those of our other Executive Vice Presidents.
In fiscal 2013, we made additional stock option grants to each of our named executive officers following the Sponsors purchase of additional common stock of the Company in connection with the acquisition of RTD (described above under the heading Unaudited Pro Forma Combined Condensed Financial Information), which had resulted in the equity ownership of our named executive officers and other holders of our common stock being diluted. Our board of directors decided to make these grants so as to generally maintain the equity ownership levels of our named executive officers (on a fully diluted basis) before and after the additional equity purchase by the Sponsor.
Fifty percent of each stock option grant made to our named executive officers consists of time-based stock options and fifty percent of each stock option grant consists of performance-based options. The initial post-acquisition grants made in 2010 to our named executive officers were each eligible to vest over the five-year period following the closing of the acquisition on May 28, 2010. In order to maintain our named executive officers focus on maximizing our performance over that five-year period, subsequent grants to our named executive officers generally have had shorter vesting schedules that are aligned with the vesting schedule that applied to the initial post-acquisition grants. All time-based options granted to our named executive officers in fiscal 2013 vest in three equal installments, with the first installment having vested on May 28, 2013, the second installment having vested on May 28, 2014 and the last installment scheduled to vest on May 28, 2015, generally subject to the named executive officer remaining continuously employed by us through such vesting date. The time-based stock options granted to Mr. Yaudes in fiscal 2012 vest in equal installments on each of the first five anniversaries of May 28, 2012, generally subject to Mr. Yaudes remaining continuously employed by us through the applicable vesting date. The first two installments of Mr. Yaudes fiscal 2012 time-based stock options vested on May 28, 2013 and May 28, 2014, respectively.
For the initial post-acquisition grants, each performance-based option was eligible to vest in equal installments on each of the first five anniversaries following the closing of the acquisition if, as of the end of the most recent fiscal year ending on or prior to the applicable anniversary, we achieved the EBITDA target established for such fiscal year by the terms of the option at the time the option was granted. If the EBITDA target is not met for the relevant fiscal year, the performance-based option remains outstanding until terminated and immediately vests upon (i) except with respect to performance-based options eligible to vest as part of the final tranche subject to the grant, achievement of cumulative EBITDA targets for the fiscal year and the first fiscal year following that fiscal year or (ii) the occurrence of a liquidity event in which the Sponsor receives a cash return on its investment in us of at least 220%. As with the time-based options, subsequently granted performance-based options generally are eligible to vest over a shorter period that is aligned with the vesting schedule that applied to the initial post-acquisition grants. All performance-based options granted to our named executive officers in fiscal 2013 vest in three equal installments, with the first installment having vested on May 28, 2013 based on fiscal 2012 EBITDA, the second installment having failed to vest on May 28, 2014 due to our not having achieved the fiscal 2013 EBITDA target (but remaining eligible to vest as described below) and the last installment eligible to vest on May 28, 2015 based on fiscal 2014 EBITDA, generally subject to the named executive officer remaining continuously employed by us through such vesting date. The performance-based stock options granted to Mr. Yaudes in fiscal 2012 vest in five equal installments, with the first installment having vested on May 28, 2013 based on fiscal 2012 EBITDA, the second installment having failed to vest on May 28, 2014 due to our not having achieved the fiscal 2013 target (but remaining eligible to vest as described below) and the other installments eligible to vest based on fiscal 2014, 2015 and 2016 EBITDA, respectively, generally subject to Mr. Yaudes remaining employed by us through the relevant vesting date. Performance-based options granted in fiscal 2012 and fiscal 2013 to our named executive officers are also eligible to vest based on our two-year cumulative EBITDA or the cash return to the Sponsor in connection with a liquidity event on the same terms as described above.
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Investment in the Company
Each of our named executive officers made a direct cash investment in our common stock shortly following the Sponsors acquisition of us. Offering our named executive officers the opportunity to invest in our common stock aligns their interests with the interests of our other stockholders, leads them to act as employee owners of our company and allows them to benefit from increases in value that they helped to create. The number of shares of our common stock beneficially owned by each of named executive officers is described below under the heading Principal and Selling Stockholders.
Retirement Plans
Our named executive officers participate along with our other employees and/or other executives in our 401(k) plan and our nonqualified deferred compensation plan. Under our 401(k) plan, we make a matching contribution of 50% of employee contributions up to 6% of compensation, subject to certain limits under the Internal Revenue Code, and employees vest in Company matching contributions as to 20% of the amount of the contributions for each of their first five years of service.
Our deferred compensation plan is a nonqualified plan comprised of a voluntary deferral program that allows our named executive officers to defer a portion of their annual salary and bonus and a noncontributory program that provides for certain contributions to be made on behalf of certain executives by us according to a board-approved schedule. Our deferred compensation plan is described further below under the heading Nonqualified Deferred Compensation for Fiscal 2013 and our contributions to this plan are included under that heading as well as in the Summary Compensation Table.
We believe that our retirement programs serve as an important tool to attract and retain our named executive officers and other key employees. We also believe that offering a baseline of stable retirement benefits encourages our named executive officers to make a long-term commitment to us. We do not adjust the level of retirement benefits based on the value of a named executive officers long-term incentive awards nor do we adjust the level of a named executive officers total direct compensation for a given year in light of the value of retirement benefits.
Severance and change in control arrangements
We provide severance protection to each of our named executive officers pursuant to their employment agreements. Certain limited change in control-related protections apply to stock options held by our named executive officers. Our severance and change in control protections are designed to be fair and competitive and to aid in attracting experienced executives, including our named executive officers. The terms of the severance and change in control protections we provide are described below under the heading Potential Payments Upon Termination or Change in Control.
Perquisites and Other Benefits
We provide vehicle allowances to each of our named executive officers and reimburse Messrs. Berry, Gaither and Dyckman for the cost of dues at country clubs. In addition, we sponsor an executive medical program for our executive officers, which provides for reimbursement to certain named executive officers and eligible dependents for medical expenses not covered by our group medical plan. Our board of directors believes that the costs of providing these perquisites and benefits are reasonable relative to their value to our named executive officers.
Tax Deductibility
Because our common stock is not currently publicly traded, executive compensation paid in fiscal 2013 was not subject to the provisions of Section 162(m) of the Internal Revenue Code, which limits the deductibility of compensation paid to certain individuals to $1 million, excluding qualifying performance-based compensation
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and certain other compensation. Following this offering, at such time as we are subject to the deduction limitation under Section 162(m) of the Internal Revenue Code, we expect that our board of directors (or a newly formed compensation committee) will consider the impact of Section 162(m).
Summary Compensation Table for Fiscal 2013, 2012 and 2011
The following table summarizes compensation for our named executive officers for fiscal years 2013, 2012 and 2011.
Name and Principal Position |
Fiscal |
Salary ($) |
Option Awards |
Non-Equity |
All Other |
Total ($) |
||||||||||||||||||
William E. Berry |
2013 | $ | 750,000 | $ | 353,997 | $ | 849,000 | $ | 56,297 | $ | 2,009,294 | |||||||||||||
President and Chief Executive Officer |
|
2012 2011 |
|
|
750,000 600,000 |
|
|
|
|
|
600,000 1,584,000 |
|
|
51,921 54,347 |
|
|
1,401,921 2,238,347 |
| ||||||
Jason T. Yaudes (1) |
2013 | $ | 350,000 | $ | 103,585 | $ | 293,000 | $ | 23,665 | $ | 770,250 | |||||||||||||
Executive Vice President and Chief Financial Officer |
|
2012 |
|
|
342,308 |
|
|
758,275 |
|
|
215,000 |
|
|
20,378 |
|
|
1,335,961 |
| ||||||
J. Michael Gaither |
2013 | $ | 400,000 | $ | 176,999 | $ | 293,000 | $ | 53,437 | $ | 923,436 | |||||||||||||
Executive Vice President, General Counsel and Secretary |
|
2012 2011 |
|
|
400,000 350,000 |
|
|
|
|
|
215,000 545,000 |
|
|
55,581 52,664 |
|
|
670,581 947,664 |
| ||||||
David L. Dyckman (2) |
2013 | $ | 550,000 | $ | 199,123 | $ | 384,000 | $ | 26,195 | $ | 1,159,318 | |||||||||||||
Executive Vice President and Chief Operating Officer |
|
2012 2011 |
|
|
550,000 350,000 |
|
|
|
|
|
280,000 727,000 |
|
|
26,239 27,170 |
|
|
856,239 1,104,170 |
| ||||||
Phillip E. Marrett |
2013 | $ | 350,000 | $ | 176,999 | $ | 293,000 | $ | 37,013 | $ | 857,012 | |||||||||||||
Executive Vice President, Product Planning and Positioning |
|
2012 2011 |
|
|
350,000 325,000 |
|
|
|
|
|
215,000 545,000 |
|
|
34,751 33,507 |
|
|
599,751 903,507 |
|
(1) | Mr. Yaudes was appointed Executive Vice President and Chief Financial Officer effective January 23, 2012. Mr. Yaudes was not a named executive officer of the Company during fiscal 2011 and therefore his compensation is not required to be reported for that year. |
(2) | Effective January 23, 2012, Mr. Dyckman was appointed Executive Vice President and Chief Operating Officer. Prior to January 23, 2012, Mr. Dyckman was our Executive Vice President and Chief Financial Officer. |
(3) | Represents the aggregate grant date fair value of option awards granted during the fiscal year ended December 28, 2013 and December 29, 2012, in each case, calculated in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures. The fair value of the options was calculated using a Black-Scholes option pricing model. For a discussion of the assumptions used in the valuation, see Note 12 in our notes to consolidated financial statements included elsewhere in this prospectus. |
(4) | Represents each named executive officers annual cash bonus earned with respect to the relevant fiscal year under our annual incentive plan. |
(5) | Please see the table below for a description of amounts included in this column. |
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All Other Compensation from Summary Compensation Table for Fiscal 2013, 2012 and 2011
The following table contains a breakdown of the compensation and benefits included under All Other Compensation in the Summary Compensation Table above.
Name |
Fiscal |
Registrant |
Vehicle |
401(k) |
Club |
Executive |
Long- |
Total ($) |
||||||||||||||||||||||||
William E. Berry |
|
2013 2012 2011 |
|
$
|
20,000 20,000 20,000 |
|
$
|
19,200 19,200 19,200 |
|
$
|
11,500 5,628 8,250 |
|
$
|
5,082 5,544 5,544 |
|
$
|
994 596 |
|
$
|
515 555 757 |
|
$
|
56,297 51,921 54,347 |
| ||||||||
Jason T. Yaudes |
|
2013 2012 |
|
|
|
|
|
14,400 14,400 |
|
|
8,750 5,423 |
|
|
|
|
|
|
|
|
515 555 |
|
|
23,665 20,378 |
| ||||||||
J. Michael Gaither |
|
2013 2012 2011 |
|
|
17,000 17,000 17,000 |
|
|
16,800 16,800 16,800 |
|
|
11,500 7,776 8,250 |
|
|
6,000 6,000 6,000 |
|
|
1,622 7,450 3,757 |
|
|
515 555 857 |
|
|
53,437 55,581 52,664 |
| ||||||||
David L. Dyckman |
|
2013 2012 |
|
|
|
|
|
14,400 14,400 14,400 |
|
|
8,750 7,238 8,250 |
|
|
2,530 2,760 2,760 |
|
|
1,286 903 |
|
|
515 555 857 |
|
|
26,195 26,239 27,170 |
| ||||||||
Phillip E. Marrett |
|
2012 2011 |
|
|
10,000 10,000 10,000 |
|
|
14,400 14,400 14,400 |
|
|
8,750 7,714 8,250 |
|
|
|
|
|
3,348 2,082 |
|
|
515 555 |
|
|
37,013 34,751 33,507 |
|
(1) | Represents amounts paid by us under our executive medical plan to cover the cost of qualifying expenses that were incurred by Messrs. Berry, Gaither, Dyckman and Marrett under our health plan but that were not covered under such plan. |
Grants of Plan-Based Awards During Fiscal 2013
The following table sets forth certain information regarding the grant of plan-based awards made during fiscal 2013 to our named executive officers:
Potential
Payouts |
Estimated |
All Other Options (#) (5) |
Exercise Awards ($/Sh) |
Grant Date of Option |
||||||||||||||||||||||||||
Name |
Grant |
Threshold ($) (1) |
Target ($) (2) |
Maximum (3) |
Target (#) |
|||||||||||||||||||||||||
William E. Berry |
$ | 772,038 | $ | 1,544,076 | ||||||||||||||||||||||||||
2/15/2013 | 330,986 | 330,987 | $ | 1.20 | $ | 353,997 | ||||||||||||||||||||||||
Jason T. Yaudes |
267,438 | 534,876 | ||||||||||||||||||||||||||||
2/15/2013 | 94,699 | 94,699 | 1.20 | 103,585 | ||||||||||||||||||||||||||
J. Michael Gaither |
267,438 | 534,876 | ||||||||||||||||||||||||||||
2/15/2013 | 165,493 | 165,494 | 1.20 | 176,999 | ||||||||||||||||||||||||||
David L. Dyckman |
348,174 | 696,348 | ||||||||||||||||||||||||||||
2/15/2013 | 186,180 | 186,180 | 1.20 | 199,123 | ||||||||||||||||||||||||||
Phillip E. Marrett |
267,438 | 534,876 | ||||||||||||||||||||||||||||
2/15/2013 | 165,493 | 165,494 | 1.20 | 176,999 |
(1) | Represents the minimum payments under our annual incentive plan if the threshold level of 90% of the Budgeted EBITDA target had been achieved during fiscal 2013. |
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(2) | Represents payments under our annual incentive plan if 100% of the Budgeted EBITDA target had been achieved during fiscal 2013. In fiscal 2013, we achieved 91% of the Budgeted EBITDA target, exceeding the threshold level discussed in footnote (1) above but not meeting the target level of performance. Actual bonuses paid to our named executive officers are included in the Summary Compensation Table under the heading Non-Equity Incentive Plan Compensation. |
(3) | There is no limit on the maximum amount payable under our annual incentive plan. |
(4) | Represents the number of performance-based options granted to our named executive officers under the 2010 Plan in fiscal 2013. All performance-based options granted to our named executive officers in fiscal 2013 vest in three equal installments, with the first installment having vested on May 28, 2013 based on fiscal 2012 EBITDA, the second installment having failed to vest on May 28, 2014 due to our not having achieved the fiscal 2013 EBITDA target (but remaining eligible to vest as described below) and the last installment eligible to vest on May 28, 2015 based on fiscal 2014 EBITDA, generally subject to the named executive officer remaining continuously employed by us through such vesting date. If the EBITDA target is not met for fiscal 2014, the performance-based option remains outstanding until terminated and immediately vests upon the occurrence of a liquidity event in which the Sponsor receives a cash return on its investment in us of at least 220%, generally subject to the named executive officer remaining employed by us through the vesting date. Because the EBITDA target was not met for fiscal 2013, performance-based options eligible to vest based on fiscal 2013 EBITDA, to the extent they remain outstanding, are eligible to vest based upon achievement of a cumulative EBITDA target for fiscal years 2013 and 2014. |
(5) | Represents the number of time-based options granted to our named executive officers under the 2010 Plan in fiscal 2013. All time-based options granted to our named executive officers in fiscal 2013 vest in three equal installments, with the first installment having vested on May 28, 2013, the second installment having vested on May 28, 2014 and the last installment scheduled to vest on May 28, 2015, generally subject to the named executive officer remaining continuously employed by us through such vesting date. |
(6) | Represents the aggregate grant date fair value of option awards granted during the fiscal year ended December 28, 2013, calculated in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures. The fair value of the options was calculated using a Black-Scholes option pricing model. For a discussion of the assumptions used in the valuation, see Note 12 in our notes to consolidated financial statements included elsewhere in this prospectus. |
Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table
We are a party to an employment agreement with each of our named executive officers. The term of each agreement will continue until the named executive officers termination of employment, unless the parties otherwise agree to terminate the agreement. Each agreement sets forth the named executive officers initial base salary, which has been subsequently increased prior to fiscal 2013 (except in the case of Mr. Yaudes, whose base salary of $350,000 was set in his employment agreement dated January 23, 2012 and remained in effect during fiscal 2013) and provides that the named executive officer is entitled to an annual performance-based cash bonus on such terms as are determined by our board of directors and is entitled to participate in the benefit plans maintained by the Company and made available to all executive officers.
The agreements with Messrs. Berry, Yaudes and Gaither require us to provide the named executive officer with a monthly car allowance ($1,600 per month for Mr. Berry, $1,200 per month for Mr. Yaudes and $1,400 per month for Mr. Gaither) and, for Messrs. Berry and Gaither, also require us to reimburse them for club membership dues of up to $500 per month.
For a description of the payments and benefits our named executive officers may be entitled to in connection with a termination of employment and/or a change in control and a description of the restrictive covenants covering our named executive officers, see Potential Payments upon Termination or Change in Control.
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Outstanding Equity Awards at Fiscal 2013 Year End
The following table provides information concerning outstanding options held by our named executive officers as of December 28, 2013, the last day of our 2013 fiscal year.
Name |
Number of (#) |
Number of (#) (1) |
Equity |
Option |
Option |
|||||||||||||||
William E. Berry |
5,184,000 | 1,728,000 | 1,728,000 | $ | 1.00 | 08/30/20 | ||||||||||||||
220,658 | 220,658 | 220,657 | 1.20 | 02/15/23 | ||||||||||||||||
Jason T. Yaudes |
583,200 | 194,400 | 194,400 | 1.00 | 08/30/20 | |||||||||||||||
300,000 | 600,000 | 600,000 | 1.14 | 01/23/22 | ||||||||||||||||
47,809 | 70,794 | 70,794 | 1.20 | 02/15/23 | ||||||||||||||||
J. Michael Gaither |
2,592,000 | 864,000 | 864,000 | 1.00 | 08/30/20 | |||||||||||||||
110,329 | 110,329 | 110,329 | 1.20 | 02/15/23 | ||||||||||||||||
David L. Dyckman |
2,916,000 | 972,000 | 972,000 | 1.00 | 08/30/20 | |||||||||||||||
124,120 | 124,120 | 124,120 | 1.20 | 02/15/23 | ||||||||||||||||
Phillip E. Marrett |
2,592,000 | 864,000 | 864,000 | 1.00 | 08/30/20 | |||||||||||||||
110,329 | 110,329 | 110,329 | 1.20 | 02/15/23 |
(1) | Represents the number of unvested and unexercised time-based options held by our named executive officers as of December 28, 2013. The time-based options expiring on August 30, 2020 vest in equal installments on each of the first five anniversaries of May 28, 2010; as of the end of fiscal 2013, 40% of each grant had not yet vested. Mr. Yaudes time-based options expiring on January 23, 2022 vest in equal installments on each of the first five anniversaries of May 28, 2012; as of the end of fiscal 2013, 80% of Mr. Yaudes grant had not yet vested. Except as described below, the time-based options expiring on February 15, 2023 vest in equal installments on each of the first three anniversaries of May 28, 2012; as of the end of fiscal 2013, 66.6% of each grant had not yet vested. Of Mr. Yaudes time-based options that expire on February 15, 2023, 37,236 are subject to the vesting terms described in the immediately preceding sentence. The remaining 57,463 time-based options vest in equal installments on each of the first five anniversaries of May 28, 2012; as of the end of fiscal 2013, 80% of the grant had not yet vested. In each case, the vesting of options generally is contingent on the named executive officer remaining continuously employed by us through the applicable vesting date. |
(2) | Represents the number of unearned and unexercised performance-based options held by our named executive officers as of December 28, 2013. The performance-based options expiring on August 30, 2020 vest in equal installments on each of the first five anniversaries of May 28, 2010, provided that we have met the EBITDA target established for the preceding fiscal year; as of the end of fiscal 2013, 40% of each grant had not yet vested. Mr. Yaudes performance-based options expiring on January 23, 2022 vest in equal installments on each of the first five anniversaries of May 28, 2012, provided that we have met the EBITDA target established for the preceding fiscal year; as of the end of fiscal 2013, 80% of Mr. Yaudes grant had not yet vested. Except as described below, the performance-based options expiring on February 15, 2023 vest in equal installments on each of the first three anniversaries of May 28, 2012, provided that we have met the EBITDA target established for the preceding fiscal year; as of the end of fiscal 2013, 66.6% of each grant had not yet vested. Of Mr. Yaudes performance-based options that expire on February 15, 2023, 37,236 are subject to the vesting terms described in the immediately preceding sentence. The remaining 57,463 performance-based options vest in equal installments on each of the first five anniversaries of |
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May 28, 2012, provided that we have met the EBITDA target established for the preceding fiscal year; as of the end of fiscal 2013, 80% of the grant had not yet vested. With respect to each performance-based option, if the EBITDA target is not met for the relevant fiscal year, the performance-based option remains outstanding until terminated and immediately vests upon (i) except with respect to performance-based options eligible to vest as part of the final tranche subject to the grant, achievement of cumulative EBITDA targets for the relevant fiscal year and the first fiscal year following that fiscal year, or (ii) the occurrence of a liquidity event in which the Sponsor receives a cash return on its investment in us of at least 220%. In each case, the named executive officer generally must remain employed through the applicable vesting date in order for the applicable performance-based options to vest. |
(3) | The exercise price of all stock options is equal to 100% of the fair market value of a share of our common stock on the date the options were granted, as determined by our board of directors after considering, among other things, the results of an independent third party valuation. |
Option exercises and stock vested
None of our named executive officers exercised any stock options or became vested in any stock awards during our 2013 fiscal year.
Nonqualified Deferred Compensation for Fiscal Year 2013
We sponsor a nonqualified deferred compensation plan in which all of our named executive officers are eligible to participate. Under the deferred compensation plan, a participant is permitted to defer up to 75% of his base salary and up to the full amount of his annual bonus, other performance-based compensation and any 401(k) plan refund. We may also make discretionary contributions to the deferred compensation plan on behalf of participants in an amount determined by our board of directors. In fiscal 2013, we continued our prior practice of making contributions to the plan on behalf of Messrs. Berry, Gaither and Marrett in the amounts shown below. Each participants elective deferrals under the plan are fully vested upon deferral; our contributions to the plan are only fully vested after a participant has provided five years of service to the Company, with 20% vesting on each of the first five anniversaries of the participants first day of service. Each participant may direct the investment of his account under the deferred compensation plan based on the investment alternatives available under the plan, which include a variety of equity, fixed income and other investment alternatives. A participant may receive a distribution upon his or her death, a separation from service, disability, a change in control event or an unforeseeable emergency. All distributions will be in the form of a lump sum, except that a participant may elect to receive distributions in installments over a period of up to five years in the event of his or her disability and, if a participant has attained either age 62 or age 55 with ten years of service, he or she may elect to receive distributions in installments over a period of up to ten years.
The following table sets forth information regarding our nonqualified deferred compensation plan, showing, with respect to each named executive officer, the aggregate contributions made by such executive officer, the aggregate contributions made by the Company, the aggregate earnings accrued and the aggregate value of withdrawals and distributions to the executive officer, in each case, during the fiscal year ended December 28, 2013 and the balance of his account under this plan as of December 28, 2013.
Name |
Executive ($) (1) |
Registrant ($) (2) |
Aggregate ($) (3) |
Aggregate ($) |
Aggregate ($) (4) |
|||||||||||||||
William E. Berry |
30,000 | 20,000 | 119,308 | | 553,966 | |||||||||||||||
Jason T. Yaudes |
67,250 | | 38,592 | | 242,618 | |||||||||||||||
J. Michael Gaither |
| 17,000 | (2,153 | ) | | 329,951 | ||||||||||||||
David L. Dyckman |
28,747 | | 4,226 | | 32,973 | |||||||||||||||
Phillip E. Marrett |
| 10,000 | 6,745 | | 89,595 |
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(1) | Amounts in this column are included in the amounts reported as Salary or Non-Equity Incentive Plan Compensation in the Summary Compensation Table for fiscal year 2013 for each of the named executive officers, depending on the type of compensation the named executive officer elected to defer. |
(2) | Amounts in this column reflect company contributions and are included in the Summary Compensation Table under the heading All Other Compensation. |
(3) | Earnings on balances in the nonqualified deferred compensation plan equal the rate of return on investments elected by each participant in the plan. These amounts are not included in the Summary Compensation Table because the earnings are credited at a market rate of return. |
(4) | The amounts in the table below are reported as compensation in the Summary Compensation Table in the years indicated: |
Name |
Fiscal |
Reported ($) |
||||||
William E. Berry |
2013 | $ | 50,000 | |||||
2012 | 48,769 | |||||||
2011 | 43,077 | |||||||
Jason T. Yaudes |
2013 | 67,250 | ||||||
2012 | 60,740 | |||||||
J. Michael Gaither |
2013 | 17,000 | ||||||
2012 | 17,000 | |||||||
2011 | 17,577 | |||||||
David L. Dyckman |
2013 | 28,747 | ||||||
2012 | | |||||||
2011 | | |||||||
Phillip E. Marrett |
2013 | 10,000 | ||||||
2012 | 10,000 | |||||||
2011 | 10,000 |
Potential Payments upon Termination or Change in Control
Employment Agreements
As described above, we currently have employment agreements with each of our named executive officers.
We or the employee may terminate the applicable employment agreement at any time. Upon termination of employment for any reason, the named executive officer is entitled to receive a basic termination payment equal to his base salary earned through the date of termination and the previous years bonus to the extent earned. In the event of the termination of Mr. Berrys employment for any reason other than cause, we have agreed to provide for the continued participation of him and his family in our health plan at our expense until the time he reaches age 65. In addition, if we terminate the employment of any of our named executive officers without cause or if the named executive officer resigns for good reason (each as defined in his employment agreement), he is entitled to the following severance payments and, in the case of Messrs. Yaudes, Gaither, Dyckman and Marrett, continuation of health benefits:
Mr. Berry is entitled to receive a monthly sum equal to his monthly base salary in effect at such time plus $25,000 for a period of two years (in addition to the health benefits that would be provided upon a termination for any reason other than a termination for cause).
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Mr. Yaudes is entitled to receive: (i) a monthly sum equal to his monthly base salary in effect at such time for a period of 12 months and (ii) continuation of health benefits for a period of 12 months.
Mr. Gaither is entitled to receive: (i) a monthly sum equal to his monthly base salary in effect at such time plus $22,222.22 for a period of 18 months and (ii) continuation of health benefits for a period of 18 months.
Mr. Dyckman is entitled to receive: (i) a monthly sum equal to his monthly base salary in effect at such time plus $20,833.34 for a period of 12 months and (ii) continuation of health benefits for a period of 12 months.
Mr. Marrett is entitled to receive: (i) a monthly sum equal to his monthly base salary in effect at such time plus $19,583.33 for a period of 12 months and (ii) continuation of health benefits for a period of 12 months.
Each named executive officer has agreed to sign a release of claims in connection with a termination of employment. The employment agreements contain confidentiality, non-compete and non-solicit provisions. The non-compete and non-solicit provisions apply during the named executive officers employment and for a post-employment period equal to the following: Mr. Berry24 months; Mr. Gaither18 months; and Messrs. Yaudes, Dyckman and Marrett12 months.
Stock Options
Under the 2010 Plan, if a named executive officers employment is terminated within two years of a change of control transaction either by us without cause or by the named executive officer for good reason, 100% of the named executive officers outstanding time-based options become immediately vested and exercisable. In addition, the option grant agreements for each of the named executive officers provide that in the event of termination by us without cause or by the named executive officer for good reason, whether following a change of control transaction or not, (i) any time-based options that would have vested within six months of termination will become immediately vested on the termination date; and (ii) any performance-based options that would have vested within six months of termination if the employee had continued to be employed will vest upon the date the applicable performance criteria are determined to have been achieved.
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Payment Summary
The table below reflects the amount of compensation payable to each named executive officer in the event of termination of the executives employment for various reasons or a change in control. The table does not include amounts payable under the nonqualified deferred compensation plan, payments that would be made to a named executive officer under benefit plans or employment terms generally available to other salaried employees, such as group life or disability insurance, accrued but unpaid salary or payments under our annual incentive plan, which are earned if the named executive officer works through the end of the relevant fiscal year. The amounts shown assume that a termination of employment and/or a change in control occurred on December 28, 2013, the last day of our 2013 fiscal year.
Name |
Payments upon Termination |
Termination |
Termination |
Termination of (3) |
Change in (4) |
|||||||||||||
William E. Berry |
Severance and Noncompetition Agreement | $ | 2,100,000 | $ | 2,100,000 | $ | | $ | | |||||||||
Acceleration of Time-Based Stock Options |
465,099 | 930,197 | | | ||||||||||||||
Health Benefits |
60,382 | 60,382 | | | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 2,625,481 | $ | 3,090,579 | $ | | $ | | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Jason T. Yaudes |
Severance and Noncompetition Agreement | $ | 350,000 | $ | 350,000 | $ | | $ | | |||||||||
Acceleration of Time-Based Stock Options |
109,771 | 334,438 | | | ||||||||||||||
Health Benefits |
10,064 | 10,064 | | | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 469,835 | $ | 694,502 | $ | | $ | | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||
J. Michael Gaither |
Severance and Noncompetition Agreement | $ | 1,000,000 | $ | 1,000,000 | $ | | $ | | |||||||||
Acceleration of Time-Based Stock Options |
232,549 | 465,099 | | | ||||||||||||||
Health Benefits |
13,226 | 13,226 | | | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 1,245,776 | $ | 1,478,325 | $ | | $ | | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||
David L. Dyckman |
Severance and Noncompetition Agreement | $ | 800,001 | $ | 800,001 | $ | | $ | | |||||||||
Acceleration of Time-Based Stock Options |
261,618 | 523,236 | | | ||||||||||||||
Health Benefits |
10,064 | 10,064 | | | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 1,071,683 | $ | 1,333,301 | $ | | $ | | ||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Phillip E. Marrett |
Severance and Noncompetition Agreement | $ | 585,000 | $ | 585,000 | $ | | $ | | |||||||||
Acceleration of Time-Based Stock Options |
232,549 | $ | 465,099 | | | |||||||||||||
Health Benefits |
7,258 | 7,258 | | | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 824,807 | $ | 1,057,356 | $ | | $ | | ||||||||||
|
|
|
|
|
|
|
|
(1) | Amounts shown in Acceleration of Time-Based Stock Options above represent the aggregate spread on all unvested time-based options held by the named executive officer that were scheduled to vest within six months following December 28, 2013, assuming a fair market value on December 28, 2013 of $1.50 per share (as determined by our board of directors). |
(2) | Amounts shown in Acceleration of Time-Based Stock Options above represent the aggregate spread on all outstanding unvested time-based options held by the named executive officer on December 28, 2013, assuming a fair market value on December 28, 2013 of $1.50 per share (as determined by our board of directors). Because none of the outstanding performance-based options held by our named executive officers would have vested within six months following December 28, 2013 based on our fiscal 2013 EBITDA or would have vested had a change in control occurred on December 28, 2013 assuming the Sponsor had received a price per share of $1.50, for purposes of this table we have assumed that none of the named executive officers would have vested in his outstanding unvested performance-based options had a termination of employment or a change in control occurred on that date. |
(3) | In the event of the death or disability of a named executive officer, the named executive officer will receive benefits under our disability plan or payments under our life insurance plan, as appropriate. These payments are generally available to all employees and are therefore not included in the above table. |
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(4) | Other than the performance-based options described above, which are eligible to vest if the Sponsor receives a certain return on its investment in us in connection with certain corporate transactions, we do not provide our named executive officers with severance or other payments that are payable on a change in control without an accompanying qualifying termination. If a named executive officer were terminated following a change in control, such officer would receive payments and benefits pursuant to the employment agreements and 2010 Plan and stock option agreements, in each case, as described above. |
Compensation of Directors
For their service as members of our board of directors, each of James Farrell, Gary Kusin, James Micali, Carl Sewell, and David Krantz (the Outside Directors) receive an annual fee of $150,000 in cash, payable in quarterly installments. Upon their appointment to our board of directors, each of the Outside Directors also received a one-time grant of options under the 2010 Plan to purchase 200,000 shares of our common stock with an exercise price equal to the fair market value of a share of our common stock on the date of grant. These options vested in three equal installments on each of the first three anniversaries of the date of grant. In October 2010, we adopted the ATD Corporation Non-Employee Director Restricted Stock Plan (the Restricted Stock Plan). Each Outside Director may receive, at the discretion of our board of directors, an annual grant under the Restricted Stock Plan of restricted shares of our common stock valued at $50,000, with vesting to occur in two equal installments on each of the first two anniversaries of the date of grant. For fiscal 2013, no restricted shares were granted to the Outside Directors. Each Outside Director also received a one-time opportunity to purchase up to $1,000,000 of our common stock, at a per share price equal to the fair market value on the date of purchase. The number of shares of our common stock beneficially owned by each of directors is described below under the heading Principal and Selling Stockholders. These equity arrangements were entered into to further align our Outside Directors interests with the interests of our stockholders. The members of our board of directors other than the Outside Directors do not receive separate compensation for their service on our board of directors. Mr. Sewell resigned from the Board on July 10, 2013.
In connection with this offering, our board of directors intends to adopt a non-employee director compensation program under which our non-employee directors will be compensated following this offering.
The following table sets forth the compensation paid to our directors in fiscal 2013:
Name |
Fees Earned or Paid in Cash ($) |
Stock Awards(1) |
Total ($) |
|||||||
James Farrell |
$ | 150,000 | | $ | 150,000 | |||||
Gary Kusin |
150,000 | | 150,000 | |||||||
James M. Micali |
150,000 | | 150,000 | |||||||
Carl Sewell (2) |
112,500 | | 112,500 | |||||||
David Krantz |
150,000 | | 150,000 | |||||||
Kevin Burns |
| | | |||||||
Peter McGoohan |
| | |
(1) | As of December 28, 2013, Messrs. Farrell, Kusin, Micali and Krantz each held 21,930 unvested shares of restricted stock and neither of our other directors held any other unvested stock awards. As at December 28, 2013, Messrs. Farrell, Kusin, Micali and Krantz each held 200,000 stock options, and neither of our other directors held any stock options. |
(2) | Mr. Sewell resigned from our board of directors on July 10, 2013. |
Compensation Committee Interlocks and Insider Participation
Executive compensation and related decisions are made by our board of directors, which does not currently have a compensation committee.
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Equity and Cash Incentive Plans
Fiscal 2014 Annual Incentive Plan
Our named executive officers are each entitled to participate in our annual incentive plan for fiscal 2014. The terms of our annual cash incentive plan for our 2014 fiscal year, including the performance metric used to determine plan funding, are substantially the same as the terms that applied for our 2013 fiscal year, as described above under Executive compensationElements of Compensation and Determination of Pay LevelsAnnual Incentive Plan. Each named executive officers percentage of the annual bonus pool for fiscal 2014 will remain the same as it was for fiscal 2013.
2014 Omnibus Plan
In connection with this offering, our board of directors intends to adopt the ATD Corporation 2014 Omnibus Incentive Plan, or the 2014 Omnibus Plan, and, following this offering, all equity-based awards will be granted under the 2014 Omnibus Plan. The following summary describes what we anticipate to be the material terms of the 2014 Omnibus Plan. This summary of the 2014 Omnibus Plan is not a complete description of all provisions of the 2014 Omnibus Plan and is qualified in its entirety by reference to the 2014 Omnibus Plan, a form of which will be filed as an exhibit to the registration statement of which this prospectus is a part.
Administration. The 2014 Omnibus Plan is administered by our compensation committee. Our compensation committee has the authority to, among other things, interpret the 2014 Omnibus Plan, determine eligibility for, grant and determine the terms of awards under the 2014 Omnibus Plan, determine the form of settlement of awards (whether in cash, shares of our common stock or other property), and do all things necessary or appropriate to carry out the purposes of the 2014 Omnibus Plan. Our compensation committees determinations under the 2014 Omnibus Plan are conclusive and binding.
Eligibility. Our key employees, directors, consultants and advisors are eligible to participate in the 2014 Omnibus Plan.
Authorized Shares. Subject to adjustment, as described below, the maximum number of shares of our common stock that may be delivered in satisfaction of awards under the 2014 Omnibus Plan is shares. Any shares of common stock underlying awards that are settled in cash, expire or become unexercisable without having been exercised or that are forfeited or repurchased by us will again be available for issuance under the 2014 Omnibus Plan. In addition, the number of shares of our common stock delivered in satisfaction of awards will be determined net of shares of our common stock withheld by us in payment of the exercise price or purchase price of an award or in satisfaction of tax withholding requirements with respect to an award.
Individual Limits. The maximum number of shares of our common stock subject to stock options and the maximum number of shares of our common stock subject to stock appreciation rights, or SARs, that may be granted to any participant in the 2014 Omnibus Plan in any calendar year is each shares. The maximum number of shares of our common stock subject to other awards that may be granted to any participant in the 2014 Omnibus Plan in any calendar year is shares and the maximum amount payable to any participant in the 2014 Omnibus Plan in any calendar year under any cash awards is $ . In addition, in the case of a non-employee director, an additional limit applies such that the maximum grant-date fair value of stock-denominated awards, and the maximum amount of cash payable under any cash awards, granted under the 2014 Omnibus Plan in any fiscal year during any part of which the director is then eligible under such plan is, in each case, $ , except that such limit for a non-employee chairman of our board of directors or lead director is, in each case, $ .
Types of Awards. The 2014 Omnibus Plan provides for awards of stock options, SARs, restricted stock, unrestricted stock, stock units, performance awards, other awards convertible into or otherwise based on shares of our common stock and cash awards. Eligibility for stock options intended to be incentive stock options, or ISOs, is limited to our employees. Dividend equivalents may also be provided in connection with an award under the 2014 Omnibus Plan on terms and subject to conditions established by our compensation committee.
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| Stock options and SARs. The exercise price of a stock option, and the base price against which a SAR is to be measured, may not be less than the fair market value (or, in the case of an ISO granted to a ten percent shareholder, 110% of the fair market value) of shares of our common stock on the date of grant. Our compensation committee will determine the time or times at which stock options or SARs become exercisable and the terms on which such awards remain exercisable. |
| Restricted and unrestricted stock. A restricted stock award is an award of shares of our common stock subject to forfeiture restrictions, while an unrestricted stock award is not subject to such restrictions. |
| Stock units. A stock unit award is an award denominated in shares of our common stock that entitles the participant to receive shares of our common stock or cash measured by the value of shares of our common stock in the future. The delivery of shares of our common stock or cash under a stock unit may be subject to the satisfaction of performance conditions or other vesting conditions. |
| Performance awards. A performance award is an award the vesting, settlement or exercisability of which is subject to specified performance criteria. |
| Cash awards. A cash award is an award denominated in cash. |
| Other awards. Other awards are awards that are convertible into or otherwise based on shares of our common stock. |
Performance Awards. The 2014 Omnibus Plan provides for the grant of performance awards that are made based upon, and subject to achieving, performance objectives. Performance objectives with respect to those awards that are intended to qualify as performance-based compensation for purposes of Section 162(m) of the Code, or Section 162(m), to the extent applicable, are limited to an objectively determinable measure or measures of performance relating to any or any combination of the following (measured either absolutely or by reference to an index or indices and determined either on a consolidated basis or, as the context permits, on a divisional, subsidiary, line of business, project or geographical basis or in combinations thereof): sales; revenues; assets; expenses; earnings before or after deduction for all or any portion of interest, taxes, depreciation, or amortization or equity expense, whether or not on a continuing operations or an aggregate or per share basis; return on equity, investment, capital, capital employed or assets; one or more operating ratios; operating income or profit, including on an after tax basis; borrowing levels, leverage ratios or credit rating; market share; capital expenditures; cash flow; stock price; stockholder return; sales of particular products or services; customer acquisition or retention; acquisitions and divestitures (in whole or in part); joint ventures and strategic alliances; spin-offs, split-ups and the like; reorganizations; or recapitalizations, restructurings, financings (issuance of debt or equity) or refinancings.
To the extent consistent with the requirements for satisfying the performance-based compensation exception under Section 162(m), to the extent applicable, our compensation committee may provide, by the deadline that otherwise applies to the establishment of the terms of any award intended to qualify for such exception, that one or more of the performance objectives applicable to an award will be adjusted in an objectively determinable manner to reflect events (for example, the impact of charges for restructurings, discontinued operations, mergers, acquisitions, extraordinary items, and other unusual or non-recurring items, and the cumulative effects of tax or accounting changes, each as defined by U.S. generally accepted accounting principles) occurring during the performance period that affect the applicable performance objectives.
Performance-based awards granted under the 2014 Omnibus Plan will not be required to comply with the provisions of the 2014 Omnibus Plan applicable to performance-based compensation under Section 162(m) of the Code if they are eligible for exemption from such provisions by reason of the transition relief for newly-public companies under Section 162(m).
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Vesting; Termination of Employment or Service. Our compensation committee has the authority to determine the vesting schedule applicable to each award, and to accelerate the vesting or exercisability of any award. Our compensation committee will determine the effect of a termination of employment or service on an award. Unless otherwise provided by our compensation committee, upon a termination of a participants employment or service, all unvested stock options and SARs then held by the participant will terminate and all other unvested awards will be forfeited and all vested stock options and SARs then held by the participant will remain outstanding for three months following such termination, or 12 months in the case of the cessation of the participants employment due to his or her death or the termination of the participants employment by us due to his or her disability, or, in each case, until the applicable expiration date, if earlier. All stock options and SARs held by a participant immediately prior to the participants termination of employment or service will immediately terminate if such termination is for cause, as defined in the 2014 Omnibus Plan, or occurs in circumstances that would have constituted grounds for the participants employment or service to be terminated for cause, in the determination of the compensation committee.
Non-Transferability of Awards. Awards under the 2014 Omnibus Plan may not be transferred other than by the laws of descent and distribution, unless, for awards other than ISOs, otherwise provided by our compensation committee.
Recovery of Compensation. Our compensation committee may cancel, rescind, withhold or otherwise limit or restrict any award at any time under the 2014 Omnibus Plan if the participant is not in compliance with the provisions of the 2014 Omnibus Plan or any award thereunder or if the participant breaches any agreement with us with respect to non-competition, non-solicitation or confidentiality. Our compensation committee also may recover any award or payments or gain in respect of any award under the 2014 Omnibus Plan in accordance with any applicable company clawback or recoupment policy, or as otherwise required by applicable law or applicable stock exchange listing standards.
Certain Transactions; Certain Adjustments. In the event of a consolidation, merger or similar transaction or series of related transactions, including a sale or other disposition of shares of our common stock, in which our company is not the surviving corporation or that results in the acquisition of all or substantially all of our then outstanding shares of common stock by a single person or entity or by a group of persons and/or entities acting in concert, a sale of all or substantially all of our assets or our dissolution or liquidation, our compensation committee may, among other things, provide for the continuation or assumption of outstanding awards, for new grants in substitution of outstanding awards, for the accelerated vesting or delivery of shares under awards or for a cash-out of outstanding awards, in each case on such terms and with such restrictions as it deems appropriate. Except as our compensation committee may otherwise determine, awards not assumed in connection with such a transaction will terminate automatically and, in the case of outstanding restricted stock, will be forfeited automatically upon the consummation of such covered transaction.
In the event of a stock dividend, stock split or combination of shares, including a reverse stock split, recapitalization or other change in our capital structure that constitutes an equity restructuring within the meaning of FASB ASC Topic 718, our compensation committee will make appropriate adjustments to the maximum number of shares of our common stock that may be delivered under, and the ISO and individual share limits included in, the 2014 Omnibus Plan, and will also make appropriate adjustments to the number and kind of shares or securities subject to awards, the exercise prices of such awards or any other terms of awards affected by such change. Our compensation committee will also make the types of adjustments described above to take into account distributions and other events other than those listed above if it determines that such adjustments are appropriate to avoid distortion in the operation of the 2014 Omnibus Plan.
Amendment; Termination. Our compensation committee will be able to amend the 2014 Omnibus Plan or outstanding awards, or terminate the 2014 Omnibus Plan as to future grants of awards, except that our compensation committee will not be able to alter the terms of an award if it would affect materially and adversely a participants rights under the award without the participants consent (unless expressly provided in the 2014
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Omnibus Plan or the right to alter the terms of an award was expressly reserved by our compensation committee at the time the award was granted). Shareholder approval will be required for any amendment to the 2014 Omnibus Plan to the extent such approval is required by law, including applicable stock exchange requirements.
ATD Corporation Cash Incentive Plan
In connection with this offering, our board of directors intends to adopt the ATD Corporation Cash Incentive Plan, or the Cash Incentive Plan. Starting with our 2015 fiscal year, annual cash award opportunities for our named executive officers and other key employees will be granted under the Cash Incentive Plan. The following summary describes what we anticipate to be the material terms of the Cash Incentive Plan. This summary is not a complete description of all provisions of the Cash Incentive Plan and is qualified in its entirety by reference to the Cash Incentive Plan, a form of which will be filed as an exhibit to the registration statement of which this prospectus is a part.
Administration. The Cash Incentive Plan will be administered by our compensation committee. Our compensation committee has authority to interpret the Cash Incentive Plan and awards granted under it, to determine eligibility for awards and to do all things necessary to administer the Cash Incentive Plan. Any interpretation or decision by our compensation committee will be final and conclusive on all participants.
Participants; Individual Limit. Our executive officers and other key employees will be selected from time to time by our compensation committee to participate in the Cash Incentive Plan. The maximum payment to any participant pursuant to an award intended to qualify as performance-based compensation under Section 162(m) of the Code under the Cash Incentive Plan in any fiscal year will in no event exceed $ .
Awards. With respect to each award granted under the Cash Incentive Plan, our compensation committee will establish the performance criteria applicable to the award, the amount or amounts payable if the performance criteria are achieved, and such other terms and conditions as the compensation committee deems appropriate. The Cash Incentive Plan permits the grant of awards that are intended to qualify as exempt performance-based compensation under Section 162(m) of the Code, to the extent applicable, as well as awards that are not intended to so qualify. Any awards that are intended to qualify as performance-based compensation will be administered in accordance with the requirements of Section 162(m), to the extent applicable. Awards under the Cash Incentive Plan will not be required to comply with the provisions of the plan applicable to performance-based compensation under Section 162(m) if they are eligible for exemption from such provisions by reason of the transition relief for newly-public companies under Section 162(m).
Performance Criteria. Awards under the Cash Incentive Plan will be made based on, and subject to achieving, performance criteria established by our compensation committee, which may be applied to a participant or participants on an individual basis, to a business unit or division, or to the company as a whole. Performance criteria for awards intended to qualify as performance-based compensation for purposes of Section 162(m), to the extent applicable, are limited to the objectively determinable measures of performance relating to any or any combination of the following (measured either absolutely or by reference to an index or indices or the performance of one or more companies and determined either on a consolidated basis or, as the context permits, on a divisional, subsidiary, line of business, project or geographical basis or in combinations thereof): sales; revenues; assets; expenses; earnings before or after deduction for all or any portion of interest, taxes, depreciation, or amortization or equity expense, whether or not on a continuing operations or an aggregate or per share basis; return on equity, investment, capital, capital employed or assets; one or more operating ratios; operating income or profit, including on an after tax basis; borrowing levels, leverage ratios or credit rating; market share; capital expenditures; cash flow; stock price; stockholder return; sales of particular products or services; customer acquisition or retention; acquisitions and divestitures (in whole or in part); joint ventures and strategic alliances; spin-offs, split-ups and the like; reorganizations; or recapitalizations, restructurings, financings (issuance of debt or equity) or refinancings.
To the extent consistent with the requirements of Section 162(m), to the extent applicable, our compensation committee may establish, by the deadline that otherwise applies to the establishment of the terms
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of an award intended to qualify as exempt performance-based compensation under Section 162(m), that one or more of the performance criteria applicable to such award be adjusted in an objectively determinable manner to reflect events (for example, the impact of charges for restructurings, discontinued operations, mergers, acquisitions, extraordinary items, and other unusual or non-recurring items, and the cumulative effects of tax or accounting changes, each as defined by U.S. generally accepted accounting principles) occurring during the performance period of such award that affect the applicable performance criteria.
Payment under an Award. A participant will be entitled to payment under an award only if all conditions to payment have been satisfied in accordance with the Cash Incentive Plan and the terms of the award. Our compensation committee will determine the payment date or dates for awards under the Cash Incentive Plan. Following the close of the performance period, our compensation committee will determine (and, to the extent required by Section 162(m), certify) whether and to what extent the applicable performance criteria have been satisfied. Our compensation committee will then determine the actual payment, if any, under each award. Our compensation committee has the sole and absolute discretion to reduce the actual payment to be made under any award. Our compensation committee may permit a participant to defer payment of an award subject to the requirements of applicable law.
Recovery of Compensation. Awards under the Cash Incentive Plan will be subject to forfeiture, termination and rescission, and a participant who receives a payment pursuant to the Cash Incentive Plan will be obligated to return such payment to us, to the extent provided by our compensation committee in connection with a breach by the participant of an award agreement under the Cash Incentive Plan or any non-competition, non-solicitation, confidentiality or similar covenant or agreement with our company or an overpayment of incentive compensation due to inaccurate financial data. Our compensation committee also may recover any award or payments under any award under the Cash Incentive Plan in accordance with any applicable company clawback or recoupment policy, or as otherwise required by applicable law or applicable stock exchange listing standards.
Amendment; Termination. Our compensation committee may amend the Cash Incentive Plan at any time, provided that any amendment will be approved by our shareholders if required by Section 162(m). Following the expiration of any post-initial public offering transition relief set forth in the regulations under Section 162(m), the material terms of the Cash Incentive Plan, including the performance criteria described above, shall be subject to the re-approval of the shareholders of the Company every five years in accordance with the requirements of Section 162(m). Our compensation committee may terminate the Cash Incentive Plan at any time.
2010 Plan
The following is a description of the material terms of the 2010 Plan (as amended and restated on April 28, 2014). This summary is not a complete description of all provisions of the 2010 Plan and is qualified in its entirety by reference to the 2010 Plan, which is filed as an exhibit to the registration statement of which this prospectus is a part. Upon adoption of the 2014 Omnibus Plan, we will no longer make awards under the 2010 Plan.
Plan administration. The 2010 Plan is administered by our board of directors, which has the authority to, among other things, determine eligible persons to whom grants of stock options will be made, determine the time or times when grants shall be made and the number of shares of common stock subject to each grant, prescribe the forms of and the terms and conditions of any instrument evidencing a grant, adopt, amend and rescind such rules and regulations as, in its opinion, may be advisable for the administration of the 2010 Plan, construe and interpret the 2010 Plan, and the instruments evidencing grants, and to make all other determinations necessary or advisable for the administration of the 2010 Plan.
Authorized shares. Subject to adjustment under the terms of the 2010 Plan, the maximum number of shares of our common stock that may be delivered in satisfaction of stock options granted under the 2010 Plan is 54,433,333. As of June 1, 2014, stock options with respect to 54,045,336 shares have been granted under this plan.
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Eligibility. Our board of directors selects participants from among those key executives and other employees, directors, service providers or consultants of the Company or its affiliates.
Types of awards; vesting. Only stock options may be granted under the 2010 Plan. Unless otherwise determined by our board of directors, 50% of each award will be subject to a time-based vesting schedule and 50% of the award will be subject to a performance-based vesting schedule. All options, whether vested or not, expire on the tenth anniversary of their grant unless they are earlier terminated.
Termination of employment or service. Upon a termination of employment or service all then unvested options that will be forfeited without consideration; however, in the event of a termination of a participants employment or other service relationship by us without cause or by the participant for good reason (each, as defined in the 2010 Plan) within the two-year period following a change in control of the Company, all time-based options held by the participant will immediately vest and become exercisable. Unless otherwise provided in an option agreement, vested options will remain exercisable for one year following a participants death or disability, 90 days following the termination of a participants employment or other service relationship by us without cause or by the participant resignation for good reason, and 30 days following a termination of a participants employment or other service relationship by the participant other than for good reason. If a participants service is terminated for cause, all options requiring exercise (whether or not vested) will terminate on the commencement of business on the date of such termination.
Transferability. Stock options granted under the 2010 Plan may not be transferred except through will or by the laws of descent and distribution, or, subject to compliance with applicable laws, to a trust or custodianship created by the participant the beneficiaries of which are the participants spouse or lineal descendants (by blood or adoption) with prior written approval by our board of directors.
Corporate transactions. Unless otherwise provided in an option agreement, in the event of a dissolution or liquidation the company, a sale of substantially all of our assets, a merger or consolidation in which the company is not the surviving corporation, or a merger or consolidation in which the company is the surviving corporation but stockholders receive securities of another corporation and/or other property (including cash), our board of directors may provide for new grants in substitution of outstanding awards or for the cancellation of any awards immediately prior to the event for cash consideration equal to the spread on the options. In the event of a merger or consolidation in which the Company is the surviving corporation (except when stockholders receive securities of another corporation), holders of options shall be treated as though they held the same number of shares of common stock that are subject to such options; however, if as result of the transaction stockholders of the company continue to hold their shares and are not entitled to any additional or other consideration, the options shall not be affected by the transaction.
Adjustment. Subject to any required action by stockholders of the Company, in the event of any increase or decrease in the number of issued shares of our common stock resulting from a subdivision or consolidation of the shares of common stock or any other increase or decrease in the number of shares of common stock that is effected without receipt of consideration by us, our board of directors will make adjustments as it deems appropriate to prevent the enlargement or dilution or rights with respect to the number of shares of common stock available for grant under the 2010 Plan, the number of shares of common stock subject to options, and the exercise price of options. In the event of any other change in capitalization or corporate change not described in this paragraph or above under Corporate transactions, or if the stock of an affiliate of the Company is publicly traded, our board of directors shall make such adjustments as it deems appropriate in the number, kind of shares subject to outstanding options, and exercise price of outstanding options to prevent a dilution or enlargement of rights.
Amendment. Our board of directors may amend the 2010 Plan or outstanding awards, except that such an amendment may not impair or adversely affect a participants rights under the award without the participants written consent. Our board of directors may not grant any awards under the plan on or after the August 30, 2020.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Agreements with TPG and Management
In connection with the Merger, we entered into various agreements with TPG and members of our management. These include a stockholders agreement and a registration rights agreement with the TPG Funds and certain co-investors, a transaction and monitoring fee letter with a management company affiliated with TPG, and an indemnification agreement with TPG, as well as a management stockholders agreement. These and related arrangements are described below.
Transaction and Monitoring Fee Letter
Pursuant to our transaction and monitoring fee letter agreement with a management company affiliated with TPG, we retained such management company to provide certain management, consulting and financial services to us, when and as requested by us. We agreed to pay such management company a monitoring fee equal to 2% of Adjusted EBITDA (as defined in the indenture that governed our Senior Secured Notes). The monitoring fee is payable in quarterly installments in arrears at the end of each fiscal quarter. From time to time we also pay additional fees to such management company in connection with equity financing and acquisition transactions, among other things, in an amount equal to 1% of the total transaction value of each such transaction. In connection with this offering, such management company will be entitled to receive, on its request and in lieu of any continuing payment of the monitoring fee, an aggregate termination fee of $12.5 million. We paid such management company a total of $5.8 million, $7.4 million and $4.6 million in aggregate fees, respectively, in fiscal years 2013, 2012 and 2011. We also paid $15.2 million in aggregate fees to such management company in the first six months of 2014, which includes a $13.5 million transaction fee following the end of the first quarter in connection with the acquisitions of Terrys Tire and Hercules.
Stockholders Agreement
Our stockholders agreement with the TPG Funds and certain co-investors contains agreements among the parties with respect to the election of directors, preemptive rights, rights of first refusal and first offer upon disposition of shares, permitted transferees, tag along rights, drag along rights and actions requiring the approval of stockholders. In connection with this offering, these provisions will be terminated and we will enter into an amended and restated stockholders agreement with the TPG Funds pursuant to which we will be required to take all necessary action to cause the board of directors and its committees to include individuals designated by the TPG Funds in the slate of nominees recommended by the board of directors for election by our stockholders. These nomination rights are described in this prospectus in the sections titled ManagementBoard Composition and Director Independence and ManagementBoard Committees. Our amended and restated stockholders agreement also provides that we will obtain customary director indemnity insurance and enter into indemnification agreements with the TPG Funds director designees, and we expect to enter into indemnification agreements with each of our directors generally providing for indemnification in connection with their service to us or on our behalf.
Registration Rights Agreement
Our registration rights agreement with the TPG Funds and certain co-investors provides the TPG Funds with demand registration rights in respect of any shares of common stock it holds, subject to certain conditions. In addition, in the event that we register additional shares of common stock for sale to the public following the completion of this offering, we will be required to give notice of such registration to the parties thereto, and, subject to certain limitations, include shares of common stock held by them in such registration. The co-investors have similar piggyback rights in the event we register shares of common stock held by the TPG Funds for sale to the public following the completion of this offering. The agreement includes customary indemnification provisions in favor of the TPG Funds and the co-investors, any person who is or might be deemed a control person (within the meaning of the Securities Act and the Exchange Act) and related parties against certain losses and liabilities (including reasonable costs of investigation and legal expenses) arising out of or based upon any filing or other disclosure made by us under the securities laws relating to any such registration.
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Indemnification Agreement with TPG
Pursuant to our indemnification agreement with TPG, including the TPG Funds and their respective affiliates, we agree to indemnify TPG against liabilities, costs and expenses incurred by TPG arising out of or in connection with securities offerings, including liabilities under the securities laws, actions or failures to act by us or our affiliates generally, or the performance by the management company affiliated with TPG of services under the transaction and monitoring fee agreement described above.
Management Stockholders Agreement
We are party to a stockholders agreement with certain members of management who were employed by us at the time of the Merger and other members of management have joined the agreement since the Merger. This agreement provides for certain Company call rights with respect to shares held by management stockholders, drag along rights, tag along rights, lock-up restrictions and registration rights. In connection with this offering, other than with respect to lock-up restrictions and registration rights, the material provisions of this agreement will terminate in accordance with their terms.
Related Party Transactions Policy
In connection with this offering, we have adopted a policy with respect to the review, approval and ratification of related party transactions. Under the policy, our audit committee is responsible for reviewing and approving related party transactions. In the course of its review and approval of related party transactions, our audit committee will consider the relevant facts and circumstances to decide whether to approve such transactions. Related party transactions must be approved or ratified by the audit committee based on full information about the proposed transaction and the related partys interest.
We did not have a written policy regarding the review and approval of related party transactions immediately prior to this offering. Nevertheless, with respect to such transactions, it was our policy for our board of directors to consider the nature of and business reason for such transactions, how the terms of such transactions compared to those which might be obtained from unaffiliated third parties and whether such transactions were otherwise fair to and in the best interests of, or not contrary to, our best interests.
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PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information with respect to the beneficial ownership of our common stock as of June 1, 2014 for (a) each person, or group of affiliated persons, known by us to own beneficially more than 5% of our outstanding shares of common stock, (b) each member of our board of directors, (c) each of our named executive officers, (d) all of our directors and executive officers as a group, and (e) each other selling stockholder.
Beneficial ownership is determined in accordance with SEC rules. The information is not necessarily indicative of beneficial ownership for any other purpose. In general, under these rules a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise has or shares voting power or investment power with respect to such security. A person is also deemed to be a beneficial owner of a security if that person has the right to acquire beneficial ownership of such security within 60 days. To our knowledge, except as otherwise indicated, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock held by that person.
The percentage of shares beneficially owned is computed on the basis of 767,501,736 shares of our common stock outstanding as of June 1, 2014. Shares of our common stock that a person has the right to acquire within 60 days of June 1, 2014 are deemed outstanding for purposes of computing the percentage ownership of such persons holdings, but are not deemed outstanding for purposes of computing the percentage ownership of any other person, except with respect to the percentage ownership of all directors and executive officers as a group. Unless otherwise indicated below, the address for each beneficial owner listed is c/o ATD Corporation, 12200 Herbert Wayne Court, Suite 150, Huntersville, North Carolina 28078.
The TPG Funds are affiliates of a broker-dealer and affiliates of the TPG Funds indirectly own interests in other broker-dealers. Each TPG Fund has represented that: (1) such TPG Fund has acquired its shares of the Companys common stock in the ordinary course of business; and (2) at the time of acquisition of the Companys shares of common stock being registered for resale, such TPG Fund had no agreements or understandings, directly or indirectly, with any person to distribute such shares. The TPG Funds may be deemed to be underwriters within the meaning of the Securities Act with respect to the shares of the Companys common stock they are offering.
Name and Address of beneficial |
Shares beneficially |
Number of |
Number of |
Shares |
Shares | |||||||||||||||
Number |
Percent |
Number |
Percent |
Number |
Percent | |||||||||||||||
5% stockholders: |
||||||||||||||||||||
TPG Funds (1) |
720,734,992 | 93.9 | % | |||||||||||||||||
Directors and named executive officers: |
||||||||||||||||||||
William E. Berry (2) |
9,183,844 | 1.2 | % | |||||||||||||||||
Jason T. Yaudes (3) |
1,312,589 | * | ||||||||||||||||||
J. Michael Gaither (4) |
3,914,572 | * | ||||||||||||||||||
David L. Dyckman (5) |
4,189,131 | * | ||||||||||||||||||
Phillip E. Marrett (6) |
3,854,772 | * | ||||||||||||||||||
W. James Farrell (7) |
1,293,860 | * | ||||||||||||||||||
Gary Kusin (8) |
793,860 | * | ||||||||||||||||||
James Micali (9) |
543,860 | * | ||||||||||||||||||
David Krantz (10) |
293,860 | * | ||||||||||||||||||
Kevin Burns (11) |
| | ||||||||||||||||||
Peter McGoohan (12) |
| | ||||||||||||||||||
All executive officers and directors as a group (11 persons) (13) |
21,563,075 | 2.8 | % |
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* | Represents less than one percent or one share, as applicable. |
(1) | Shares shown as beneficially owned by the TPG Funds include the following: (a) 360,367,496 shares of common stock held by TPG Accelerate V, L.P., a Delaware limited partnership, whose general partner is TPG Advisors V, Inc., a Delaware corporation; and (b) 360,367,496 shares of common stock held by TPG Accelerate VI, L.P., a Delaware limited partnership (together with TPG Accelerate V, L.P., the TPG Funds), whose general partner is TPG Advisors VI, Inc., a Delaware corporation. David Bonderman and James G. Coulter are officers and sole stockholders of each of TPG Advisors V, Inc. and TPG Advisors VI, Inc. and share voting and dispositive power with respect to, and therefore may be deemed to be the beneficial owners of, the shares held by the TPG Funds. The address of each of TPG Advisors V, Inc., TPG Advisors VI, Inc. and Messrs. Bonderman and Coulter is c/o TPG Global, LLC, 301 Commerce Street, Suite 3300, Fort Worth, TX 76102. |
(2) | Shares shown as beneficially owned by William E. Berry include: (i) 6,564,144 shares underlying stock options held directly by Mr. Berry that are currently exercisable, (ii) 392,955 shares held by the Trust FBO Meredith Elaine Berry U/A, a trust established for the benefit of Mr. Berrys minor daughter, and (iii) 392,955 shares held by the Trust FBO Michael Dolan Berry U/A, a trust established for the benefit of Mr. Berrys minor son. Mr. Berrys wife, Marianne Dolan Berry, is the trustee of each trust and has sole investment and dispositive power over the shares held by the trusts. Mr. Berry disclaims beneficial ownership of such shares. |
(3) | Shares shown as beneficially owned by Jason T. Yaudes include 1,255,090 shares underlying stock options that are currently exercisable. |
(4) | Shares shown as beneficially owned by J. Michael Gaither include 3,282,073 shares underlying stock options that are currently exercisable. |
(5) | Shares shown as beneficially owned by David L. Dyckman include 3,692,331 shares underlying stock options that are currently exercisable. |
(6) | Shares shown as beneficially owned by Phillip E. Marrett include 3,282,073 shares underlying stock options that are currently exercisable. |
(7) | Shares shown as beneficially owned by W. James Farrell include 200,000 shares underlying stock options that are currently exercisable. |
(8) | Shares shown as beneficially owned by Gary Kusin include 200,000 shares underlying stock options that are currently exercisable. |
(9) | Shares shown as beneficially owned by James Micali include 200,000 shares underlying stock options that are currently exercisable. |
(10) | Shares shown as beneficially owned by David Krantz include 200,000 shares underlying stock options that are currently exercisable. |
(11) | Kevin Burns is a TPG Partner. Mr. Burns has no voting or investment power over and disclaims beneficial ownership of the shares held by the TPG Funds. The address of Mr. Burns is c/o TPG Global, LLC, 301 Commerce Street, Suite 3300, Fort Worth, TX 76102. |
(12) | Peter McGoohan is a TPG Vice President. Mr. McGoohan has no voting or investment power over and disclaims beneficial ownership of the shares held by the TPG Funds. The address of Mr. McGoohan is c/o TPG Global, LLC, 301 Commerce Street, Suite 3300, Fort Worth, TX 76102. |
(13) | Includes 15,631,136 shares underlying stock options that are currently exercisable. |
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We summarize below the principal terms of the agreements that govern our existing indebtedness. We refer you to the exhibits to the registration statement of which this prospectus forms a part for copies of agreements governing the indebtedness described below.
ABL Facility
On January 31, 2014, in connection with the Hercules acquisition, we entered into the Second Amendment to the Credit Agreement which provides for (i) U.S. revolving credit commitments of $850.0 million (of which up to $50.0 million can be utilized in the form of commercial and standby letters of credit), subject to the borrowing base under the U.S. ABL Facility and (ii) Canadian revolving credit commitments of $125.0 million (of which up to $10.0 million can be utilized in the form of commercial and standby letters of credit), subject to the borrowing base under the Canadian ABL Facility and the ABL Facility. In addition, the Credit Agreement provides the U.S. borrowers under the agreement with a first-in last out facility, the U.S. FILO Facility, in an aggregate principal amount of up to $80.0 million, subject to a borrowing base specific thereto and the Canadian borrowers under the agreement with a first-in last out facility, the Canadian FILO Facility, in an aggregate principal amount of up to $15.0 million, subject to a borrowing base specific thereto. The U.S. ABL Facility provides for revolving loans available to ATDI, its 100% owned subsidiary Am-Pac Tire Dist. Inc., Hercules and any other U.S. subsidiary that we designate in the future in accordance with the terms of the agreement. The Canadian ABL Facility provides for revolving loans available to TriCan, RTD and WTD and any other Canadian subsidiaries that we designate in the future in accordance with the terms of the agreement. Provided that no default or event of default then exists or would arise therefrom, we have the option to request that the ABL Facility be increased by an amount not to exceed $200.0 million (up to $50.0 million of which may be allocated to the Canadian ABL Facility), subject to certain rights of the administrative agent, swingline lender and issuing banks with respect to the lenders providing commitments for such increase. The maturity date for the ABL Facility is November 16, 2017. The maturity date for the FILO Facility is January 31, 2017.
As of July 5, 2014, we had $641.6 million outstanding under the U.S. ABL Facility. In addition, we had certain letters of credit outstanding in the aggregate amount of $10.0 million, leaving $198.4 million available for additional borrowings under the U.S. ABL Facility. The outstanding balance of the Canadian ABL Facility at July 5, 2014 was $53.1 million, leaving $70.8 million available for additional borrowings. As of July 5, 2014, the outstanding balance of the U.S. FILO Facility was $80.0 million and the outstanding balance of the Canadian FILO Facility was $10.3 million.
Borrowings under the U.S. ABL Facility bear interest at a rate per annum equal to, at our option, either (a) an Adjusted LIBOR rate determined by reference to LIBOR, adjusted for statutory reserve requirements, plus an applicable margin of 2.0% as of July 5, 2014 or (b) a base rate determined by reference to the highest of (1) the prime commercial lending rate published by the Bank of America, N.A. as its prime rate for commercial loans, (2) the federal funds effective rate plus 1/2 of 1% and (3) the one month-Adjusted LIBOR rate plus 1.0% per annum, plus an applicable margin of 1.0% as of July 5, 2014. The applicable margins under the U.S. ABL Facility are subject to step ups and step downs based on average excess borrowing availability under the ABL Facility.
Borrowings under the Canadian ABL Facility bear interest at a rate per annum equal to either (a) a Canadian base rate determined by reference to the highest of (1) the base rate as published by Bank of America, N.A. (acting through its Canada branch) as its base rate, (2) the federal funds rate effective plus 1/2 of 1% per annum and (3) the one month-LIBOR rate plus 1.0% per annum, plus an applicable margin of 1.0% as of July 5, 2014, (b) a Canadian prime rate determined by reference to the highest of (1) the prime rate as published by Bank of America, N.A. (acting through its Canada branch) as its prime rate, (2) the sum of 1/2 of 1% plus the Canadian overnight rate and (3) the sum of 1% plus the rate of interest per annum equal to the average rate applicable to Canadian Dollar bankers acceptances as published by Reuters Monitor Money Rates Service for a 30 day interest period, plus an applicable margin of 1.0% as of July 5, 2014, (c) a rate of interest per annum equal
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to the average rate applicable to Canadian Dollar bankers acceptances having an identical or comparable term as the proposed loan amount displayed and identified as such on the display referred to as the CDOR Page of Reuters Monitor Money Rates Service as at approximately 10:00 a.m. Toronto time on such day, plus an applicable margin of 2.0% as of July 5, 2014 or (d) an Adjusted LIBOR rate determined by reference to LIBOR, adjusted for statutory reserve requirements, plus an applicable margin of 2.0% as of July 5, 2014. The applicable margins under the Canadian ABL Facility are subject to step ups and step downs based on average excess borrowing availability under the ABL Facility.
Borrowings under the U.S. FILO Facility bear interest at a rate per annum equal to, at our option, either (a) an Adjusted LIBOR rate determined by reference to LIBOR, adjusted for statutory reserve requirements, plus an applicable margin of 3.5% as of July 5, 2014 or (b) a base rate determined by reference to the highest of (1) the prime commercial lending rate published by the Bank of America, N.A. as its prime rate for commercial loans, (2) the federal funds effective rate plus 1/2 of 1% and (3) the one month-Adjusted LIBOR rate plus 1.0% per annum, plus an applicable margin of 2.5% as of July 5, 2014. The applicable margins under the U.S. FILO Facility are subject to step ups and step downs based on average excess borrowing availability under the ABL Facility.
Borrowings under the Canadian FILO Facility bear interest at a rate per annum equal to either (a) a Canadian base rate determined by reference to the highest of (1) the base rate as published by Bank of America, N.A. (acting through its Canada branch) as its base rate, (2) the federal funds rate effective plus 1/2 of 1% per annum and (3) the one month-LIBOR rate plus 1.0% per annum, plus an applicable margin of 2.5% as of July 5, 2014, (b) a Canadian prime rate determined by reference to the highest of (1) the prime rate as published by Bank of America, N.A. (acting through its Canada branch) as its prime rate, (2) the sum of 1/2 of 1% plus the Canadian overnight rate and (3) the sum of 1% plus the rate of interest per annum equal to the average rate applicable to Canadian Dollar bankers acceptances as published by Reuters Monitor Money Rates Service for a 30 day interest period, plus an applicable margin of 2.5% as of July 5, 2014, (c) a rate of interest per annum equal to the average rate applicable to Canadian Dollar bankers acceptances having an identical or comparable term as the proposed loan amount displayed and identified as such on the display referred to as the CDOR Page of Reuters Monitor Money Rates Service as at approximately 10:00 a.m. Toronto time on such day, plus an applicable margin of 3.5% as of July 5, 2014 or (d) an Adjusted LIBOR rate determined by reference to LIBOR, adjusted for statutory reserve requirements, plus an applicable margin of 3.5% as of July 5, 2014. The applicable margins under the Canadian FILO Facility are subject to step ups and step downs based on average excess borrowing availability under the ABL Facility.
The U.S. and Canadian borrowing base at any time equals the sum (subject to certain reserves and other adjustments) of:
| 85% of eligible accounts receivable of the U.S. or Canadian loan parties, as applicable; plus |
| The lesser of (a) 70% of the lesser of cost or fair market value of eligible tire inventory of the U.S. or Canadian loan parties, as applicable, and (b) 85% of the net orderly liquidation value of eligible tire inventory of the U.S. or Canadian loan parties, as applicable; plus |
| The lesser of (a) 50% of the lower of cost or market value of eligible non-tire inventory of the U.S. or Canadian loan parties, as applicable, and (b) 85% of the net orderly liquidation value of eligible non-tire inventory of the U.S. or Canadian loan parties, applicable. |
The U.S. FILO and the Canadian FILO borrowing base at any time equals the sum (subject to certain reserves and other adjustments) of:
| 5% of eligible accounts receivable of the U.S or Canadian. loan parties, as applicable; plus |
| 10.0% of the net orderly liquidation value of the eligible tire and non-tire inventory of the U.S. or Canadian loan parties, as applicable. |
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All obligations under the U.S. ABL Facility and the U.S. FILO Facility are unconditionally guaranteed by Holdings and substantially all of ATDIs existing and future, direct and indirect, wholly-owned domestic material restricted subsidiaries, other than Tire Pros Francorp. The Canadian ABL Facility and the Canadian FILO Facility are unconditionally guaranteed by the U.S. loan parties, TriCan, RTD, WTD and any future, direct and indirect, wholly-owned, material restricted Canadian subsidiaries. Obligations under the U.S. ABL Facility and the U.S. FILO Facility are secured by a first-priority lien on inventory, accounts receivable and related assets and a second-priority lien on substantially all other assets of the U.S. loan parties, subject to certain exceptions. Obligations under the Canadian ABL Facility and the Canadian FILO Facility are secured by a first-priority lien on inventory, accounts receivable and related assets of the U.S. loan parties and the Canadian loan parties and a second-priority lien on substantially all other assets of the U.S. loan parties and the Canadian loan parties, subject to certain exceptions.
The ABL Facility and the FILO Facility contain customary covenants, including covenants that restrict our ability to incur additional debt, grant liens, enter into guarantees, enter into certain mergers, make certain loans and investments, dispose of assets, prepay certain debt, declare dividends, modify certain material agreements, enter into transactions with affiliates or change our fiscal year. The terms of the ABL Facility and the FILO Facility generally restrict distributions or the payment of dividends in respect of our stock subject to certain exceptions requiring compliance with certain availability levels and fixed charge coverage ratios under the ABL Facility and other customary negotiated exceptions. If the amount available for additional borrowings under the ABL Facility is less than the greater of (a) 10.0% of the lesser of (x) the aggregate commitments under the ABL Facility and (y) the aggregate borrowing base and (b) $25.0 million, then we would be subject to an additional covenant requiring us to meet a fixed charge coverage ratio of 1.0 to 1.0. As of July 5, 2014, our additional borrowing availability under the ABL Facility was above the required amount and we were therefore not subject to the additional covenants.
Senior Secured Term Loan
In connection with the acquisition of Terrys Tire, on March 28, 2014, ATDI entered into a credit agreement that provided for the Initial Term Loan. The Initial Term Loan was issued at a discount of 0.25% which, combined with certain debt issuance costs paid at closing, resulted in net proceeds of approximately $290.9 million. The Initial Term Loan will accrete based on an effective interest rate of 6% to an aggregate accreted value of $300.0 million, the full principal amount at maturity. The net proceeds from the Initial Term Loan were used to finance a portion of the Terrys Tire purchase price. The maturity date for the Initial Term Loan is June 1, 2018.
On June 16, 2014, ATDI amended the Initial Term Loan (the Incremental Amendment) to borrow an additional $340.0 million (the Incremental Term Loan) on the same terms as the Initial Term Loan. Pursuant to the Incremental Amendment, we also borrowed an additional $80.0 million (the Delayed Draw Term Loan and collectively with the Initial Term Loan and the Incremental Term Loan, the Term Loan) on the same terms as the Initial Term Loan. The proceeds from the Incremental Term Loan, net of related debt issuance costs paid at closing, amounted to approximately $335.7 million, and were used, in part, to redeem all $250.0 million aggregate principal amounts of notes outstanding under ATDIs Senior Secured Notes and related fees and expenses as more fully described below, and the remaining proceeds will be used for working capital requirements and other general corporate purposes, including the financing of potential future acquisitions. We received the proceeds from the Delayed Draw Term Loan at the end of the second quarter of 2014. The maturity date for the Term Loan is June 1, 2018.
Borrowings under the Term Loan bear interest at a rate per annum equal to, at our option, initially, either (a) a Eurodollar rate determined by reference to LIBOR, plus an applicable margin of 4.75% at July 5, 2014 or (b) a base rate determined by reference to the highest of (1) the federal funds rate plus 1/2 of 1%, (2) the prime commercial lending rate published by the Bank of America, N.A. as its prime rate for commercial loans and (3) the one month Eurodollar rate plus 1.0%, plus an applicable margin of 3.75% as of July 5, 2014. The Eurodollar
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rate is subject to an interest rate floor of 1.0%. The applicable margins under the Term Loan are subject to a step down based on a consolidated net leverage ratio, as defined in the credit agreement for the Term Loan.
All obligations under the Term Loan are unconditionally guaranteed by Holdings and, subject to certain customary exceptions, all of ATDIs existing and future, direct and indirect, wholly-owned domestic material subsidiaries. Obligations under the Term Loan are secured by a first-priority lien on substantially all property, assets and capital stock of ATDI except accounts receivable, inventory and related intangible assets and a second-priority lien on all accounts receivable and related intangible assets.
The Term Loan contains customary covenants, including covenants that restrict our ability to incur additional debt, create liens, enter into guarantees, enter into certain mergers, make certain loans and investments, dispose of assets, prepay certain debt, declare dividends, modify certain material agreements, enter into transactions with affiliates, change the nature of our business or change our fiscal year. The terms of the Term Loan generally restrict distributions or the payment of dividends in respect of our stock subject to certain exceptions such as the amount of 50% of net income (reduced by 100% of net losses) for the period beginning January 1, 2014 and other customary negotiated exceptions.
We are required to make principal payments equal to 0.25% of the aggregate principal amount outstanding under the Term Loan on the last business day of each March, June, September, and December, commencing with the last business day of June 2014. In addition, subject to certain exceptions, we are required to repay the Term Loan in certain circumstances, including with 50% (which percentage will be reduced to 25% and 0%, as applicable, subject to attaining certain senior secured net leverage ratios) of our annual excess cash flow, as defined in the Term Loan agreement. The Term Loan also contains repayment provisions related to non-ordinary course asset or property sales when certain conditions are met, and related to the incurrence of debt that is not permitted under the credit agreement or incurred to refinance all or any portion of the Term Loan.
Proposed Additional Term Loan
In connection with this offering, ATDI also intends to borrow an additional $ million through the Additional Term Loan on the same terms as ATDIs existing Term Loan. We intend to use the net proceeds therefrom, along with the net proceeds of this offering, to repay all amounts outstanding under ATDIs 11.50% Senior Subordinated Notes due 2018. The expected maturity date for the Additional Term Loan is June 1, 2018.
Senior Subordinated Notes
In connection with the consummation of the Hercules acquisition, on January 31, 2014, ATDI completed the sale to certain purchasers of the Additional Senior Subordinated Notes. The net proceeds to ATDI from the sale of the Additional Senior Subordinated Notes were approximately $221.1 million.
The Additional Senior Subordinated Notes were issued pursuant to the Seventh Supplemental Indenture to the Senior Subordinated Indenture. The Additional Senior Subordinated Notes have identical terms to the Initial Subordinated Notes, except the Additional Senior Subordinated Notes accrue interest from January 31, 2014. The Additional Senior Subordinated Notes and the Initial Subordinated Notes, as defined below, are treated as a single class of securities for all purposes under the Subordinated Indenture. However, the Additional Senior Subordinated Notes were issued with separate CUSIP numbers from the Initial Subordinated Notes and are not fungible for U.S. federal income tax purposes with the Initial Subordinated Notes. Interest on the Additional Senior Subordinated Notes is payable semi-annually in arrears on June 1 and December 1 of each year, commencing on June 1, 2014. The Additional Senior Subordinated Notes will mature on June 1, 2018.
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On May 28, 2010, ATDI issued $200.0 million in aggregate principal amount of Subordinated Notes due June 1, 2018, the Initial Subordinated Notes. Interest on the Initial Subordinated Notes is payable semi-annually in arrears on June 1 and December 1 of each year, commencing on December 1, 2010.
The Senior Subordinated Notes may be redeemed at any time at the option of ATDI, in whole or in part, upon not less than 30 nor more than 60 days notice at a redemption price of 104.0% of the principal amount being redeemed if the redemption date occurs between June 1, 2013 and May 31, 2014, 102.0% of the principal amount being redeemed if the redemption date occurs between June 1, 2014 and May 31, 2015 and 100.0% of the principal amount being redeemed if the redemption date occurs thereafter.
The Senior Subordinated Notes are unconditionally guaranteed by Holdings and substantially all of ATDIs existing and future, direct and indirect, wholly-owned domestic material restricted subsidiaries, other than Tire Pros Francorp, subject to certain exceptions. The indenture governing the Senior Subordinated Notes contains covenants that, among other things, limits ATDIs ability and the ability of its restricted subsidiaries to incur additional debt or issue preferred stock; pay certain dividends or make certain distributions in respect of ATDIs capital stock or repurchase or redeem ATDIs capital stock; make certain loans, investments or other restricted payments; place restrictions on the ability of certain of ATDIs subsidiaries to pay dividends or make other payments to ATDI; transfer or sell certain assets; guarantee indebtedness or incur certain other contingent obligations; incur certain liens without securing the Senior Subordinated Notes; consolidate, merge or sell all or substantially all of ATDIs assets; enter into certain transactions with ATDIs affiliates; and designate ATDIs subsidiaries as unrestricted subsidiaries. The terms of the Senior Subordinated Notes generally restrict distributions or the payment of dividends in respect of our stock subject to certain exceptions such as the amount of 50% of net income (reduced by 100% of net losses) for the period beginning April 4, 2010 and other customary negotiated exceptions.
In connection with this offering, ATDI also intends to borrow an additional $ million through the Additional Term Loan on the same terms as ATDIs existing Term Loan. We intend to use the net proceeds therefrom, along with the net proceeds of this offering, to repay all amounts outstanding under the Senior Subordinated Notes.
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General
Upon completion of this offering, our authorized capital stock will consist of shares of common stock, par value $0.01 per share, and shares of preferred stock, par value $0.01 per share. The following description of our capital stock is intended as a summary only and is qualified in its entirety by reference to our certificate of incorporation and bylaws to be in effect at the closing of this offering, which are filed as exhibits to the registration statement of which this prospectus forms a part.
Common Stock
Dividend rights. Subject to preferences that may apply to shares of preferred stock outstanding at the time, holders of outstanding shares of common stock will be entitled to receive dividends out of assets legally available at the times and in the amounts as the board of directors may determine from time to time. See Dividend Policy.
Voting rights. Each outstanding share of common stock will be entitled to one vote on all matters submitted to a vote of stockholders. Holders of shares of our common stock will have no cumulative voting rights.
Preemptive rights. Our common stock will not be entitled to preemptive or other similar subscription rights to purchase any of our securities.
Conversion or redemption rights. Our common stock will be neither convertible nor redeemable.
Liquidation rights. Upon our liquidation, the holders of our common stock will be entitled to receive pro rata our assets that are legally available for distribution, after payment of all debts and other liabilities and subject to the prior rights of any holders of preferred stock then outstanding.
Preferred Stock
Our board of directors may, without further action by our stockholders, from time to time, direct the issuance of shares of preferred stock in series and may, at the time of issuance, determine the designations, powers, preferences, privileges and relative participating, optional or special rights, as well as the qualifications, limitations or restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights of the common stock. Satisfaction of any dividend preferences of outstanding shares of preferred stock would reduce the amount of funds available for the payment of dividends on shares of our common stock. Holders of shares of preferred stock may be entitled to receive a preference payment in the event of our liquidation before any payment is made to the holders of shares of our common stock. Under certain circumstances, the issuance of shares of preferred stock may render more difficult or tend to discourage a merger, tender offer or proxy contest, the assumption of control by a holder of a large block of our securities or the removal of incumbent management. Upon the affirmative vote of a majority of the total number of directors then in office, our board of directors, without stockholder approval, may issue shares of preferred stock with voting and conversion rights which could adversely affect the holders of shares of our common stock and the market value of our common stock. Upon consummation of this offering, there will be no shares of preferred stock outstanding, and we have no present intention to issue any shares of preferred stock.
Anti-takeover Effects of our Certificate of Incorporation and our Bylaws
Our certificate of incorporation and our bylaws contain provisions that may delay, defer or discourage another party from acquiring control of us. We expect that these provisions will discourage coercive takeover practices or inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire
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control of us to first negotiate with the board of directors, which we believe may result in an improvement of the terms of any such acquisition in favor of our stockholders. However, they may also discourage acquisitions that some stockholders may favor.
These provisions include:
| Classified board. Our certificate of incorporation provides that our board of directors will be divided into three classes of directors. As a result, approximately one-third of our board of directors will be elected each year. The classification of directors will have the effect of making it more difficult for stockholders to change the composition of our board. Following the closing of this offering, our board of directors will initially be composed of members. |
| Requirements for removal of directors. Following the date on which the TPG Funds no longer beneficially own a majority of our common stock, directors may only be removed for cause by the affirmative vote of the holders of at least 75% of the voting power of our outstanding shares of capital stock. |
| Advance notice procedures. Our bylaws establish an advance notice procedure for stockholder proposals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to the board of directors. Stockholders at an annual meeting will only be able to consider proposals or nominations specified in the notice of meeting or brought before the meeting by or at the direction of the board of directors or by a stockholder who was a stockholder of record on the record date for the meeting, who is entitled to vote at the meeting and who has given our secretary timely written notice, in proper form, of the stockholders intention to bring that business before the meeting. Although the bylaws do not give the board of directors the power to approve or disapprove stockholder nominations of candidates or proposals regarding other business to be conducted at a special or annual meeting, the bylaws may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed or may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempting to obtain control of our company. |
| Actions by written consent; special meetings of stockholders. Our certificate of incorporation provides that, following the date on which the TPG Funds no longer beneficially own a majority of our common stock, stockholder action can be taken only at an annual or special meeting of stockholders and cannot be taken by written consent in lieu of a meeting. Our certificate of incorporation also provides that, except as otherwise required by law, special meetings of the stockholders can only be called by or at the direction of the chairman of the board, a majority of the board of directors, or, until the date on which the TPG Funds no longer beneficially own a majority of our common stock, by the secretary at the request of the holders of 50% or more of our outstanding shares of common stock. |
| Supermajority approval requirements. Following the date on which the TPG Funds no longer beneficially own a majority of our common stock, certain amendments to our certificate of incorporation and shareholder amendments to our bylaws will require the affirmative vote of at least 75% of the voting power of the outstanding shares of our capital stock. |
| Authorized but unissued shares. Our authorized but unissued shares of preferred stock will be available for future issuance without stockholder approval. The existence of authorized but unissued shares of preferred stock could render more difficult or discourage an attempt to obtain control of a majority of our common stock by means of a proxy contest, tender offer, merger or otherwise. |
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| Business combinations with interested stockholders. We have elected in our certificate of incorporation not to be subject to Section 203 of the DGCL, an antitakeover law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination, such as a merger, with a person or group owning 15% or more of the corporations voting stock for a period of three years following the date the person became an interested stockholder, unless (with certain exceptions) the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. While we will not be subject to any anti-takeover effects of Section 203, our certificate of incorporation contains provisions that have the same effect as Section 203, except that they provide that investment funds affiliated with TPG will not be deemed to be an interested stockholder, regardless of the percentage of our voting stock owned by investment funds affiliated with TPG, and accordingly will not be subject to such restrictions. |
Exclusive Jurisdiction for Certain Actions
Our certificate of incorporation requires, to the fullest extent permitted by law, that derivative actions brought in the name of the Company, actions against directors, officers and employees for breach of a fiduciary duty and other similar actions, may be brought only in specified courts in the State of Delaware. Although we believe this provision benefits us by providing increased consistency in the application of Delaware law in the types of lawsuits to which it applies, the provision may have the effect of discouraging lawsuits against our directors and officers. See Risk FactorsOur certificate of incorporation designates courts in the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Litigation Costs
Our bylaws require, except to the extent prohibited by the DGCL, that in all derivative actions brought in the name of the Company, actions against directors, officers and employees for breach of a fiduciary duty and other similar actions, the initiating party shall reimburse the Company and any officer, director or other employee for all fees, costs and expenses incurred in connection with such action if such initiating party does not substantially achieve the full remedy sought. Although we believe this provision benefits us by discouraging meritless lawsuits against the Company and our directors, officers and employees, the provision may have the effect of discouraging lawsuits that could benefit the Company. See Risk FactorsOur bylaws provide that if a claiming party brings certain actions against us and is not successful on the merits then they will be obligated to pay our litigation costs, which could have the effect of discouraging litigation, including claims brought by our stockholders.
Corporate Opportunities
Our certificate of incorporation provides that we renounce any interest or expectancy in the business opportunities of TPG and of its officers, directors, agents, stockholders, members, partners, affiliates and subsidiaries and each such party shall not have any obligation to offer us those opportunities unless presented to one of our directors or officers in his or her capacity as a director or officer (and there shall be no restriction on such parties using the general knowledge and understanding of the Company or our industry to consider or pursue other opportunities or to make investment, voting, monitoring, governance or other decisions relating to other entities or securities).
Limitations on Liability and Indemnification of Directors and Officers
Our certificate of incorporation limits the liability of our directors to the fullest extent permitted by the DGCL and our bylaws require that we will indemnify them to the fullest extent permitted by law. We expect to enter into customary indemnification agreements with each of our directors that provide them, in general, with
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customary indemnification in connection with their service to us or on our behalf. We also maintain officers and directors liability insurance that insures against liabilities that our officers and directors may incur in such capacities.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Computershare Trust Company, N.A.
Listing
We have applied to list our common stock on the NYSE under the symbol ATD.
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SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no public market for our common stock. As described below, only a limited number of shares currently outstanding will be available for sale immediately after this offering due to contractual and legal restrictions on resale. Nevertheless, future sales of substantial amounts of our common stock, including shares issued upon the exercise of outstanding options or warrants, in the public market after this offering, or the perception that those sales may occur, could cause the prevailing market price for our common stock to fall or impair our ability to raise capital through sales of our equity securities.
Upon the closing of this offering, we will have outstanding shares of our common stock, after giving effect to the issuance of shares of our common stock in this offering, assuming no exercise by the underwriters of their option to purchase additional shares and no exercise of options outstanding as of , 2014.
Of the shares that will be outstanding immediately after the closing of this offering, we expect that the shares to be sold in this offering will be freely tradable without restriction under the Securities Act unless purchased by our affiliates, as that term is defined in Rule 144 under the Securities Act. Shares purchased by our affiliates may not be resold except pursuant to an effective registration statement or an exemption from registration, including the safe harbor under Rule 144 of the Securities Act described below. In addition, following this offering, shares of common stock issuable pursuant to awards granted under certain of our equity plans that are covered by a registration statement on Form S-8 will be freely tradable in the public market, subject to certain contractual and legal restrictions described below.
The remaining shares of our common stock outstanding after this offering will be restricted securities, as that term is defined in Rule 144 of the Securities Act, and we expect that substantially all of these restricted securities will be subject to the lock-up agreements described below. These restricted securities may be sold in the public market only if the sale is registered or pursuant to an exemption from registration, such as the safe harbor provided by Rule 144.
Lock-up Agreements
We and each of our directors, executive officers and certain other stockholders, who collectively own shares of our common stock following this offering, have agreed that, without the prior written consent of certain of the underwriters, we and they will not, subject to limited exceptions, directly or indirectly sell or dispose of any shares of common stock or any securities convertible into or exchangeable or exercisable for shares of common stock for a period of 180 days after the date of this prospectus, unless extended pursuant to its terms. The lock-up restrictions and specified exceptions are described in more detail under Underwriting (Conflicts of Interest).
Rule 144
In general, under Rule 144, beginning 90 days after the date of this prospectus, any person who is not our affiliate and has held their shares for at least six months, including the holding period of any prior owner other than one of our affiliates, may sell shares without restriction, subject to the availability of current public information about us. In addition, under Rule 144, any person who is not our affiliate and has not been our affiliate at any time during the preceding three months and has held their shares for at least one year, including the holding period of any prior owner other than one of our affiliates, would be entitled to sell an unlimited number of shares immediately upon the closing of this offering without regard to whether current public information about us is available.
Beginning 90 days after the date of this prospectus, a person who is our affiliate or who was our affiliate at any time during the preceding three months and who has beneficially owned restricted securities for at least six months, including the holding period of any prior owner other than one of our affiliates, is entitled to sell a
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number of shares within any three-month period that does not exceed the greater of: (i) 1% of the number of shares of our common stock outstanding, which will equal approximately shares immediately after this offering; and (ii) the average weekly trading volume of our common stock on the NYSE during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.
Sales under Rule 144 by our affiliates are also subject to certain manner of sale provisions, notice requirements and the availability of current public information about us.
Rule 701
In general, under Rule 701 under the Securities Act, beginning 90 days after we become subject to the public company reporting requirements of the Exchange Act, any of our employees, directors, officers, consultants or advisors who acquired shares of common stock from us in connection with a written compensatory stock or option plan or other written agreement in compliance with Rule 701 is entitled to sell such shares in reliance on Rule 144 but without compliance with certain of the requirements contained in Rule 144. Accordingly, subject to any applicable lock-up agreements, beginning 90 days after we become subject to the public company reporting requirements of the Exchange Act, under Rule 701 persons who are not our affiliates may resell those shares without complying with the minimum holding period or public information requirements of Rule 144, and persons who are our affiliates may resell those shares without compliance with Rule 144s minimum holding period requirements.
Equity Incentive Plans
Following this offering, we intend to file with the SEC a registration statement on Form S-8 under the Securities Act covering the shares of common stock that are subject to outstanding options and other awards issuable pursuant to our equity incentive plans. Shares covered by such registration statement will be available for sale in the open market following its effective date, subject to certain Rule 144 limitations applicable to affiliates and the terms of lock-up agreements applicable to those shares.
Registration Rights
Subject to the lock-up agreements described above, certain holders of our common stock may demand that we register the sale of their shares under the Securities Act or, if we file another registration statement under the Securities Act other than a Form S-8 covering securities issuable under our equity plans or on Form S-4, may elect to include their shares of common stock in such registration. Following such registered sales, the shares will be freely tradable without restriction under the Securities Act, unless held by our affiliates. See Certain Relationships and Related Party TransactionsStockholders Agreement.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS FOR
NON-U.S. HOLDERS
The following is a summary of material U.S. federal income and estate tax considerations relating to the purchase, ownership and disposition of shares of our common stock issued pursuant to this offering by Non-U.S. Holders (defined below). This summary does not purport to be a complete analysis of all the potential tax considerations relevant to Non-U.S. Holders of shares of our common stock. This summary is based upon the Internal Revenue Code of 1986, as amended (the Internal Revenue Code), the Treasury regulations promulgated or proposed thereunder and administrative and judicial interpretations thereof, all as of the date hereof and all of which are subject to change or differing interpretations at any time, possibly with retroactive effect.
This summary assumes that shares of our common stock are held by a Non-U.S. Holder as capital assets within the meaning of Section 1221 of the Internal Revenue Code (generally, property held for investment). This summary does not purport to deal with all aspects of U.S. federal income and estate taxation that might be relevant to particular Non-U.S. Holders in light of their particular investment circumstances or status, nor does it address specific tax considerations that may be relevant to particular persons who are subject to special treatment under U.S. federal income tax laws (including, for example, financial institutions, broker-dealers, insurance companies, partnerships or other pass-through entities, certain U.S. expatriates or former long-term residents of the United States, tax-exempt organizations, pension plans, controlled foreign corporations, passive foreign investment companies, corporations that accumulate earnings to avoid U.S. federal income tax, persons in special situations, such as those who have elected to mark securities to market or those who hold shares of our common stock as part of a straddle, hedge, conversion transaction, synthetic security or other integrated investment, persons that have a functional currency other than the U.S. dollar, or holders subject to the alternative minimum tax or the 3.8% tax on net investment income). In addition, except as explicitly addressed herein with respect to estate tax, this summary does not address certain estate and any gift tax considerations or considerations arising under the tax laws of any state, local or non-U.S. jurisdiction.
For purposes of this summary, a Non-U.S. Holder means a beneficial owner of shares of our common stock that for U.S. federal income tax purposes, is an individual, corporation, estate or trust other than:
| an individual who is a citizen or resident of the United States; |
| a corporation, or any other organization taxable as a corporation for U.S. federal income tax purposes, that is created or organized in or under the laws of the United States, any state thereof or the District of Columbia; |
| an estate, the income of which is included in gross income for U.S. federal income tax purposes regardless of its source; or |
| a trust if (1) a U.S. court is able to exercise primary supervision over the trusts administration and one or more United States persons (as defined in the Internal Revenue Code) have the authority to control all of the trusts substantial decisions or (2) the trust has a valid election in effect under applicable U.S. Treasury regulations to be treated as a United States person. |
A modified definition of Non-U.S. Holder applies for U.S. federal estate tax purposes (as discussed below).
If an entity that is classified as a partnership for U.S. federal income tax purposes holds shares of our common stock, the tax treatment of persons treated as its partners for U.S. federal income tax purposes will generally depend upon the status of the partner and the activities of the partnership. Partnerships and other
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entities that are classified as partnerships for U.S. federal income tax purposes and persons holding our common stock through a partnership or other entity classified as a partnership for U.S. federal income tax purposes are urged to consult their own tax advisors.
There can be no assurance that the Internal Revenue Service (IRS) will not challenge one or more of the tax consequences described herein, and we have not obtained, nor do we intend to obtain, a ruling from the IRS or an opinion of counsel with respect to the U.S. federal income or estate tax consequences to a Non-U.S. Holder of the purchase, ownership or disposition of shares of our common stock.
THIS SUMMARY IS NOT INTENDED TO BE TAX ADVICE. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME AND ESTATE TAXATION AND OTHER TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF SHARES OF OUR COMMON STOCK, AS WELL AS THE APPLICATION OF STATE, LOCAL AND NON-U.S. INCOME AND OTHER TAX LAWS.
Distributions on Shares of our Common Stock
As discussed under Dividend Policy above, we do not currently anticipate paying cash dividends on shares of our common stock in the foreseeable future. In the event that we do make a distribution of cash or property with respect to shares of our common stock, any such distributions generally will constitute dividends for U.S. federal income tax purposes to the extent of our current or accumulated earnings and profits as determined under U.S. federal income tax principles, and will be subject to withholding as described in the next paragraph below. If a distribution exceeds our current or accumulated earnings and profits, the excess will be treated as a tax-free return of the Non-U.S. Holders investment, up to such holders adjusted tax basis in its shares of our common stock. Any remaining excess will be treated as capital gain, subject to the tax treatment described below in Gain on Sale, Exchange or other Taxable Disposition of our Common Stock. Any distribution described in this paragraph would also be subject to the discussion below in Additional Withholding and Information Reporting Requirements for Shares of our Common Stock Held by or through Non-U.S. Entities.
Any dividends paid to a Non-U.S. Holder with respect to shares of our common stock generally will be subject to a 30% U.S. federal withholding tax unless such Non-U.S. Holder provides us or our agent, as the case may be, with an appropriate IRS Form W-8, such as:
| IRS Form W-8BEN (or successor form) or IRS Form W-8BEN-E (or successor form) certifying, under penalties of perjury, that such Non-U.S. Holder is entitled to a reduction in withholding under an applicable income tax treaty; or |
| IRS Form W-8ECI (or successor form) certifying, under penalties of perjury, that a dividend paid on shares of our common stock is not subject to withholding tax because it is effectively connected with conduct of a trade or business in the United States of the Non-U.S. Holder (in which case such dividend generally will be subject to regular graduated U.S. federal income tax rates on a net income basis as described below). |
The certifications described above must be provided to us or our agent prior to the payment of dividends and must be updated periodically. The certification also may require a Non-U.S. Holder that provides an IRS form or that claims treaty benefits to provide its U.S. taxpayer identification number. Special certification and other requirements apply in the case of certain Non-U.S. Holders that are intermediaries or pass-through entities for U.S. federal income tax purposes.
Each Non-U.S. Holder is urged to consult its own tax advisor about the specific methods for satisfying these requirements. A claim for exemption will not be valid if the person receiving the applicable form has actual knowledge or reason to know that the statements on the form are false.
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If dividends are effectively connected with the conduct of a trade or business in the United States of the Non-U.S. Holder (and, if required by an applicable income tax treaty, are attributable to a permanent establishment or fixed base maintained by such Non-U.S. Holder in the United States), the Non-U.S. Holder, although exempt from the withholding tax described above (provided that the certifications described above are satisfied), will generally be subject to U.S. federal income tax on such dividends on a net income basis in the same manner as if it were a resident of the United States. In addition, if such Non-U.S. Holder is taxable as a corporation for U.S. federal income tax purposes, such Non-U.S. Holder may be subject to an additional branch profits tax equal to 30% of its effectively connected earnings and profits for the taxable year, unless an applicable income tax treaty provides otherwise.
Non-U.S. Holders that do not timely provide us or our agent with the required certification, but which are eligible for a reduced rate of U.S. federal withholding tax pursuant to an applicable income tax treaty may obtain a refund or credit of any excess amount withheld by timely filing an appropriate claim for refund with the IRS.
Gain on Sale, Exchange or Other Taxable Disposition of Shares of our Common Stock
Subject to the discussion below under Additional Withholding and Information Reporting Requirements for Shares of our Common Stock Held by or through Non-U.S. Entities, in general, a Non-U.S. Holder will not be subject to U.S. federal income tax or withholding tax on any gain realized upon such holders sale, exchange or other disposition of shares of our common stock unless (i) such Non-U.S. Holder is an individual who is present in the United States for 183 days or more in the taxable year of disposition, and certain other conditions are met, (ii) we are or have been a United States real property holding corporation, as defined in the Internal Revenue Code (a USRPHC), at any time within the shorter of the five-year period preceding the disposition and the Non-U.S. Holders holding period with respect to the applicable shares of our common stock (the relevant period), or (iii) such gain is effectively connected with the conduct by such Non-U.S. Holder of a trade or business in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment or fixed base maintained by such Non-U.S. Holder in the United States).
If the first exception applies, the Non-U.S. Holder generally will be subject to U.S. federal income tax at a rate of 30% (unless an applicable income tax treaty provides otherwise) on the amount by which such Non-U.S. Holders capital gains allocable to U.S. sources exceed capital losses allocable to U.S. sources during the taxable year of the disposition.
With respect to the second exception above, although there can be no assurance, we believe we are not, and we do not currently anticipate becoming, a USRPHC. However, because the determination of whether we are a USRPHC depends on the fair market value of our U.S. real property relative to the fair market value of other business assets, there can be no assurance that we are not currently or will not become a USRPHC in the future. Generally, a corporation is a USRPHC only if the fair market value of its United States real property interests (as defined in the Internal Revenue Code) equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests plus certain other assets used or held for use in a trade or business. Even if we are or become a USRPHC, a Non-U.S. Holder would not be subject to U.S. federal income tax on a sale, exchange or other taxable disposition of our common stock by reason of our status as a USRPHC so long as (a) our common stock is regularly traded on an established securities market (within the meaning of Internal Revenue Code Section 897(c)(3)) during the calendar year in which such sale, exchange or other taxable disposition of our common stock occurs and (b) such Non-U.S. Holder does not own and is not deemed to own (directly, indirectly or constructively) more than 5% of our common stock at any time during the relevant period. If we are a USRPHC and the requirements of (a) or (b) are not met, gain on the disposition of shares of our common stock generally will be taxed in the same manner as gain that is effectively connected with the conduct of a U.S. trade or business, except that the branch profits tax will not apply. Prospective investors are urged to consult their own tax advisors regarding the possible consequences to them if we are, or were to become, a USRPHC.
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If the third exception applies, the Non-U.S. Holder generally will be subject to U.S federal income tax on a net income basis with respect to such gain in the same manner as if such holder were a resident of the United States, unless otherwise provided in an applicable income tax treaty, and a Non-U.S. Holder that is a corporation for U.S federal income tax purposes may also be subject to a branch profits tax on its effectively connected earnings and profits at a rate of 30%, unless an applicable income tax treaty provides otherwise.
Additional Withholding and Information Reporting Requirements for Shares of our Common Stock Held by or through Non-U.S. Entities
Legislation enacted in March 2010 and related Treasury guidance (commonly referred to as FATCA) generally will impose a U.S. federal withholding tax of 30% on payments to certain non-U.S. entities (including certain intermediaries), including dividends on and the gross proceeds from a sale or other disposition of our common stock unless such persons comply with a complicated U.S. information reporting, disclosures and certification regime. This new regime requires, among other things, a broad class of persons to enter into agreements with the IRS to obtain, disclose and report information about their investors and account holders. This new regime and its requirements are different from and in addition to the certification requirements described elsewhere in this discussion. As currently proposed, the FATCA withholding rules would apply to certain payments, including dividend payments on our common stock, if any, paid after June 30, 2014, and gross proceeds from the sale or other dispositions of our common stock paid after December 31, 2016. Prospective investors should consult their own tax advisors regarding the possible impact of these rules on their investment in our common stock, and the entities through which they hold our common stock, including, without limitation, the process and deadlines for meeting the applicable requirements to prevent the imposition of this 30% withholding tax under FATCA.
Backup Withholding and Information Reporting
We must report annually to the IRS and to each Non-U.S. Holder the gross amount of the distributions on shares of our common stock paid to such holder and the tax withheld, if any, with respect to such distributions. These information reporting requirements apply even if withholding was not required. In addition to the requirements described above under Additional Withholding and Information Reporting Requirements for Shares of our Common Stock Held by or through Non-U.S. Entities, a Non-U.S. Holder may have to comply with specific certification procedures to establish that the holder is not a United States person (as defined in the Internal Revenue Code) or otherwise establish an exemption in order to avoid backup withholding at the applicable rate with respect to dividends on our common stock. Dividends paid to Non-U.S. Holders subject to the U.S. federal withholding tax, as described above In Distributions on Shares of our Common Stock, generally will be exempt from U.S. backup withholding.
Information reporting and backup withholding will generally apply to the payment of the proceeds of a disposition of shares of our common stock by a Non-U.S. Holder effected by or through the U.S. office of any broker, U.S. or non-U.S., unless the holder certifies that it is not a United States person (as defined in the Internal Revenue Code) and satisfies certain other requirements, or otherwise establishes an exemption. For information reporting purposes, dispositions effected through a non-U.S. office of a broker with substantial U.S. ownership or operations generally will be treated in a manner similar to dispositions effected through a U.S. office of a broker, and dispositions otherwise effected through a non-U.S. office generally will not be subject to information reporting. Generally, backup withholding will not apply to a payment of disposition proceeds to a Non-U.S. Holder where the transaction is effected through a non-U.S. office of a U.S. broker or non-U.S. office of a non-U.S broker. Prospective investors are urged to consult their own tax advisors regarding the application of the information reporting and backup withholding rules to them.
Copies of information returns may be made available to the tax authorities of the country in which the Non-U.S. Holder resides or is incorporated, under the provisions of a specific treaty or agreement.
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Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment made to a Non-U.S. Holder can be refunded or credited against such Non-U.S. Holders U.S. federal income tax liability, if any, provided that an appropriate claim is timely filed with the IRS.
Federal estate tax
Shares of our common stock held (or treated as held) by an individual who is not a U.S. citizen or resident (as defined for U.S. federal estate tax purposes) at the time of such individuals death will be included in such individuals gross estate for U.S. federal estate tax purposes, unless an applicable estate tax treaty provides otherwise.
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UNDERWRITING (CONFLICTS OF INTEREST)
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Deutsche Bank Securities Inc. and Goldman, Sachs & Co. are acting as representatives of each of the underwriters named below. Subject to the terms and conditions set forth in an underwriting agreement among us, the selling stockholders and the underwriters, we and the selling stockholders have agreed to sell to the underwriters, and each of the underwriters has agreed, severally and not jointly, to purchase from us and the selling stockholders, the number of shares of common stock set forth opposite its name below.
Underwriter |
Number of Shares | |
Merrill Lynch, Pierce, Fenner & Smith |
||
Deutsche Bank Securities Inc |
||
Goldman, Sachs & Co. |
||
Barclays Capital Inc. |
||
J.P. Morgan Securities LLC |
||
UBS Securities LLC |
||
TPG Capital BD, LLC |
||
RBC Capital Markets, LLC |
||
SunTrust Robinson Humphrey, Inc. |
||
| ||
Total |
Subject to the terms and conditions set forth in the underwriting agreement, the underwriters have agreed, severally and not jointly, to purchase all of the shares sold under the underwriting agreement if any of these shares are purchased. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the nondefaulting underwriters may be increased or the underwriting agreement may be terminated.
We and the selling stockholders have agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect of those liabilities.
The underwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the shares, and other conditions contained in the underwriting agreement, such as the receipt by the underwriters of officers certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
Commissions and Discounts
The representatives have advised us and the selling stockholders that the underwriters propose initially to offer the shares to the public at the public offering price set forth on the cover page of this prospectus and to dealers at that price less a concession not in excess of $ per share. After the initial offering, the public offering price, concession or any other term of the offering may be changed. Sales of shares made outside of the United States may be made by affiliates of the underwriters.
The following table shows the public offering price, underwriting discount and proceeds before expenses to us and the selling stockholders. The information assumes either no exercise or full exercise by the underwriters of their option to purchase additional shares.
Per Share |
Without Option |
With Option | ||||
Public offering price |
$ | $ | $ | |||
Underwriting discount |
$ | $ | $ | |||
Proceeds, before expenses, to ATD |
$ | $ | $ | |||
Proceeds, before expenses, to the selling stockholders |
$ | $ | $ |
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We have agreed to reimburse the underwriters for certain accountable expenses in connection with this offering in an amount not to exceed $25,000. The expenses of the offering, not including the underwriting discount, are estimated at $ and are payable by us.
Option to Purchase Additional Shares
We and the selling stockholders have granted an option to the underwriters, exercisable for 30 days after the date of this prospectus, to purchase up to additional shares at the public offering price, less the underwriting discount. If the underwriters exercise this option, each will be obligated, subject to conditions contained in the underwriting agreement, to purchase a number of additional shares proportionate to that underwriters initial amount reflected in the above table.
No Sales of Similar Securities
We and the selling stockholders, our executive officers and directors and our other existing security holders have agreed not to sell or transfer any common stock or securities convertible into, exchangeable for, exercisable for, or repayable with common stock, for 180 days after the date of this prospectus without first obtaining the written consent of certain of the underwriters. Specifically, we and these other persons have agreed, with certain limited exceptions, not to directly or indirectly
| offer, pledge, sell or contract to sell any common stock, |
| sell any option or contract to purchase any common stock, |
| purchase any option or contract to sell any common stock, |
| grant any option, right or warrant for the sale of any common stock, |
| lend or otherwise dispose of or transfer any common stock, |
| request or demand that we file a registration statement related to the common stock, or |
| enter into any swap or other agreement that transfers, in whole or in part, the economic consequence of ownership of any common stock whether any such swap or transaction is to be settled by delivery of shares or other securities, in cash or otherwise. |
This lock-up provision applies to common stock and to securities convertible into or exchangeable or exercisable for or repayable with common stock. It also applies to common stock owned now or acquired later by the person executing the agreement or for which the person executing the agreement later acquires the power of disposition. In the event that either (x) during the last 17 days of the lock-up period referred to above, we issue an earnings release or material news or a material event relating to us occurs or (y) prior to the expiration of the lock-up period, we announce that we will release earnings results or become aware that material news or a material event will occur during the 16-day period beginning on the last day of the lock-up period, the restrictions described above shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.
New York Stock Exchange Listing
We expect the shares to be approved for listing on the NYSE under the symbol ATD. In order to meet the requirements for listing on that exchange, the underwriters have undertaken to sell a minimum number of shares to a minimum number of beneficial owners as required by that exchange.
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Before this offering, there has been no public market for our common stock. The initial public offering price will be determined through negotiations among us, the selling stockholders and the representatives. In addition to prevailing market conditions, the factors to be considered in determining the initial public offering price are
| the valuation multiples of publicly traded companies that the representatives believe to be comparable to us, |
| our financial information, |
| the history of, and the prospects for, our company and the industry in which we compete, |
| an assessment of our management, its past and present operations, and the prospects for, and timing of, our future revenues, |
| the present state of our development, |
| the information set forth in this prospectus and otherwise available to the representatives, |
| the general condition of the securities markets at the time of the offering, |
| the above factors in relation to market values and various valuation measures of other companies engaged in activities similar to ours, and |
| other factors deemed relevant by the underwriters, the selling stockholders and us. |
An active trading market for the shares may not develop. It is also possible that after the offering the shares will not trade in the public market at or above the initial public offering price.
The underwriters do not expect to sell more than 5% of the shares in the aggregate to accounts over which they exercise discretionary authority.
Price Stabilization, Short Positions and Penalty Bids
Until the distribution of the shares is completed, SEC rules may limit underwriters and selling group members from bidding for and purchasing our common stock. However, the representatives may engage in transactions that stabilize the price of the common stock, such as bids or purchases to peg, fix or maintain that price.
In connection with the offering, the underwriters may purchase and sell our common stock in the open market. These transactions may include short sales, purchases on the open market to cover positions created by short sales and stabilizing transactions. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering. Covered short sales are sales made in an amount not greater than the underwriters option to purchase additional shares described above. The underwriters may close out any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the option granted to them. Naked short sales are sales in excess of such option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of our common stock in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of shares of common stock made by the underwriters in the open market prior to the completion of the offering.
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The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.
Similar to other purchase transactions, the underwriters purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common stock. As a result, the price of our common stock may be higher than the price that might otherwise exist in the open market. The underwriters may conduct these transactions on , in the over-the-counter market or otherwise.
Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common stock. In addition, neither we nor any of the underwriters make any representation that the representatives will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.
Electronic Distribution
In connection with the offering, certain of the underwriters or securities dealers may distribute prospectuses by electronic means, such as e-mail.
Conflict of Interest
Affiliates of TPG Capital BD, LLC, an underwriter of this offering, own in excess of 10% of our issued and outstanding common stock. Therefore, a conflict of interest is deemed to exist under FINRA Rule 5121(f)(5)(B). In addition, because the TPG Funds are affiliates of TPG Capital BD, LLC and, as selling stockholders, will receive more than 5% of the net proceeds of this offering, a conflict of interest is also deemed to exist under FINRA Rule 5121(f)(5)(C)(ii). Accordingly, this offering will be made in compliance with the applicable provisions of FINRA Rule 5121. In accordance with FINRA Rule 5121(c), no sales of the shares will be made to any discretionary account over which TPG Capital BD, LLC exercises discretion without the prior specific written approval of the account holder. However, no qualified independent underwriter is required because the underwriters primarily responsible for managing this offering are free of any conflict of interest as that term is defined in the rule.
Other Relationships
Bank of America, N.A., an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated, acts as the Administrative Agent, Collateral Agent and a lender under the credit agreement governing our ABL Facility and FILO Facility and the Administrative Agent, Sole Lead Arranger, Sole Bookrunner and a lender under our senior secured term loan facility. Barclays Bank PLC, an affiliate of Barclays Capital Inc., SunTrust Bank, an affiliate of SunTrust Robinson Humphrey, Inc., Royal Bank of Canada, an affiliate of RBC Capital Markets, LLC, and UBS AG, Stamford Branch, an affiliate of UBS Securities LLC, have all provided commitments under the credit agreement governing our ABL Facility and FILO Facility.
The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services. Certain of the underwriters and their respective affiliates have provided, and may in the future provide, a variety of these services to us and to persons and entities with relationships with us, for which they received or will receive customary fees and expenses.
In the ordinary course of their various business activities, the underwriters and their respective affiliates, officers, directors and employees may purchase, sell or hold a broad array of investments and actively traded securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for
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their own account and for the accounts of their customers, and such investment and trading activities may involve or relate to assets, securities and/or instruments of ours (directly, as collateral securing other obligations or otherwise) and/or persons and entities with relationships with us. The underwriters and their respective affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments.
Sales Outside of the United States
Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
Notice to Prospective Investors in the European Economic Area
In relation to each Member State of the European Economic Area (each, a Relevant Member State), no offer of shares may be made to the public in that Relevant Member State other than:
A. | to any legal entity which is a qualified investor as defined in the Prospectus Directive: |
B. | to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the representatives; or |
C. | in any other circumstances falling within Article 3(2) of the Prospectus Directive, |
provided that no such offer of shares shall require the Company or the representatives to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive.
Each person in a Relevant Member State who initially acquires any shares or to whom any offer is made will be deemed to have represented, acknowledged and agreed that it is a qualified investor within the meaning of the law in that Relevant Member State implementing Article 2(1)(e) of the Prospectus Directive. In the case of any shares being offered to a financial intermediary as that term is used in Article 3(2) of the Prospectus Directive, each such financial intermediary will be deemed to have represented, acknowledged and agreed that the shares acquired by it in the offer have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in circumstances which may give rise to an offer of any shares to the public other than their offer or resale in a Relevant Member State to qualified investors as so defined or in circumstances in which the prior consent of the representatives has been obtained to each such proposed offer or resale.
The Company, the representatives and their affiliates will rely upon the truth and accuracy of the foregoing representations, acknowledgements and agreements.
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This prospectus has been prepared on the basis that any offer of shares in any Relevant Member State will be made pursuant to an exemption under the Prospectus Directive from the requirement to publish a prospectus for offers of shares. Accordingly any person making or intending to make an offer in that Relevant Member State of shares which are the subject of the offering contemplated in this prospectus may only do so in circumstances in which no obligation arises for the Company or any of the underwriters to publish a prospectus pursuant to Article 3 of the Prospectus Directive in relation to such offer. Neither the Company nor the underwriters have authorized, nor do they authorize, the making of any offer of shares in circumstances in which an obligation arises for the Company or the underwriters to publish a prospectus for such offer.
For the purpose of the above provisions, the expression an offer to the public in relation to any shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase or subscribe the shares, as the same may be varied in the Relevant Member State by any measure implementing the Prospectus Directive in the Relevant Member State and the expression Prospectus Directive means Directive 2003/71/EC (including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member States) and includes any relevant implementing measure in the Relevant Member State and the expression 2010 PD Amending Directive means Directive 2010/73/EU.
Notice to Prospective Investors in the United Kingdom
In addition, in the United Kingdom, this document is being distributed only to, and is directed only at, and any offer subsequently made may only be directed at persons who are qualified investors (as defined in the Prospectus Directive) (i) who have professional experience in matters relating to investments falling within Article 19 (5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the Order) and/or (ii) who are high net worth companies (or persons to whom it may otherwise be lawfully communicated) falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as relevant persons). This document must not be acted on or relied on in the United Kingdom by persons who are not relevant persons. In the United Kingdom, any investment or investment activity to which this document relates is only available to, and will be engaged in with, relevant persons.
Notice to Prospective Investors in Switzerland
The shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (SIX) or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the shares or the offering may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this document nor any other offering or marketing material relating to the offering, the Company, the shares have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of shares will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA (FINMA), and the offer of shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes (CISA). The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of shares.
Notice to Prospective Investors in the Dubai International Financial Centre
This prospectus relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority (DFSA). This prospectus is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt
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Offers. The DFSA has not approved this prospectus nor taken steps to verify the information set forth herein and has no responsibility for the prospectus. The shares to which this prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the shares offered should conduct their own due diligence on the shares. If you do not understand the contents of this prospectus you should consult an authorized financial advisor.
Notice to Prospective Investors in Australia
No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission (ASIC), in relation to the offering. This prospectus does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001 (the Corporations Act), and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.
Any offer in Australia of the shares may only be made to persons (the Exempt Investors) who are sophisticated investors (within the meaning of section 708(8) of the Corporations Act), professional investors (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer the shares without disclosure to investors under Chapter 6D of the Corporations Act.
The shares applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of allotment under the offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring shares must observe such Australian on-sale restrictions.
This prospectus contains general information only and does not take account of the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider whether the information in this prospectus is appropriate to their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.
Notice to Prospective Investors in Hong Kong
The shares have not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (a) to professional investors as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances which do not result in the document being a prospectus as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance. No advertisement, invitation or document relating to the shares has been or may be issued or has been or may be in the possession of any person for the purposes of issue, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.
Notice to Prospective Investors in Japan
The shares have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948, as amended) and, accordingly, will not be offered or sold, directly or indirectly, in Japan, or for the benefit of any Japanese Person or to others for re-offering or resale, directly or indirectly, in
163
Japan or to any Japanese Person, except in compliance with all applicable laws, regulations and ministerial guidelines promulgated by relevant Japanese governmental or regulatory authorities in effect at the relevant time. For the purposes of this paragraph, Japanese Person shall mean any person resident in Japan, including any corporation or other entity organized under the laws of Japan.
Notice to Prospective Investors in Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the SFA), (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275, of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
(a) | a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or |
(b) | a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, |
securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except:
(a) | to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA; |
(b) | where no consideration is or will be given for the transfer; |
(c) | where the transfer is by operation of law; |
(d) | as specified in Section 276(7) of the SFA; or |
(e) | as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore. |
164
The validity of the issuance of our common stock offered in this prospectus will be passed upon for us by Ropes & Gray LLP, Boston, Massachusetts. Ropes & Gray LLP and some of its attorneys are limited partners of RGIP, LP, which is an investor in certain investment funds affiliated with TPG and sometimes a co-investor with such funds. RGIP, LP directly or indirectly owns less than 1% of our outstanding shares of common stock. The underwriters have been represented by Cravath, Swaine & Moore LLP, New York, New York.
The consolidated financial statements of the Company and its subsidiaries as of December 28, 2013 and December 29, 2012 and for each of the three years in the period ended December 28, 2013 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of TTT Holdings, Inc. and its subsidiaries as of December 31, 2013 and December 31, 2012 and for each of the two years in the period ended December 31, 2013, included in this prospectus have been so included in reliance on the reports of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of TTT Holdings, Inc. and its subsidiaries as of December 31, 2012 and December 31, 2011 and for each of the two years in the period ended December 31, 2012 have been so included in reliance on the reports of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of The Hercules Tire & Rubber Company and its subsidiaries as of October 31, 2013 and 2012, for the years then ended, and the consolidated schedule of adjusted EBITDA of The Hercules Tire & Rubber Company included in this prospectus have been so included in reliance on the reports of Plante & Moran, PLLC, an independent public accounting firm, given on the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of Regional Tire Distributors Inc. and its subsidiaries as of January 31, 2013 and January 31, 2012 and for each of the two years in the period ended January 31, 2013 included in this prospectus have been so included in reliance on the report of Deloitte LLP, independent auditors, given on the authority of said firm as experts in auditing and accounting.
The financial statements of Triwest Trading (Canada) Ltd. as of December 31, 2011, December 31, 2010 and January 1, 2010 and for the years ended December 31, 2011, December 31, 2010 and December 31, 2009 included in this prospectus have been so included in reliance on the reports of Kouri Berezan Heinrichs, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
The financial statements of Trail Tire Distributors Ltd. as of February 28, 2014 and February 28, 2013 and for the years ended February 28, 2014 and February 28, 2013 included in this prospectus have been so included in reliance on the reports of Collins Barrow Edmonton LLP, independent auditors, given on the authority of said firm as experts in auditing and accounting.
The financial statements of Extreme Wheel Distributors Ltd. as of February 28, 2014 and February 28, 2013 and for the years ended February 28, 2014 and February 28, 2013 included in this prospectus have been so included in reliance on the reports of Collins Barrow Edmonton LLP, independent auditors, given on the authority of said firm as experts in auditing and accounting.
165
The financial statements of Kirks Tire Ltd. as of January 31, 2014, January 31, 2013 and January 31, 2012 and for the years ended January 31, 2014, January 31, 2013 and January 31, 2012 included in this prospectus have been so included in reliance on the reports of Collins Barrow Edmonton LLP, independent auditors, given on the authority of said firm as experts in auditing and accounting.
The financial statements of Regional Tire Distributors (Edmonton) Inc. as of February 28, 2014, February 28, 2013 and February 29, 2012 and for the years ended February 28, 2014, February 28, 2013 and February 29, 2012 included in this prospectus have been so included in reliance on the reports of Collins Barrow Edmonton LLP, independent auditors, given on the authority of said firm as experts in auditing and accounting.
The financial statements of Regional Tire Distributors (Calgary) Inc. as of February 28, 2014, February 28, 2013 and February 29, 2012 and for the years ended February 28, 2014, February 28, 2013 and February 29, 2012 included in this prospectus have been so included in reliance on the reports of Collins Barrow Edmonton LLP, independent auditors, given on the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock offered hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits and schedules filed therewith. For further information with respect to us and the common stock offered hereby, please refer to the registration statement and the exhibits and schedules filed therewith. Statements contained in this prospectus regarding the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and each such statement is qualified in all respects by reference to the full text of such contract or other document filed as an exhibit to the registration statement. A copy of the registration statement and the exhibits and schedules filed therewith may be inspected without charge at the public reference room maintained by the SEC, located at 100 F Street N.E., Washington, D.C. 20549, and copies of all or any part of the registration statement may be obtained from such offices upon the payment of the fees prescribed by the SEC. Please call the SEC at 1-800-SEC-0330 for further information about the public reference room. The SEC also maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The SECs website address is www.sec.gov.
Upon completion of this offering, we will become subject to the information and periodic reporting requirements of the Exchange Act and, in accordance therewith, we will file periodic reports, proxy statements and other information with the SEC. Such periodic reports, proxy statements and other information will be available for inspection and copying at the public reference room and website of the SEC referred to above.
166
Index to Consolidated Financial Statements
and Financial Statement Schedules
PAGE |
||||
ATD Corporation
|
||||
Audited Consolidated Financial Statements |
||||
F-5 | ||||
Audited Consolidated Balance Sheets as of December 28, 2013 and December 29, 2012 |
F-6 | |||
F-7 | ||||
F-8 | ||||
F-9 | ||||
F-10 | ||||
F-50 | ||||
Unaudited Condensed Consolidated Financial Statements |
||||
Unaudited Condensed Consolidated Balance Sheets as of July 5, 2014 and December 28, 2013 |
F-52 | |||
F-53 | ||||
F-54 | ||||
F-55 | ||||
Notes to Unaudited Condensed Consolidated Financial Statements |
F-56 |
Trail Tire Distributors Ltd.
Audited Financial Statements |
||||
F-84 | ||||
F-85 | ||||
Audited Statements of Operations for the years ended February 28, 2014 and 2013 |
F-86 | |||
Audited Statements of Retained Earnings for the years ended February 28, 2014 and 2013 |
F-87 | |||
Audited Statements of Cash Flows for the years ended February 28, 2014 and 2013 |
F-88 | |||
F-89 |
Extreme Wheel Distributors Ltd.
Audited Financial Statements |
||||
F-99 | ||||
F-100 | ||||
Audited Statements of Operations for the years ended February 28, 2014 and 2013 |
F-101 | |||
Audited Statements of Retained Earnings for the years ended February 28, 2014 and 2013 |
F-102 | |||
Audited Statements of Cash Flows for the years ended February 28, 2014 and 2013 |
F-103 | |||
F-104 |
F-1
PAGE | ||||
Kirks Tire Ltd.
|
||||
Audited Financial Statements |
||||
F-113 | ||||
Audited Balance Sheets as of January 31, 2014, 2013 and 2012 |
F-114 | |||
Audited Statements of Operations for the years ended January 31, 2014, 2013 and 2012 |
F-115 | |||
Audited Statements of Retained Earnings for the years ended January 31, 2014, 2013 and 2012 |
F-116 | |||
Audited Statements of Cash Flows for the years ended January 31, 2014, 2013 and 2012 |
F-117 | |||
F-118 |
Regional Tire Distributors (Edmonton) Inc.
Audited Financial Statements |
||||
F-132 | ||||
Audited Balance Sheets as of February 28, 2014 and 2013 and February 29, 2012 |
F-133 | |||
F-134 | ||||
F-135 | ||||
F-136 | ||||
F-137 |
Regional Tire Distributors (Calgary) Inc.
Audited Financial Statements |
||||
F-160 | ||||
Audited Balance Sheets as of February 28, 2014 and 2013 and February 29, 2012 |
F-161 | |||
F-162 | ||||
F-163 | ||||
F-164 | ||||
F-165 |
TTT Holdings, Inc. (1)
(1) | TTT Holdings, Inc. has no significant assets or operations other than its ownership of Terrys Tire Town Holdings, Inc. The operations of Terrys Tire Town Holdings, Inc. constitutes the operations of TTT Holdings, Inc. |
F-2
PAGE |
||||
The Hercules Tire & Rubber Company
|
||||
Audited Consolidated Financial Statements |
||||
F-220 | ||||
Audited Consolidated Balance Sheets as of October 31, 2013 and 2012 |
F-221 | |||
F-222 | ||||
F-223 | ||||
Audited Consolidated Statements of Cash Flows for the years ended October 31, 2013 and 2012 |
F-224 | |||
F-225 | ||||
F-235 | ||||
F-236 |
Regional Tire Distributors Inc.
Audited Consolidated Financial Statements |
||||
F-238 | ||||
F-239 | ||||
Audited Consolidated Balance Sheets as of January 31, 2013 and 2012 |
F-240 | |||
Audited Consolidated Statements of Cash Flows for the years ended January 31, 2013 and 2012 |
F-241 | |||
F-242 | ||||
F-243 |
Triwest Trading (Canada) Ltd.
Audited Consolidated Financial Statements |
||||
F-257 | ||||
Audited Consolidated Balance Sheets as of December 31, 2011, 2010 and 2009 |
F-258 | |||
Audited Consolidated Statements of Income for the years ended December 31, 2011, 2010 and 2009 |
F-259 | |||
F-260 | ||||
Audited Consolidated Statements of Cash Flows for the years ended December 31, 2011, 2010 and 2009 |
F-261 | |||
F-262 | ||||
Unaudited Consolidated Financial Statements | ||||
Balance Sheets as of September 30, 2012 and December 31, 2011 |
F-269 | |||
Statements of Income for the nine months ended September 30, 2012 and September 30, 2011 |
F-270 | |||
Statement of Retained Earnings for the nine month period ended September 30, 2012 |
F-271 | |||
Statements of Cash Flows for the nine months ended September 30, 2012 and September 30, 2011 |
F-272 | |||
F-273 |
F-3
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page |
||||
ATD CorporationConsolidated Financial Statements |
||||
F-5 | ||||
Consolidated Balance Sheets as of December 28, 2013 and December 29, 2012 |
F-6 | |||
F-7 | ||||
F-8 | ||||
F-9 | ||||
F-10 | ||||
F-50 |
F-4
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To ATD Corporation and Subsidiaries:
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of ATD Corporation and its subsidiaries at December 28, 2013 and December 29, 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 28, 2013 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 16(b) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Charlotte, North Carolina
June 16, 2014
F-5
CONSOLIDATED BALANCE SHEETS
In thousands, except share amounts |
December 28, |
December 29, |
||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 35,760 | $ | 34,700 | ||||
Accounts receivable, net of allowance for doubtful accounts of $2,169 and $950 in fiscal 2013 and 2012, respectively |
305,247 | 301,303 | ||||||
Inventories |
772,733 | 721,672 | ||||||
Deferred income taxes |
15,719 | 16,458 | ||||||
Income tax receivable |
369 | 369 | ||||||
Assets held for sale |
910 | 7,151 | ||||||
Other current assets |
19,684 | 20,695 | ||||||
|
|
|
|
|||||
Total current assets |
1,150,422 | 1,102,348 | ||||||
|
|
|
|
|||||
Property and equipment, net |
147,856 | 129,882 | ||||||
Goodwill |
504,333 | 483,143 | ||||||
Other intangible assets, net |
713,294 | 738,698 | ||||||
Other assets |
25,750 | 32,766 | ||||||
|
|
|
|
|||||
Total assets |
$ | 2,541,655 | $ | 2,486,837 | ||||
|
|
|
|
|||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 563,691 | $ | 502,221 | ||||
Accrued expenses |
45,116 | 42,988 | ||||||
Current maturities of long-term debt |
564 | 493 | ||||||
|
|
|
|
|||||
Total current liabilities |
609,371 | 545,702 | ||||||
|
|
|
|
|||||
Long-term debt |
966,436 | 950,711 | ||||||
Deferred income taxes |
268,432 | 283,009 | ||||||
Other liabilities |
17,362 | 14,662 | ||||||
Commitments and contingencies (See Note 13) |
||||||||
Stockholders equity: |
||||||||
Common stock, par value $.01 per share; 2,000,000,000 shares authorized; 734,168,402 shares issued and outstanding |
7,342 | 7,342 | ||||||
Additional paid-in capital |
751,630 | 748,996 | ||||||
Accumulated earnings (deficit) |
(69,818 | ) | (63,442 | ) | ||||
Accumulated other comprehensive income (loss) |
(9,100 | ) | (143 | ) | ||||
|
|
|
|
|||||
Total stockholders equity |
680,054 | 692,753 | ||||||
|
|
|
|
|||||
Total liabilities and stockholders equity |
$ | 2,541,655 | $ | 2,486,837 | ||||
|
|
|
|
See accompanying notes to consolidated financial statements.
F-6
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
In thousands |
Fiscal Year |
Fiscal Year |
Fiscal Year |
|||||||||
Net sales |
$ | 3,839,269 | $ | 3,455,864 | $ | 3,050,240 | ||||||
Cost of goods sold, excluding depreciation included in selling, general and administrative expenses below |
3,188,409 | 2,887,421 | 2,535,020 | |||||||||
Selling, general and administrative expenses |
569,234 | 499,112 | 432,636 | |||||||||
Management fees |
5,753 | 7,446 | 4,624 | |||||||||
Transaction expenses |
6,719 | 5,246 | 3,946 | |||||||||
|
|
|
|
|
|
|||||||
Operating income (loss) |
69,154 | 56,639 | 74,014 | |||||||||
Other income (expense): |
||||||||||||
Interest expense |
(74,316 | ) | (72,910 | ) | (67,572 | ) | ||||||
Other, net |
(5,196 | ) | (3,895 | ) | (2,110 | ) | ||||||
|
|
|
|
|
|
|||||||
Income (loss) from operations before income taxes |
(10,358 | ) | (20,166 | ) | 4,332 | |||||||
Income tax provision (benefit) |
(3,982 | ) | (5,965 | ) | 4,464 | |||||||
|
|
|
|
|
|
|||||||
Net income (loss) |
$ | (6,376 | ) | $ | (14,201 | ) | $ | (132 | ) | |||
|
|
|
|
|
|
|||||||
Net Income (loss) per share: |
||||||||||||
Basic |
$ | (0.01 | ) | $ | (0.02 | ) | $ | (0.00 | ) | |||
|
|
|
|
|
|
|||||||
Diluted |
$ | (0.01 | ) | $ | (0.02 | ) | $ | (0.00 | ) | |||
|
|
|
|
|
|
|||||||
Other comprehensive income (loss): |
||||||||||||
Foreign currency translation |
$ | (9,131 | ) | $ | (344 | ) | $ | | ||||
Unrealized gain (loss) on rabbi trust assets, net of tax |
174 | 138 | (158 | ) | ||||||||
|
|
|
|
|
|
|||||||
Other comprehensive income (loss) |
(8,957 | ) | (206 | ) | (158 | ) | ||||||
|
|
|
|
|
|
|||||||
Comprehensive income (loss) |
$ | (15,333 | ) | $ | (14,407 | ) | $ | (290 | ) | |||
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-7
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Total Equity |
Common Stock |
Additional Capital |
Accumulated (Deficit) |
Accumulated (Loss) Income |
||||||||||||||||||||
In thousands, except share amounts |
Shares |
Amount |
||||||||||||||||||||||
Balance, January 1, 2011 |
$ | 638,649 | 683,830,902 | $ | 6,838 | $ | 680,699 | $ | (49,109 | ) | $ | 221 | ||||||||||||
Net income (loss) |
(132 | ) | | | | (132 | ) | | ||||||||||||||||
Unrealized gain (loss) on rabbi trust assets, net of tax of $0.0 million |
(158 | ) | | | | | (158 | ) | ||||||||||||||||
Equity contributions |
500 | 500,000 | 5 | 495 | | | ||||||||||||||||||
Repurchase of common stock |
(200 | ) | (200,500 | ) | (2 | ) | (198 | ) | | | ||||||||||||||
Stock-based compensation |
4,114 | | | 4,114 | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance, December 31, 2011 |
642,773 | 684,130,402 | 6,841 | 685,110 | (49,241 | ) | 63 | |||||||||||||||||
Net income (loss) |
(14,201 | ) | | | | (14,201 | ) | | ||||||||||||||||
Unrealized gain (loss) on rabbi trust assets, net of tax of $0.1 million |
138 | | | | | 138 | ||||||||||||||||||
Foreign currency translation |
(344 | ) | (344 | ) | ||||||||||||||||||||
Equity contributions |
60,038 | 50,038,000 | 501 | 59,537 | | | ||||||||||||||||||
Stock-based compensation |
4,349 | | | 4,349 | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance, December 29, 2012 |
692,753 | 734,168,402 | 7,342 | 748,996 | (63,442 | ) | (143 | ) | ||||||||||||||||
Net income (loss) |
(6,376 | ) | | | | (6,376 | ) | | ||||||||||||||||
Unrealized gain (loss) on rabbi trust assets, net of tax of $0.1 million |
174 | | | | | 174 | ||||||||||||||||||
Foreign currency translation |
(9,131 | ) | (9,131 | ) | ||||||||||||||||||||
Stock-based compensation |
2,634 | | | 2,634 | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance, December 28, 2013 |
$ | 680,054 | 734,168,402 | 7,342 | $ | 751,630 | $ | (69,818 | ) | $ | (9,100 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-8
CONSOLIDATED STATEMENTS OF CASH FLOWS
In thousands |
Fiscal Year |
Fiscal Year |
Fiscal Year |
|||||||||
Cash flows from operating activities: |
||||||||||||
Net income (loss) |
$ | (6,376 | ) | $ | (14,201 | ) | $ | (132 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
||||||||||||
Depreciation and amortization of intangibles |
105,458 | 89,167 | 78,071 | |||||||||
Amortization of other assets |
4,456 | 7,487 | 4,758 | |||||||||
Provision (benefit) for deferred income taxes |
(25,694 | ) | (12,166 | ) | (6,173 | ) | ||||||
Provision for doubtful accounts |
2,237 | 1,996 | 1,911 | |||||||||
Non-cash inventory step-up amortization |
5,379 | 4,074 | | |||||||||
Stock-based compensation |
2,634 | 4,349 | 4,114 | |||||||||
Other, net |
3,292 | 2,601 | 1,286 | |||||||||
Change in operating assets and liabilities: |
||||||||||||
Accounts receivable |
7,401 | 5,134 | (47,363 | ) | ||||||||
Inventories |
(27,639 | ) | (32,170 | ) | (151,945 | ) | ||||||
Income tax receivable |
644 | 1,232 | 8,045 | |||||||||
Other current assets |
1,160 | (5,971 | ) | (1,729 | ) | |||||||
Accounts payable and accrued expenses |
29,466 | (38,107 | ) | 19,232 | ||||||||
Other, net |
(1,436 | ) | (3,353 | ) | (774 | ) | ||||||
|
|
|
|
|
|
|||||||
Net cash provided by (used in) operating activities |
100,982 | 10,072 | (90,699 | ) | ||||||||
|
|
|
|
|
|
|||||||
Cash flows from investing activities: |
||||||||||||
Acquisitions, net of cash acquired |
(77,017 | ) | (115,334 | ) | (59,694 | ) | ||||||
Purchase of property and equipment |
(47,127 | ) | (52,388 | ) | (31,044 | ) | ||||||
Purchase of assets held for sale |
(2,239 | ) | (3,939 | ) | (2,993 | ) | ||||||
Proceeds from sale of assets held for sale |
7,751 | 3,738 | 1,403 | |||||||||
Proceeds from sale of property and equipment |
197 | 102 | 79 | |||||||||
|
|
|
|
|
|
|||||||
Net cash provided by (used in) investing activities |
(118,435 | ) | (167,821 | ) | (92,249 | ) | ||||||
|
|
|
|
|
|
|||||||
Cash flows from financing activities: |
||||||||||||
Borrowings from revolving credit facility |
2,973,584 | 3,333,642 | 2,760,364 | |||||||||
Repayments of revolving credit facility |
(2,955,576 | ) | (3,217,298 | ) | (2,577,380 | ) | ||||||
Outstanding checks |
6,599 | (1,754 | ) | 9,981 | ||||||||
Payments of other long-term debt |
(503 | ) | (1,987 | ) | (822 | ) | ||||||
Payments of deferred financing costs |
(1,106 | ) | (3,779 | ) | (5,880 | ) | ||||||
Equity contribution |
| 60,000 | | |||||||||
|
|
|
|
|
|
|||||||
Net cash provided by (used in) financing activities |
22,998 | 168,824 | 186,263 | |||||||||
|
|
|
|
|
|
|||||||
Effect of exchange rate changes on cash |
(4,485 | ) | (57 | ) | | |||||||
|
|
|
|
|
|
|||||||
Net increase (decrease) in cash and cash equivalents |
1,060 | 11,018 | 3,315 | |||||||||
Cash and cash equivalentsbeginning of period |
34,700 | 23,682 | 20,367 | |||||||||
|
|
|
|
|
|
|||||||
Cash and cash equivalentsend of period |
$ | 35,760 | $ | 34,700 | $ | 23,682 | ||||||
|
|
|
|
|
|
|||||||
Supplemental disclosures of cash flow information: |
||||||||||||
Cash payments for interest |
$ | 68,179 | $ | 64,324 | $ | 61,732 | ||||||
Cash (receipts) payments for taxes, net |
$ | 23,740 | $ | 6,510 | $ | (8,101 | ) | |||||
Supplemental disclosures of noncash activities: |
||||||||||||
Capital expenditures financed by debt |
$ | 128 | $ | 515 | $ | |
See accompanying notes to consolidated financial statements.
F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Company:
ATD Corporation (also referred to herein as ATD Corp and formerly Accelerate Parent Corp.) is a Delaware corporation that indirectly owns 100% of the issued and outstanding capital stock of American Tire Distributors Holdings, Inc. (Holdings), a Delaware corporation. Holdings owns 100% of the issued and outstanding capital stock of American Tire Distributors, Inc. (ATDI), a Delaware corporation. ATD Corp has no significant assets or operations other than its ownership of ATDI. The operations of ATDI and its subsidiaries constitute the operations of ATD Corp presented under accounting principles generally accepted in the United States. Unless the context otherwise requires, Company herein refers to ATD Corp and its consolidated subsidiaries. In June 2014, the Company changed its name from Accelerate Parent Corp. to ATD Corporation. On May 28, 2010, pursuant to an Agreement and Plan of Merger, dated as of April 20, 2010, the Company was acquired by TPG Capital, L.P. (TPG or the Sponsor) and certain co-investors (the Merger).
The Company is primarily engaged in the wholesale distribution of tires, custom wheels and accessories, and related tire supplies and tools, representing 97.4% or $3,740.2 million, 2.0% or $76.3 million and 0.6% or $22.8 million, respectively, of our net sales. Operating as one operating and reportable segment through a network of 133 distribution centers, including three redistribution centers in the United States, the Company offers access to an extensive breadth and depth of inventory, representing approximately 40,000 stock-keeping units (SKUs) to approximately 72,000 customers (approximately 64,000 in the U.S. and 8,000 in Canada). The Companys customer base is comprised primarily of independent tire dealers with the remainder of other customers representing various national and corporate accounts. The Company serves a majority of the contiguous United States as well as Canada. During fiscal 2013, the Companys largest customer and top ten customers accounted for 3.1% and 10.9%, respectively, of its net sales.
The Companys fiscal year is based on either a 52- or 53-week period ending on the Saturday closest to each December 31. Therefore, the financial results of 53-week fiscal years will not be exactly comparable to the prior and subsequent 52-week fiscal years. The fiscal years ended December 28, 2013, December 29, 2012 and December 31, 2011 each contain operating results for 52 weeks. It should be noted that, prior to fiscal 2013, the Company and its TriCan Tire Distributors (TriCan) subsidiary had different year-end reporting dates. For fiscal 2012, TriCan had a calendar year-end reporting date of December 31. The impact from this difference on the consolidated financial statements was not material. TriCan converted to the Companys fiscal year reporting date during fiscal 2013.
2. Summary of Significant Accounting Policies:
A summary of significant accounting policies used in the preparation of the accompanying financial statements follows:
Basis of Preparation
The accompanying consolidated financial statements reflect the consolidated operations of the Company and have been prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) as defined by the Financial Accounting Standards Board (FASB) within the FASB Accounting Standards Codification (FASB ASC). In the opinion of management, the accompanying consolidated financial statements contain all adjustments, which include normal recurring adjustments, necessary to present fairly the consolidated results for the periods presented. Certain changes in classification of amounts reported in prior years have been made to conform to the 2013 classification.
F-10
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of ATD Corp and all of its subsidiaries that are more than 50% owned and controlled. Partially-owned investments represent 20-50% ownership interests in investments where the Company demonstrates significant influence, but does not have a controlling financial interest. Partially-owned investments are accounted for under the equity method. The Company does not have any investments that are accounted for under the cost method of accounting. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates are based on several factors including the facts and circumstances available at the time the estimates are made, historical experience, risk of loss, general economic conditions and trends, and the assessment of the probable future outcome. Estimates and assumptions are reviewed periodically, and the effects of changes, if any, are reflected in the statement of comprehensive income (loss) in the period that they are determined.
Foreign currency translation
All foreign currency denominated balance sheet accounts are translated at year end exchange rates and revenue and expense accounts are translated at weighted average rates of exchange prevailing during the year. Gains and losses resulting from the translation of foreign currency are recorded in the accumulated other comprehensive income (loss) component of stockholders equity. Transactional foreign currency gains and losses are included in other expense, net in the accompanying consolidated statements of comprehensive income (loss).
Cash and Cash Equivalents
The Company considers all deposits with an original maturity of three months or less and readily convertible cash to be cash equivalents in its consolidated financial statements. Outstanding checks are presented as a financing activity in the statement of cash flows because they are funded by drawing on the revolving credit facility as they are presented for payment.
Allowance for Doubtful Accounts
The allowance for doubtful accounts represents the best estimate of probable loss inherent within the Companys accounts receivable balance. Estimates are based upon both the creditworthiness of specific customers and the overall probability of losses based upon an analysis of the overall aging of receivables as well as past collection trends and general economic conditions.
Inventories
Inventories are stated at the lower of cost, determined on the first-in, first-out (FIFO) method, or fair market value and consist primarily of automotive tires, custom wheels, and related tire supply and tool products. The Company performs periodic assessments to determine the existence of obsolete, slow-moving and non-saleable inventories and records necessary provisions to reduce such inventories to net realizable value. A majority of the Companys tire vendors allow for the return of tire products, subject to certain limitations, specified in supply arrangements with the vendors.
F-11
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation. For financial reporting purposes, assets placed in service are recorded at cost and depreciated using the straight-line method at annual rates sufficient to amortize the cost of the assets less estimated salvage values over the assets estimated useful lives. Leasehold improvements are amortized over the shorter of their economic useful life or the related lease term. The range of useful lives used to depreciate property and equipment is as follows:
Buildings |
25 to 31 years | |||
Leasehold improvements |
2 to 10 years | |||
Machinery and equipment |
2 to 10 years | |||
Furniture and fixtures |
3 to 8 years | |||
Internal use software |
1 to 5 years | |||
Vehicles and other |
3 to 6 years |
Major expenditures for replacements and significant improvements that increase asset values and extend useful lives are capitalized. Repairs and maintenance expenditures that do not extend the useful life of the asset are charged to expense as incurred. The carrying amounts of assets that are sold or retired and the related accumulated depreciation are removed from the accounts in the year of disposal, and any resulting gain or loss is reflected in the statement of comprehensive income (loss).
The Company capitalizes costs, including interest, incurred to develop or acquire internal-use software. These costs are capitalized subsequent to the preliminary project stage once specific criteria are met. Costs incurred in the preliminary project planning stage are expensed. Other costs, such as maintenance and training, are also expensed as incurred. Capitalized costs are amortized over their estimated useful lives using the straight-line method.
The Company assesses the recoverability of the carrying value of its property and equipment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability is measured by a comparison of the carrying amount of an asset to the future net undiscounted cash flows expected to be generated by the asset. If the undiscounted cash flows are less than the carrying amount of the asset, an impairment loss is recognized for the amount by which the carrying value of the asset exceeds the fair value of the assets.
Goodwill and Intangible Assets
Goodwill and intangible assets with indefinite useful lives are tested and reviewed annually for impairment during the fourth quarter or whenever there is a significant change in events or circumstances that indicate that the fair value of the asset may be less than the carrying amount of the asset.
Recoverability of goodwill is measured at the reporting unit level and determined using a two step process. The first step compares the carrying amount of the reporting unit to its estimated fair value. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired and the second step of the impairment test is not necessary. To the extent that the carrying value of the reporting unit exceeds its estimated fair value, a second step is performed, wherein the reporting units carrying value of goodwill is compared to the implied fair value of goodwill. To the extent that the carrying value exceeds the implied fair value, impairment exists and must be recognized.
Recoverability of other indefinite-lived intangible assets is measured by a comparison of the carrying amount of the intangible assets to the estimated fair value of the respective intangible assets. Any excess of the carrying value over the estimated fair value is recognized as an impairment loss equal to that excess.
F-12
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Intangible assets such as customer-related intangible assets and noncompete agreements with finite useful lives are amortized on a straight-line or accelerated basis over their estimated economic lives. The weighted-average useful lives approximate the following:
Customer list |
16 to 19 years | |||
Tradenames |
1 to 7 years | |||
Noncompete agreements |
1 to 5 years | |||
Favorable leases |
4 to 6 years |
The Company assesses the recoverability of the carrying value of its intangible assets with finite useful lives whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability is measured by a comparison of the carrying amount of an asset to the future net undiscounted cash flows expected to be generated by the asset. If the undiscounted cash flows are less than the carrying amount of the asset, an impairment loss is recognized for the amount by which the carrying value of the asset exceeds the fair value of the assets.
Deferred Financing Costs
Deferred financing costs are expenditures associated with obtaining financings that are capitalized in the consolidated balance sheets and amortized over the term of the loans to which such costs relate. Amounts capitalized are recorded within other assets in the consolidated balance sheets and amortized to interest expense in the consolidated statements of comprehensive income (loss). At December 28, 2013, the unamortized balance of deferred financing costs was $16.3 million, which includes $1.1 million incurred to increase the borrowing capacity of the Companys Canadian ABL Facility and FILO Facility during fiscal 2013 (See Note 9 for additional information). At December 29, 2012, the unamortized balance of deferred financing costs was $19.7 million. Amortization for fiscal 2013, fiscal 2012 and fiscal 2011 was $4.5 million, $7.5 million and $4.8 million, respectively. Amortization for fiscal 2012 included $2.8 million related to the write-off of deferred financing costs associated with a lender that is not participating in the new syndication group.
Derivative Instruments and Hedging Activities
For derivative instruments, the Company applies FASB authoritative guidance which establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. This statement requires that changes in the derivatives fair value be recognized currently in earnings unless specific hedge accounting criteria are met and that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting treatment.
Self Insurance
The Company is self-insured with respect to employee health liability claims and maintains a large deductible program on both workers compensation and auto insurance. The Company has stop-loss insurance coverage for individual claims in excess of $0.3 million for employee health insurance and deductibles of $0.3 million on the workers compensation and auto on a per claim basis. Aggregate stop-loss limits for workers compensation and auto are $9.0 million. There is no aggregate stop-loss limit on employee health insurance. A reserve for liabilities associated with losses is established for claims filed and claims incurred but not yet reported using actuarial methods followed in the insurance industry as well as the Companys historical claims experience.
F-13
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue Recognition
Revenue is recognized and earned when all of the following criteria are satisfied: (a) persuasive evidence of a sales arrangement exists; (b) price is fixed or determinable; (c) collectability is reasonably assured; and (d) delivery has occurred or service has been rendered. The Company recognizes revenue when the title and the risks and rewards of ownership have substantially transferred to the customer, which is upon delivery under free on board (FOB) destination terms. The Company permits customers from time to time to return certain products, but there is no contractual right of return. The Company continuously monitors and tracks such returns and records an estimate of such future returns, which is based on historical experience and recent trends.
In the normal course of business, the Company extends credit, on open accounts, to its customers after performing a credit analysis based on a number of financial and other criteria. The Company performs ongoing credit evaluations of its customers financial condition and does not normally require collateral; however, letters of credit and other security are occasionally required for certain new and existing customers.
Customer Rebates
The Company offers rebates to its customers under a number of different programs. These rebates are recorded in accordance with the accounting standards for consideration given by a vendor to a customer. The majority of these programs provide for the customer to receive rebates, generally in the form of a reduction in the related accounts receivable balance, when certain measures are achieved, generally related to the volume of product purchased from the Company. These rebates are recorded as a reduction of the related price of the product, which reduces the amount of revenue recorded. Throughout the year, the amount of rebates is estimated based on the expected level of purchases to be made by customers that participate in the rebate programs. These estimates are periodically revised to reflect rebates earned by customers based on actual purchases made.
Manufacturer Rebates
The Company receives rebates from its vendors under a number of different programs. These rebates are recorded in accordance with the accounting standards for cash consideration received from a vendor. Many of the vendor programs provide for the Company to receive rebates when any of a number of measures are achieved, generally related to the volume of purchases. These rebates are accounted for as a reduction to the price of the product, which reduces the carrying value of our inventory, and our cost of goods sold when product is sold. Throughout the year, the amount recognized for annual rebates is based on purchases management considers probable for the full year. These estimates are continually revised to reflect rebates earned based on actual purchase levels.
Cooperative Advertising and Marketing Programs
The Company participates in cooperative advertising and marketing programs (co-op) with its vendors. Co-op funds are provided to the Company generally based on the volume of purchases made with vendors that offer such programs. A portion of the funds received must be used for specific advertising and marketing expenditures incurred by the Company or its customers. The co-op funds received by the Company from its vendors are accounted for in accordance with the accounting standards related to accounting for cash consideration received from a vendor, which requires that the Company record the funds received as a reduction of cost of sales or as an offset to specific costs incurred in selling the vendors products. The co-op funds that are provided to the Companys customers are accounted for in accordance with authoritative guidance related to accounting for cash consideration given by a vendor to a customer, which requires that the Company record the funds paid as a reduction of revenue since no separate identifiable benefit is received by the Company.
F-14
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Shipping and Handling Fees and Costs
In accordance with current accounting standards, the Company determined that shipping fees shall be reported on a gross basis. As a result, all amounts billed to a customer in a sale transaction related to shipping fees represent revenues earned for the goods provided and therefore recorded within net sales in the consolidated statement of comprehensive income (loss). Handling costs include expenses incurred to store, move, and prepare products for shipment. The Company classifies these costs as selling, general and administrative expenses within the consolidated statement of comprehensive income (loss), and includes a portion of internal costs such as salaries and overhead related to these activities. For fiscal 2013, 2012 and 2011, the Company incurred $213.8 million, $171.1 million and $140.8 million, respectively, related to these expenses.
Income Taxes
The Company records a tax provision for the anticipated tax consequences of the reported results of operations. The provision is computed using the asset and liability method of accounting, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In addition, the Company recognizes future tax benefits, such as net operating losses and tax credits, to the extent that realizing these benefits is considered in its judgment to be more likely than not. Deferred tax assets and liabilities are measured using currently enacted tax rates that apply to taxable income in effect for the years in which those tax items are expected to be realized or settled. The Company regularly reviews the recoverability of its deferred tax assets considering historic profitability, projected future taxable income, and timing of the reversals of existing temporary differences as well as the feasibility of our tax planning strategies. Where appropriate, a valuation allowance is recorded if available evidence suggests that it is more likely than not that some portion or all of a deferred tax asset will not be realized. Changes to valuation allowances are recognized in earnings in the period such determination is made.
The Company accounts for uncertain tax positions by recognizing the financial statement effects of a tax position only when, based upon the technical merits, it is more-likely-than-not that the position will be sustained upon examination. The tax impacts recognized in the financial statements from such positions are then measured based on the largest impact that has a greater than 50% likelihood of being realized upon settlement. The Company recognizes potential accrued interest and penalties associated with unrecognized tax positions as a component of the provision for income taxes.
Recent Accounting Pronouncements
In July 2012, the FASB issued Accounting Standards Update (ASU) No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment which amended the guidance on the annual impairment testing of indefinite-lived intangible assets other than goodwill. The amended guidance will allow a company the option to first assess qualitative factors to determine whether it is more-likely-than-not that the fair value of an indefinite-lived intangible asset is less than its carrying amount. If, based on the qualitative assessment, it is more-likely-than-not that the fair value of an indefinite-lived intangible asset is less than its carrying amount, quantitative impairment testing is required. However, if a company concludes otherwise, quantitative impairment testing is not required. This new guidance will be effective for fiscal years beginning after September 15, 2012, with early adoption permitted. The Company adopted this guidance on December 30, 2012 (the first day of its 2013 fiscal year); however, the Company performed its annual impairment test in the fourth quarter of 2013.
In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income which amended the guidance for reporting reclassifications out of accumulated other comprehensive income. The amended guidance requires an entity to report the effect of
F-15
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is entirely reclassified to net income, as required by U.S. GAAP. For other amounts, that are not required by U.S. GAAP to be entirely reclassified to net income, an entity is required to cross-reference other disclosures that will provide additional detail concerning these amounts. The amendments are effective for reporting periods beginning after December 15, 2012. The Company adopted this guidance on December 30, 2012 and its adoption did not have an effect on the Companys consolidated financial statements.
In July 2013, the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exits. ASU 2013-11 clarifies guidance and eliminates diversity in practice on the presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. This new guidance is effective for annual reporting periods beginning on or after December 15, 2013 and subsequent interim periods. The Company is currently assessing the impact, if any, on its consolidated financial statements.
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which provides guidance for revenue recognition. ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets and supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. This ASU also supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type Contracts. The standards core principle is that a company should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under todays guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 is effective for the Company beginning in fiscal year 2018 and, at that time the Company may adopt the new standard under the full retrospective method or the modified retrospective method. Early adoption is not permitted. The Company is currently evaluating the method and impact the adoption of ASU 2014-09 will have on the Companys consolidated financial statements and disclosures.
3. Acquisitions:
2013 Acquisitions
On December 13, 2013, TriCan entered into a Share Purchase Agreement with Wholesale Tire Distributors Inc., a corporation formed under the laws of the Province of Ontario (WTD), Allan Bishop, an individual resident in the Province of Ontario (Allan) and The Bishop Company Inc., a corporation formed under the laws of the Province of Ontario (BishopCo) (Allan and BishopCo each, a Seller and collectively, the Sellers), pursuant to which TriCan agreed to acquire from the Sellers all of the issued and outstanding shares of WTD. WTD operated two distribution centers serving over 2,300 customers. The acquisition of WTD strengthened the Companys market presence in the Southern Ontario region of Canada. The acquisition was completed on December 13, 2013 and was funded through cash on hand. The Company does not believe the acquisition of WTD is a material transaction, individually or when aggregated with the other non-material acquisition discussed herein, subject to the disclosures and supplemental pro forma information required by ASC 805Business Combinations. As a result, the information is not presented.
The acquisition of WTD was recorded using the acquisition method of accounting in accordance with the accounting guidance for business combinations and non-controlling interest. The purchase price has been
F-16
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
preliminarily allocated to assets acquired and liabilities assumed based on the estimated fair market value of such assets and liabilities at the date of acquisition. A majority of the net assets acquired relate to a customer list intangible asset, which had an acquisition date fair value of $4.4 million. The Company utilized the excess earnings method, a derivation of the income approach, to determine the fair value of the customer list intangible asset. The excess earnings method estimates the discounted net earnings attributable to the customer relationships that were acquired after considering items such as possible customer attrition. Based on the length and trend of projected cash flows, an estimated useful life of 16 years was determined. The length of the projected cash flow period was determined by how quickly the customer relationships attrit based on the Companys historical experience in renewing and extending similar customer relationships. The excess of the purchase price over the amounts allocated to identifiable assets and liabilities is included in goodwill, and amounted to $1.1 million. The premium in the purchase price paid for the acquisition of WTD reflects the anticipated realization of operational and cost synergies. As additional information is obtained about these assets and liabilities within the measurement period, the Company expects to refine its estimates of fair value to allocate the purchase price more accurately.
On August 30, 2013, the Company entered into a Stock Purchase Agreement with Tire Distributors, Inc. (TDI) to acquire 100% of the outstanding capital stock of TDI. TDI operated one distribution center serving over 1,700 customers across Maryland and northeastern Virginia. The acquisition was completed on August 30, 2013 and was funded through the Companys ABL Facility. The Company does not believe the acquisition of TDI is a material transaction, individually or when aggregated with the other non-material acquisition discussed herein, subject to the disclosures and supplemental pro forma information required by ASC 805Business Combinations. As a result, the information is not presented.
The acquisition of TDI was recorded using the acquisition method of accounting in accordance with the accounting guidance for business combinations and non-controlling interest. The purchase price has been allocated to assets acquired and liabilities assumed based on the estimated fair market value of such assets and liabilities at the date of acquisition. A majority of the net assets acquired relate to a customer list intangible asset, which had an acquisition date fair value of $3.4 million. The Company utilized the excess earnings method, a derivation of the income approach, to determine the fair value of the customer list intangible asset. The excess earnings method estimates the discounted net earnings attributable to the customer relationships that were acquired after considering items such as possible customer attrition. Based on the length and trend of projected cash flows, an estimated useful life of 16 years was determined. The length of the projected cash flow period was determined by how quickly the customer relationships attrit based on the Companys historical experience in renewing and extending similar customer relationships. The excess of the purchase price over the amounts allocated to identifiable assets and liabilities is included in goodwill, and amounted to $2.4 million. The premium in the purchase price paid for the acquisition of TDI reflects the anticipated realization of operational and cost synergies.
On March 22, 2013, TriCan and ATDI entered into a Share Purchase Agreement with Regional Tire Holdings Inc., a corporation formed under the laws of the Province of Ontario (Holdco), Regional Tire Distributors Inc. (RTD), a corporation formed under the laws of the Province of Ontario and a 100% owned subsidiary of Holdco, and the shareholders of Holdco, pursuant to which TriCan agreed to acquire from the shareholders of Holdco all of the issued and outstanding shares of Holdco for a purchase price of $62.5 million. Holdco has no significant assets or operations, other than its ownership of RTD. The operations of RTD constitute the operations of Holdco. RTD is a wholesale distributor of tires, tire parts, tire accessories and related equipment in the Ontario and Atlantic provinces of Canada. The acquisition of RTD significantly expanded the Companys presence in the Ontario and Atlantic Provinces of Canada and complements the Companys current operations in Canada.
F-17
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The acquisition of RTD was completed on April 30, 2013 for aggregate cash consideration of approximately $64.9 million (the Adjusted Purchase Price) which includes initial working capital adjustments. The acquisition of RTD was funded by borrowings under the Companys ABL Facility and FILO Facility, as more fully described in Note 9. The Adjusted Purchase Price was subject to certain post-closing adjustments, including, but not limited to, the finalization of working capital adjustments. Of the $64.9 million Adjusted Purchase Price, $6.3 million is held in escrow pending the resolution of the post-closing adjustments and other escrow release conditions in accordance with the terms of the purchase agreement and escrow agreement. During third quarter 2013, the Company and the shareholders of Holdco agreed on the post-closing working capital adjustments in accordance with the purchase agreement. This adjustment increased the Adjusted Purchase Price by $1.0 million to $65.9 million with a corresponding increase to goodwill of $1.0 million.
The acquisition of RTD was recorded using the acquisition method of accounting in accordance with current accounting guidance for business combinations and non-controlling interest. As a result, the Adjusted Purchase Price has been allocated to assets acquired and liabilities assumed based on the estimated fair market value of such assets and liabilities at the date of acquisition. The allocation of the Adjusted Purchase Price is a follows:
In thousands |
||||
Cash |
$ | 904 | ||
Accounts receivable |
10,093 | |||
Inventory |
21,685 | |||
Other current assets |
998 | |||
Property and equipment |
1,050 | |||
Intangible assets |
42,990 | |||
Other assets |
52 | |||
|
|
|||
Total assets acquired |
77,772 | |||
Debt |
| |||
Accounts payable |
7,817 | |||
Accrued and other liabilities |
12,740 | |||
Deferred income taxes |
11,692 | |||
|
|
|||
Total liabilities assumed |
32,249 | |||
Net assets acquired |
45,523 | |||
Goodwill |
20,375 | |||
|
|
|||
Purchase price |
$ | 65,898 | ||
|
|
The excess of the purchase price over the amounts allocated to identifiable assets and liabilities is included in goodwill, and amounted to $20.4 million. The premium in the purchase price paid for the acquisition of RTD primarily relates to growth opportunities from expanding the Companys distribution footprint into Eastern Canada and through operating synergies available via the consolidation of certain distribution centers in Eastern Canada.
Cash and cash equivalents, accounts receivable and accounts payable were stated at their historical carrying values, which approximate their fair value, given the short-term nature of these assets and liabilities. Inventory was recorded at fair value, based on computations which considered many factors including the estimated selling price of the inventory, the cost to dispose the inventory as well as the replacement cost of the inventory, where applicable.
F-18
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company recorded intangible assets based on their estimated fair value which consisted of the following:
In thousands |
Estimated |
Estimated |
||||||
Customer list |
16 years | $ | 40,720 | |||||
Tradenames |
5 years | 1,900 | ||||||
Favorable leases |
4 years | 370 | ||||||
|
|
|||||||
Total |
$ | 42,990 | ||||||
|
|
The Company determined the fair value of the intangible assets acquired based on a third-party valuation report. The independent third party valuation firm utilized the excess earnings method, a derivation of the income approach, to determine the fair value of the customer list intangible asset. The excess earnings method estimates the discounted net earnings attributable to the customer relationships that were acquired after considering items such as possible customer attrition. Based on the length and trend of projected cash flows, an estimated useful life of 16 years was determined. The length of the projected cash flow period was determined by how quickly the customer relationships attrit based on the Companys historical experience in renewing and extending similar customer relationships.
RTD contributed net sales of approximately $143.4 million to the Company for the period from May 1, 2013 to December 28, 2013. Net income contributed by RTD since the acquisition date was approximately $4.0 million which included non-cash amortization of the inventory step-up of $2.7 million and non-cash amortization expense on acquired intangible assets of $4.9 million.
2012 Acquisitions
On November 30, 2012, ATDI and ATD Acquisition Co. V Inc. (Canada Acquisition), a newly-formed direct 100% owned Canadian subsidiary of ATDI, entered into a Share Purchase Agreement with 1278104 Alberta Inc. (Seller), Triwest Trading (Canada) Ltd., a 100% owned subsidiary of Seller (Triwest) and certain shareholders of Seller pursuant to which Canada Acquisition agreed to acquire from Seller all of the issued and outstanding common shares of Triwest along with an outstanding loan owed to Seller by Triwest for approximately $97.5 million, subject to certain post-closing adjustments, including, but not limited to, working capital adjustments. Of the $97.5 million purchase price, $15.0 million is held in escrow pending the resolution of the post-closing adjustments and other escrow release conditions in accordance with the terms of the purchase agreement and escrow agreement. As a result of the acquisition, Triwest became a direct 100% owned subsidiary of Canada Acquisition. Triwest (dba: TriCan Tire Distributors, or TriCan) is a wholesale distributor of tires, tire parts, tire accessories and related equipment in Canada with distribution centers stretching across the country. The acquisition of TriCan expanded the Companys footprint and distribution services into Canada for the first time. During second quarter 2013, the Company and the Seller agreed on the post-closing working capital adjustment in accordance with the purchase agreement. This adjustment reduced the purchase price by $3.4 million to $94.1 million with a corresponding decrease to goodwill of $3.4 million.
F-19
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The acquisition of TriCan was completed on November 30, 2012 and funded through the Companys ABL Facility. The acquisition of TriCan was recorded using the acquisition method of accounting in accordance with current accounting guidance for business combinations and non-controlling interest. As a result, the total purchase price has been allocated to assets acquired and liabilities assumed based on the estimated fair market value of such assets and liabilities at the date of acquisition. The allocation of the purchase price is as follows:
In thousands |
||||
Cash |
$ | 1,344 | ||
Accounts receivable |
35,518 | |||
Inventory |
45,445 | |||
Other current assets |
495 | |||
Property and equipment |
1,191 | |||
Intangible assets |
49,940 | |||
Other assets |
755 | |||
|
|
|||
Total assets acquired |
134,688 | |||
Debt |
| |||
Accounts payable |
37,576 | |||
Accrued and other liabilities |
14,609 | |||
Deferred income taxes |
13,003 | |||
Other liabilities |
475 | |||
|
|
|||
Total liabilities assumed |
65,663 | |||
Net assets acquired |
69,025 | |||
Goodwill |
25,044 | |||
|
|
|||
Purchase price |
$ | 94,069 | ||
|
|
The excess of the purchase price over the amounts allocated to identifiable assets and liabilities is included in goodwill, and amounted to $25.0 million. The premium in the purchase price paid for the acquisition of TriCan primarily relates to growth opportunities from expanding the Companys distribution footprint into Canada.
Cash, and cash equivalents, accounts receivable and accounts payable were stated at their historical carrying values, which approximate their fair value, given the short-term nature of these assets and liabilities. Inventory was recorded at fair value, based on computations which considered many factors including the estimated selling price of the inventory, the cost to dispose the inventory as well as the replacement cost of the inventory, where applicable.
The Company recorded intangible assets based on their estimated fair value and consisted of the followings:
In thousands |
Estimated |
Estimated |
||||||
Customer list |
16 years | $ | 44,621 | |||||
Tradenames |
7 years | 4,958 | ||||||
Favorable leases |
6 years | 361 | ||||||
|
|
|||||||
Total |
$ | 49,940 | ||||||
|
|
F-20
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company determined the fair value of the intangible assets acquired based on a third-party valuation report. The independent third party valuation firm utilized the excess earnings method, a derivation of the income approach, to determine the fair value of the customer list intangible asset. The excess earnings method estimates the discounted net earnings attributable to the customer relationships that were acquired after considering items such as possible customer attrition. Based on the length and trend of projected cash flows, an estimated useful life of 16 years was determined. The length of the projected cash flow period was determined by how quickly the customer relationships attrit based on the Companys historical experience in renewing and extending similar customer relationships.
The following unaudited pro forma supplementary data for the fiscal years ended December 28, 2013, December 29, 2012 and December 31, 2011 gives effect to the acquisition of RTD as if it had occurred on January 1, 2012 (the first day of the Companys 2012 fiscal year) and gives effect to the acquisition of TriCan as if it had occurred on January 2, 2011 (the first day of the Companys 2011 fiscal year). The pro forma supplementary data is provided for informational purposes only and should not be construed to be indicative of the Companys results of operations had the TriCan and RTD acquisitions been consummated on the date assumed and does not project the Companys results of operations for any future date.
Pro Forma |
||||||||||||
In thousands |
Fiscal Year Ended December 28, 2013 |
Fiscal Year |
Fiscal Year |
|||||||||
Net sales |
$ | 3,873,469 | $ | 3,767,037 | $ | 3,234,331 | ||||||
Net income (loss) |
(9,026 | ) | (9,144 | ) | 5,347 | |||||||
Net income (loss) per sharebasic |
$ | (0.01 | ) | $ | (0.01 | ) | $ | 0.01 | ||||
Net income (loss) per sharediluted |
$ | (0.01 | ) | $ | (0.01 | ) | $ | 0.01 |
The pro forma supplementary data for the fiscal years ended December 28, 2013, December 29, 2012 and December 31, 2011 includes $1.9 million, $11.7 million and $5.9 million, respectively, as an adjustment to historical amortization expense as a result of acquired intangible assets.
On May 24, 2012, the Company entered into a Stock Purchase Agreement with Firestone of Denham Springs, Inc. d/b/a Consolidated Tire & Oil (CTO) to acquire 100% of the outstanding capital stock of CTO. CTO operated three distribution centers in Baton Rouge, Slidell and Lafayette, Louisiana serving over 500 customers. The acquisition was completed on May 24, 2012 and was funded through the Companys ABL Facility. The Company does not believe the acquisition of CTO is a material transaction subject to the disclosures and supplemental pro forma information required by ASC 805Business Combinations. As a result, the information is not presented.
The acquisition of CTO was recorded using the acquisition method of accounting in accordance with the accounting guidance for business combinations and non-controlling interest. The purchase price has been allocated to assets acquired and liabilities assumed based on the estimated fair market value of such assets and liabilities at the date of acquisition. A majority of the net assets acquired relate to a customer list intangible asset, which had an acquisition date fair value of $15.9 million. The Company determined the fair value of the intangible assets acquired based on a third-party valuation report. The independent third party valuation firm utilized the excess earnings method, a derivation of the income approach, to determine the fair value of the customer list intangible asset. The excess earnings method estimates the discounted net earnings attributable to the customer relationships that were acquired after considering items such as possible customer attrition. Based on the length and trend of projected cash flows, an estimated useful life of 16 years was determined. The length of the projected cash flow period was determined by how quickly the customer relationships attrit based on the Companys historical experience in renewing and extending similar customer relationships. The excess of the purchase price over the amounts allocated to identifiable assets and liabilities is included in goodwill, and amounted to $10.1 million. The premium in the purchase price paid for the acquisition of CTO reflects the anticipated realization of operational and cost synergies.
F-21
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2011 Acquisition
On April 15, 2011, the Company entered into a Stock Purchase Agreement with the Bowlus Service Company d/b/a North Central Tire (NCT) to acquire 100% of the outstanding capital stock of NCT. NCT operated three distribution centers in Canton, Ohio, Cincinnati, Ohio and Rochester, New York, serving over 2,700 customers. The acquisition was completed on April 29, 2011 and was funded through the Companys ABL Facility. The Company does not believe the acquisition of NCT is a material transaction subject to the disclosures and supplemental pro forma information required by ASC 805Business Combinations. As a result, the information is not presented.
The acquisition of NCT was recorded using the acquisition method of accounting in accordance with the accounting guidance for business combinations and non-controlling interest. The purchase price has been allocated to assets acquired and liabilities assumed based on the estimated fair market value of such assets and liabilities at the date of acquisition. A majority of the net assets acquired relates to a customer list intangible asset, which had an acquisition date fair value of $38.2 million. The Company determined the fair value of the intangible assets acquired based on a third-party valuation report. The independent third party valuation firm utilized the excess earnings method, a derivation of the income approach, to determine the fair value of the customer list intangible asset. The excess earnings method estimates the discounted net earnings attributable to the customer relationships that were acquired after considering items such as possible customer attrition. Based on the length and trend of projected cash flows, an estimated useful life of 19 years was determined. The length of the projected cash flow period was determined by how quickly the customer relationships attrit based on the Companys historical experience in renewing and extending similar customer relationships. The excess of the purchase price over the amounts allocated to identifiable assets and liabilities is included in goodwill, and amounted to $27.0 million. The premium in the purchase price paid for the acquisition of NCT reflects the anticipated realization of significant operational and cost synergies. The purchase of NCT expanded the Companys market position in Ohio and Western New York.
4. Inventories:
Inventories consist primarily of automotive tires, custom wheels, tire supplies and tools and are valued at the lower of cost, determined on the first-in, first-out (FIFO) method, or fair market value. The Company performs periodic assessments to determine the existence of obsolete, slow-moving and non-saleable inventories and records necessary provisions to reduce such inventories to net realizable value. A majority of the Companys tire vendors allow for the return of tire products, subject to certain limitations, specified in supply arrangements with the vendors. In addition, the Companys inventory is collateral under the ABL Facility and FILO Facility. See Note 9 for further information.
As a result of the TriCan, RTD, TDI and WTD acquisitions, the carrying value of the acquired inventory was increased by $6.3 million, $2.7 million, $0.2 million and $0.5 million, respectively, to adjust to estimated fair value in accordance with the accounting guidance for business combinations. The step-up in inventory value is amortized into cost of goods sold over the period of the Companys normal inventory turns, which approximates two months. Amortization of the inventory step-up included in cost of goods sold in the accompanying consolidated statements of comprehensive income (loss) for the fiscal years ended December 28, 2013 and December 29, 2012 was $5.4 million and $4.1 million, respectively.
5. Assets Held for Sale:
In accordance with current accounting standards, the Company classifies assets as held for sale in the period in which all held for sale criteria is met. Assets held for sale are reported at the lower of their carrying amount or fair value less cost to sell and are no longer depreciated. At December 28, 2013, assets held for sale
F-22
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
totaled $0.9 million, of which $0.5 million were residential properties that were acquired as part of employee relocation packages. The Company is actively marketing these properties and anticipates that they will be sold within a twelve-month period from the date in which they are classified as held for sale.
As part of the Am-Pac Tire Dist., Inc. (Am-Pac) acquisition in 2008, the Company acquired a distribution center in California which contained office space that served as Am-Pacs headquarters. The facility was used as a warehouse within the Companys distribution operations until its activities were absorbed into nearby existing locations during 2011. During the first quarter of 2013, the Company determined that the carrying value of the facility exceeded its fair value due to current market conditions. As a result, the Company recorded a $0.5 million adjustment related to the fair value of this facility. During the third quarter of 2013, the Company received $3.9 million in cash for the sale of this facility. The carrying value of the facility was $4.0 million. Accordingly, the Company has recognized a pre-tax loss on the sale of this facility of $0.1 million within the accompanying consolidated statement of comprehensive income (loss).
On February 1, 2012, the Company reacquired one of three facilities originally included in a sale-leaseback transaction completed in 2002 that had an initial lease term of 20 years, followed by two 10 year renewal options. The facility was used as a distribution center within the Companys operations until its activities were relocated to an expanded location during the second quarter of 2012. As a result, the Company classified the facility as held for sale during the third quarter of 2012 when the appropriate criteria was met. During the third quarter of 2013, the Company determined that the carrying value of this facility exceeded its fair value due to current market conditions. As a result, the Company recorded a $0.3 million adjustment related to the fair value of this facility which reduced the carrying value to $1.5 million. In October 2013, the Company received $1.5 million in cash for the sale of this facility.
During third quarter 2013, the Company classified a facility located in Georgia as held for sale. The facility was previously used as a distribution center within the Companys operations until its activities were relocated to an expanded facility. During the fourth quarter of 2013, the Company determined that the carrying value of this facility exceeded its fair value due to current market conditions. As a result, the Company recorded a $0.3 million adjustment related to the fair value of this facility. As of December 28, 2013, the carrying value of this facility was $0.4 million. The Company is actively marketing this property and anticipates that it will be sold within a twelve-month period.
6. Property and Equipment:
The following table represents the major classes of property and equipment at December 28, 2013 and December 29, 2012:
In thousands |
December 28, |
December 29, |
||||||
Land |
$ | 1,665 | $ | 2,108 | ||||
Buildings and leasehold improvements |
22,811 | 21,554 | ||||||
Machinery and equipment |
27,515 | 21,745 | ||||||
Furniture and fixtures |
46,459 | 39,863 | ||||||
Software |
117,607 | 88,021 | ||||||
Vehicles and other |
3,111 | 3,649 | ||||||
|
|
|
|
|||||
Total property and equipment |
219,168 | 176,940 | ||||||
LessAccumulated depreciation |
(71,312 | ) | (47,058 | ) | ||||
|
|
|
|
|||||
Property and equipment, net |
$ | 147,856 | $ | 129,882 | ||||
|
|
|
|
F-23
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Depreciation expense was $29.5 million for the fiscal year ended December 28, 2013, $23.1 million for the fiscal year ended December 29, 2012 and $16.5 million for the fiscal year ended December 31, 2011. Depreciation expense is classified in selling, general and administrative expense in the accompanying consolidated statements of comprehensive income (loss).
Included in the above table within Land and Buildings and leasehold improvements are assets under capital leases related to the sale and leaseback of two of the Companys owned facilities (see Note 9). The net book value of these assets at December 28, 2013 and December 29 2012 was $6.9 million and $7.2 million, respectively. Accumulated depreciation was $1.1 million and $0.8 million for the respective periods. Depreciation expense was $0.3 million, $0.2 million and $0.3 million for the fiscal years ended December 28, 2013, December 29, 2012 and December 31, 2011.
7. Goodwill:
The Company records as goodwill the excess of the purchase price over the fair value of the net assets acquired. Once the final valuation has been performed for each acquisition, adjustments may be recorded. Goodwill is tested and reviewed annually for impairment during the fourth quarter or whenever there is a significant change in events or circumstances that indicate that the fair value of the asset may be less than the carrying amount of the asset.
The changes in the carrying amount of goodwill are as follows:
In thousands |
December 28, |
December 29, |
||||||
Beginning balance |
$ | 483,143 | $ | 446,787 | ||||
Purchase accounting adjustments |
(1,349 | ) | | |||||
Acquisitions |
25,408 | 36,457 | ||||||
Currency translation |
(2,869 | ) | (101 | ) | ||||
|
|
|
|
|||||
Ending balance |
$ | 504,333 | $ | 483,143 | ||||
|
|
|
|
As of December 28, 2013, the Company has recorded goodwill of $504.3 million, of which approximately $26 million of net goodwill is deductible for income tax purposes in future periods. The balance primarily relates to the acquisition of the Company by TPG on May 28, 2010, in which $418.6 million was recorded as goodwill. The Company does not have any accumulated goodwill impairment losses.
On December 13, 2013, TriCan entered into a Share Purchase Agreement to acquire all of the issued and outstanding common shares of WTD. The acquisition was funded through cash on hand. The purchase price has been preliminarily allocated to assets acquired and liabilities assumed based on the estimated fair market value of such assets and liabilities at the date of acquisition. As a result, the Company recorded $1.1 million as goodwill. See Note 3 for additional information.
On August 30, 2013, the Company entered into a Stock Purchase Agreement to acquire 100% of the outstanding capital stock of TDI. The acquisition was funded through the Companys ABL Facility. The purchase price has been allocated to assets acquired and liabilities assumed based on the estimated fair market value of such assets and liabilities at the date of acquisition. During fourth quarter 2013, the Company finalized the post-closing working capital adjustments in accordance with the purchase agreement which increased goodwill by $0.5 million. In addition, the Company adjusted the fair market value of certain working capital items during fourth quarter 2013. These adjustments increased goodwill by $0.2 million to $2.4 million at December 28, 2013. See Note 3 for additional information.
F-24
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On April 30, 2013, TriCan completed the acquisition of RTD pursuant to a Share Purchase Agreement entered into on March 22, 2013. The acquisition was funded through the Companys ABL Facility and FILO Facility. The purchase price has been allocated to assets acquired and liabilities assumed based on the estimated fair market value of such assets and liabilities at the date of acquisition. During third quarter 2013, the Company finalized the post-closing working capital adjustments in accordance with the purchase agreement. This adjustment increased goodwill by $1.0 million to $20.4 million at December 28, 2013. See Note 3 for additional information.
In addition, the Company acquired the inventory and accounts receivable of a small Canadian distributor in February 2013. The purchase price was allocated to the assets acquired based on their estimated fair market value, which resulted in an increase to goodwill of $1.6 million.
On November 30, 2012, ATDI and Canada Acquisition entered into a Share Purchase Agreement to acquire all of the issued and outstanding common shares of TriCan. The acquisition was completed on November 30, 2012 and was funded through the Companys ABL Facility. The purchase price has been allocated to assets acquired and liabilities assumed based on the estimated fair market value of such assets and liabilities at the date of acquisition. During fiscal 2013, the Company finalized the post-closing working capital adjustments in accordance with the purchase agreement which decreased goodwill by $3.4 million. In addition, the Company adjusted the fair market value of certain working capital items during fiscal 2013. These adjustments increased goodwill by $1.4 million to $25.0 million at December 28, 2013. See Note 3 for additional information.
On May 24, 2012, the Company entered into a Stock Purchase Agreement to acquire 100% of the outstanding capital stock of CTO. The acquisition was completed on May 24, 2012 and was funded through the Companys ABL Facility. The purchase price has been allocated to assets acquired and liabilities assumed based on the estimated fair market value of such assets and liabilities at the date of acquisition. During fiscal 2013, the Company finalized the post-closing working capital adjustments in accordance with the purchase agreement. This adjustment increase goodwill by $0.6 million to $10.1 million at December 28, 2013. See Note 3 for additional information.
8. Intangible Assets:
Indefinite-lived intangible assets are tested and reviewed annually for impairment during the fourth quarter or whenever there is a significant change in events or circumstances that indicate that the fair value of the asset may be less than the carrying amount of the asset. All other intangible assets with finite lives are being amortized on a straight-line basis or accelerated basis over periods ranging from one to nineteen years.
The following table sets forth the gross amount and accumulated amortization of the Companys intangible assets at December 28, 2013 and December 29, 2012:
December 28, 2013 |
December 29, 2012 |
|||||||||||||||
In thousands |
Gross |
Accumulated |
Gross |
Accumulated |
||||||||||||
Customer lists |
$ | 677,062 | $ | 226,614 | $ | 632,589 | $ | 156,249 | ||||||||
Noncompete agreements |
12,007 | 6,400 | 7,898 | 2,841 | ||||||||||||
Favorable leases |
688 | 119 | 360 | 5 | ||||||||||||
Tradenames |
10,531 | 3,754 | 9,043 | 1,990 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total finite-lived intangible assets |
700,288 | 236,887 | 649,890 | 161,085 | ||||||||||||
Tradenames (indefinite-lived) |
249,893 | | 249,893 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total intangible assets |
$ | 950,181 | $ | 236,887 | $ | 899,783 | $ | 161,085 | ||||||||
|
|
|
|
|
|
|
|
F-25
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At December 28, 2013, the Company had $713.3 million of intangible assets. The balance primarily relates to the Merger on May 28, 2010, in which $781.3 million was recorded as intangible assets. As part of the preliminary purchase price allocation of WTD, the Company allocated $4.4 million to a finite-lived customer list intangible asset with a useful life of sixteen years. As part of the purchase price allocation of TDI, the Company allocated $3.4 million to a finite-lived customer list intangible asset with a useful life of sixteen years. As part of the purchase price allocation of RTD, the Company allocated $40.7 million to a finite-lived customer list intangible asset with a useful life of sixteen years, $1.9 million to a finite-lived tradename with a useful life of five years and $0.4 million to a finite-lived favorable leases intangible asset with a useful life of four years. As part of the purchase price allocation of TriCan, the Company allocated $44.6 million to a finite-lived customer list intangible asset with a useful life of sixteen years, $4.9 million to a finite-lived tradename with a useful life of seven years and $0.4 million to a finite-lived favorable leases intangible asset with a useful life of six years. In connection with the acquisition of CTO on May 24, 2012, the Company allocated $15.9 million to a finite-lived customer list intangible asset with a useful life of sixteen years. During 2011, the Company allocated $43.4 million to finite-lived intangible assets, including $38.2 million associated with a customer list as well as $5.2 million associated with a noncompete agreement, in connection with the acquisition of NCT. These intangible assets had a useful life of nineteen years and five years, respectively. See Note 3 for additional information.
Amortization of intangible assets was $76.2 million in fiscal 2013, $66.2 million in fiscal 2012 and $61.8 million in fiscal 2011. Estimated amortization expense on existing intangible assets is expected to approximate $73.2 million in 2014, $62.7 million in 2015, $52.9 million in 2016, $46.2 million in 2017 and $39.6 million in 2018.
9. Long-term Debt:
The following table presents the Companys long-term debt at December 28, 2013 and at December 29, 2012:
In thousands |
December 28, |
December 29, |
||||||
U.S. ABL Facility |
$ | 417,066 | $ | 478,616 | ||||
Canadian ABL Facility |
36,424 | 10,976 | ||||||
FILO Facility |
51,863 | | ||||||
Senior Subordinated Notes |
200,000 | 200,000 | ||||||
Senior Secured Notes |
248,219 | 247,802 | ||||||
Capital lease obligations |
12,330 | 12,469 | ||||||
Other |
1,098 | 1,341 | ||||||
|
|
|
|
|||||
Total debt |
967,000 | 951,204 | ||||||
LessCurrent maturities |
(564 | ) | (493 | ) | ||||
|
|
|
|
|||||
Long-term debt |
$ | 966,436 | $ | 950,711 | ||||
|
|
|
|
The fair value of the Senior Secured Notes was $265.0 million at December 28, 2013 and December 29, 2012 and is based upon quoted market values (Level 1). The fair value of the Senior Subordinated Notes was $212.0 million at December 28, 2013 and December 29, 2012 and is based upon quoted prices for similar liabilities (Level 2).
F-26
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Aggregate maturities of long-term debt at December 28, 2013, are as follows:
In thousands |
||||
2014 |
$ | 564 | ||
2015 |
507 | |||
2016 |
554 | |||
2017 |
754,183 | |||
2018 |
200,595 | |||
Thereafter |
10,597 | |||
|
|
|||
Total |
$ | 967,000 | ||
|
|
ABL Facility
See Note 18 regarding recent amendment to the Sixth Amended and Restated Credit Agreement.
Our Sixth Amended and Restated Credit Agreement (as amended, our Credit Agreement) provides for (i) U.S. revolving credit commitments of $850.0 million (of which up to $50.0 million can be utilized in the form of commercial and standby letters of credit), subject to U.S. borrowing base availability (the U.S. ABL Facility) and (ii) Canadian revolving credit commitments of $100.0 million (of which up to $10.0 million can be utilized in the form of commercial and standby letters of credit), subject to Canadian borrowing base availability (the Canadian ABL Facility and, collectively with the U.S. ABL Facility, the ABL Facility). In addition, the Credit Agreement provides the U.S. borrowers under the agreement with a first-in last-out facility (the FILO Facility) in an aggregate principal amount of up to $60.0 million, subject to a borrowing base specific thereto. The U.S. ABL Facility provides for revolving loans available to ATDI, its 100% owned subsidiary Am-Pac Tire Dist. Inc. and any other U.S. subsidiary that the Company designates in the future in accordance with the terms of the agreement. The Canadian ABL Facility provides for revolving loans available to TriCan, RTD and WTD and any other Canadian subsidiaries that the Company designates in the future in accordance with the terms of the agreement. Provided that no default or event of default then exists or would arise therefrom, the Company has the option to request that the ABL Facility be increased by an amount not to exceed $200.0 million (up to $50.0 million of which may be allocated to the Canadian ABL Facility), subject to certain rights of the administrative agent, swingline lender and issuing banks with respect to the lenders providing commitments for such increase. The maturity date for the ABL Facility is November 16, 2017, provided that if on March 1, 2017, either (i) more than $50.0 million in aggregate principal amount of ATDIs Senior Secured Notes remains outstanding or (ii) any principal amount of ATDIs Senior Secured Notes remains outstanding with a scheduled maturity date which is earlier than 91 days after November 16, 2017 and excess availability under the ABL Facility is less than 12.5% of the aggregate revolving commitments, then the maturity date will be March 1, 2017. The maturity date for the FILO Facility is October 30, 2014. See Note 18 for additional information regarding the amendment to the FILO Facility and the new maturity date.
At December 28, 2013, the Company had $417.1 million outstanding under the U.S. ABL Facility. In addition, the Company had certain letters of credit outstanding in the aggregate amount of $8.1 million, leaving $236.1 million available for additional borrowings under the U.S. ABL Facility. The outstanding balance of the Canadian ABL Facility at December 28, 2013 was $36.4 million, leaving $41.2 million available for additional borrowings. As of December 28, 2013, the outstanding balance of the FILO Facility was $51.9 million and was classified as long-term debt on the consolidated balance sheet as the FILO Facility was refinanced on a long-term basis on January 31, 2014. See Note 18 for additional information.
Borrowings under the U.S. ABL Facility bear interest at a rate per annum equal to, at the Companys option, either (a) an Adjusted LIBOR rate determined by reference to LIBOR, adjusted for statutory reserve
F-27
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
requirements, plus an applicable margin of 2.0% as of December 28, 2013 or (b) a base rate determined by reference to the highest of (1) the prime commercial lending rate published by the Bank of America, N.A. as its prime rate for commercial loans, (2) the federal funds effective rate plus 1⁄2 of 1% and (3) the one month-Adjusted LIBOR rate plus 1.0% per annum, plus an applicable margin of 1.0% as of December 28, 2013. The applicable margins under the U.S. ABL Facility are subject to step ups and step downs based on average excess borrowing availability under the ABL Facility.
Borrowings under the Canadian ABL Facility bear interest at a rate per annum equal to either (a) a Canadian base rate determined by reference to the highest of (1) the base rate as published by Bank of America, N.A. (acting through its Canada branch) as its base rate, (2) the federal funds rate effective plus 1⁄2 of 1% per annum and (3) the one month-LIBOR rate plus 1.0% per annum, plus an applicable margin of 1.0% as of December 28, 2013 or (b) a Canadian prime rate determined by reference to the highest of (1) the prime rate as published by Bank of America, N.A. (acting through its Canada branch) as its prime rate, (2) the sum of 1⁄2 of 1% plus the Canadian overnight rate and (3) the sum of 1% plus the rate of interest per annum equal to the average rate applicable to Canadian Dollar bankers acceptances as published by Reuters Monitor Money Rates Service for a 30 day interest period, plus an applicable margin of 1.0% as of December 28, 2013. The applicable margins under the Canadian ABL Facility are subject to step ups and step downs based on average excess borrowing availability under the ABL Facility.
Borrowings under the FILO Facility bear interest at a rate per annum equal to, at the Companys option, either (a) an Adjusted LIBOR rate determined by reference to LIBOR, adjusted for statutory reserve requirements, plus an applicable margin of 3.5% as of December 28, 2013 or (b) a base rate determined by reference to the highest of (1) the prime commercial lending rate published by the Bank of America, N.A. as its prime rate for commercial loans, (2) the federal funds effective rate plus 1⁄2 of 1% and (3) the one month-Adjusted LIBOR rate plus 1.0% per annum, plus an applicable margin of 2.5% as of December 28, 2013. The applicable margins under the FILO Facility are subject to step ups and step downs based on average excess borrowing availability under the ABL Facility.
The U.S. and Canadian borrowing base at any time equals the sum (subject to certain reserves and other adjustments) of:
| 85% of eligible accounts receivable of the U.S. or Canadian loan parties, as applicable; plus |
| The lesser of (a) 70% of the lesser of cost or fair market value of eligible tire inventory of the U.S. or Canadian loan parties, as applicable, and (b) 85% of the net orderly liquidation value of eligible tire inventory of the U.S. or Canadian loan parties, as applicable; plus |
| The lesser of (a) 50% of the lower of cost or market value of eligible non-tire inventory of the U.S. or Canadian loan parties, as applicable, and (b) 85% of the net orderly liquidation value of eligible non-tire inventory of the U.S. or Canadian loan parties, applicable. |
The FILO borrowing base at any time equals the sum (subject to certain reserves and other adjustments) of:
| 5% of eligible accounts receivable of the U.S. loan parties, as applicable; plus |
| 7.5% of the net orderly liquidation value of the eligible tire and non-tire inventory of the U.S. loan parties, as applicable. |
F-28
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All obligations under the U.S. ABL Facility and the FILO Facility are unconditionally guaranteed by Holdings and substantially all of ATDIs existing and future, direct and indirect, wholly-owned domestic material restricted subsidiaries, other than Tire Pros Francorp and TDI. The Canadian ABL Facility is unconditionally guaranteed by the U.S. loan parties, TriCan, RTD, WTD and any future, direct and indirect, wholly-owned, material restricted Canadian subsidiaries. Obligations under the U.S. ABL Facility and the FILO Facility are secured by a first-priority lien on inventory, accounts receivable and related assets and a second-priority lien on substantially all other assets of the U.S. loan parties, subject to certain exceptions. Obligations under the Canadian ABL Facility are secured by a first-priority lien on inventory, accounts receivable and related assets and a second-priority lien on substantially all other assets of the U.S. loan parties and the Canadian loan parties, subject to certain exceptions.
The ABL Facility and the FILO Facility contain customary covenants, including covenants that restricts the Companys ability to incur additional debt, grant liens, enter into guarantees, enter into certain mergers, make certain loans and investments, dispose of assets, prepay certain debt, declare dividends, modify certain material agreements, enter into transactions with affiliates or change the Companys fiscal year. The terms of the ABL Facility and FILO Facility generally restrict distributions or the payment of dividends in respect of our stock subject to certain exceptions requiring compliance with certain availability levels and fixed charge coverage ratios under the ABL Facility and other customary negotiated exceptions. As of December 28, 2013, the Company was in compliance with these covenants. If the amount available for additional borrowings under the ABL Facility is less than the greater of (a) 10.0% of the lesser of (x) the aggregate commitments under the ABL Facility and (y) the aggregate borrowing base and (b) $25.0 million, then the Company would be subject to an additional covenant requiring them to meet a fixed charge coverage ratio of 1.0 to 1.0. As of December 28, 2013, the Companys additional borrowing availability under the ABL Facility was above the required amount and the Company was therefore not subject to the additional covenants.
Senior Secured Notes
On May 28, 2010, ATDI issued Senior Secured Notes (Senior Secured Notes) due June 1, 2017 in an aggregate principal amount at maturity of $250.0 million. The Senior Secured Notes were issued at a discount from their principal amount at maturity and generated net proceeds of approximately $240.7 million after debt issuance costs (which represents a non-cash financing activity of $9.3 million). The Senior Secured Notes will accrete based on an effective interest rate of 10% to an aggregate accreted value of $250.0 million, the full principal amount at maturity. The Senior Secured Notes bear interest at a fixed rate of 9.75% per annum. Interest on the Senior Secured Notes is payable semi-annually in arrears on June 1 and December 1 of each year, commencing on December 1, 2010. The Senior Secured Notes may be redeemed at any time at the option of ATDI, in whole or in part, upon not less than 30 nor more than 60 days notice at a redemption price of 107.313% of the principal amount if the redemption date occurs between June 1, 2013 and May 31, 2014, 104.875% of the principal amount if the redemption date occurs between June 1, 2014 and May 31, 2015, 102.438% of the principal amount if the redemption date occurs between June 1, 2015 and May 31, 2016 and 100.0% of the principal amount if the redemption date occurs between June 1, 2016 and May 31, 2017.
The Senior Secured Notes are unconditionally guaranteed by Holdings and substantially all of ATDIs existing and future, direct and indirect, wholly-owned domestic material restricted subsidiaries, other than Tire Pros Francorp and TDI, subject to certain exceptions. The Senior Secured Notes are also collateralized by a second-priority lien on accounts receivable and related assets and a first-priority lien on substantially all other assets (other than inventory), in each case of Holdings, ATDI and the guarantor subsidiaries, subject to certain exceptions.
The indenture governing the Senior Secured Notes contains covenants that, among other things, limits ATDIs ability and the ability of its restricted subsidiaries to incur additional debt or issue preferred stock; pay
F-29
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
certain dividends or make certain distributions in respect of ATDIs or repurchase or redeem ATDIs capital stock; make certain loans, investments or other restricted payments; place restrictions on the ability of ATDIs subsidiaries to pay dividends or make other payments to ATDI; engage in transactions with stockholders or affiliates; transfer or sell certain assets; guarantee indebtedness or incur other contingent obligations; incur certain liens; consolidate, merge or sell all or substantially all of ATDIs assets; enter into certain transactions with ATDIs affiliates; and designate ATDIs subsidiaries as unrestricted subsidiaries. As of December 28, 2013, the Company was in compliance with these covenants.
Senior Subordinated Notes
See Note 18 regarding a recent amendment to the Senior Subordinated Indenture and the issuance of additional Senior Subordinated Notes.
On May 28, 2010, ATDI issued Senior Subordinated Notes due June 1, 2018 (Senior Subordinated Notes) in an aggregate principal amount of $200.0 million. The Senior Subordinated Notes bear interest at a fixed rate of 11.50% per annum. Interest on the Senior Subordinated Notes is payable semi-annually in arrears on June 1 and December 1 of each year, commencing on December 1, 2010. The Senior Subordinated Notes may be redeemed at any time at the option of ATDI, in whole or in part, upon not less than 30 nor more than 60 days notice at a redemption price of 104.0% of the principal amount if the redemption date occurs between June 1, 2013 and May 31, 2014, 102.0% of the principal amount if the redemption date occurs between June 1, 2014 and May 31, 2015 and 100.0% of the principal amount if the redemption date occurs between June 1, 2015 and May 31, 2016.
The Senior Subordinated Notes are unconditionally guaranteed by Holdings and substantially all of ATDIs existing and future, direct and indirect, wholly-owned domestic material restricted subsidiaries, other than Tire Pros Francorp and TDI, subject to certain exceptions.
The indenture governing the Senior Subordinated Notes contains covenants that, among other things, limits ATDIs ability and the ability of its restricted subsidiaries to incur additional debt or issue preferred stock; pay certain dividends or make certain distributions in respect of ATDIs or repurchase or redeem ATDIs capital stock; make certain loans, investments or other restricted payments; place restrictions on the ability of ATDIs subsidiaries to pay dividends or make other payments to ATDI; engage in transactions with stockholders or affiliates; transfer or sell certain assets; guarantee indebtedness or incur other contingent obligations; incur certain liens without securing the Senior Subordinated Notes; consolidate, merge or sell all or substantially all of ATDIs assets; enter into certain transactions with ATDIs affiliates; and designate ATDIs subsidiaries as unrestricted subsidiaries. The terms of the Senior Subordinated Notes generally restrict distributions or the payment of dividends in respect of our stock subject to certain exceptions such as the amount of 50% of net income (reduced by 100% of net losses) for the period beginning April 4, 2010 and other customary negotiated exceptions. As of December 28, 2013, the Company was in compliance with these covenants.
Capital Lease Obligations
At December 31, 2011, the Company had a capital lease obligation of $14.1 million, which related to the 2002 sale and subsequent leaseback of three of its owned facilities. Due to continuing involvement with the properties, the Company accounted for the transaction as a direct financing lease and recorded the cash received as a financing obligation. The transaction had an initial lease term of 20 years, followed by two 10 year renewal options. No gain or loss was recognized as a result of the initial sales transaction.
On February 1, 2012, the Company reacquired one of the three facilities included in the 2002 sale-leaseback transaction for $1.5 million. Accordingly, the original lease was amended to extend the lease term on
F-30
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the two remaining facilities by 5 years as well as to adjust the future lease payments over the remaining 15 years. Per current accounting guidance, the change in the debt terms was not considered substantial. As a result, the Company treated the amendment as a debt modification for accounting purposes and therefore, reduced the financing obligation by the purchase price. Cash payments to the lessor are allocated between interest expense and amortization of the financing obligation. At the end of the lease term, the Company will recognize the sale of the remaining facilities; however, no gain or loss will be recognized as the financing obligation will equal the expected carrying value of the facilities. At December 28, 2013, the outstanding balance of the financing obligation was $12.2 million.
10. Derivative Instruments:
In the normal course of business, the Company is exposed to the risk associated with exposure to fluctuations in interest rates on its variable rate debt. These fluctuations can increase the cost of financing, investing and operating the business. The Company has used derivative financial instruments to help manage this risk and reduce the impacts of these exposures and not for trading or other speculative purposes. All derivatives are recognized on the consolidated balance sheet at their fair value as either assets or liabilities. Changes in the fair value of contracts that qualify for hedge accounting treatment are recorded in accumulated other comprehensive income (loss), net of taxes, and are recognized in net income (loss) in the statement of comprehensive income (loss) at the time earnings are affected by the hedged transaction. For other derivatives, changes in the fair value of the contract are recognized immediately in net income (loss) in the statement of comprehensive income (loss).
On September 4, 2013, the Company entered into a spot interest rate swap and two forward-starting interest rate swaps (collectively the 3Q 2013 Swaps) each of which are used to hedge a portion of the Companys exposure to changes in its variable interest rate debt. The spot interest rate swap in place covers a notional amount of $100.0 million at a fixed interest rate of 1.145% and expires in September 2016. The forward-starting interest rate swaps in place cover an aggregate notional amount of $100.0 million, of which $50.0 million becomes effective in September 2014 at a fixed interest rate of 1.464% and will expire in September 2016 and $50.0 million becomes effective in September 2015 at a fixed interest rate of 1.942% and will expire in September 2016. The counterparty to each swap is a major financial institution. The 3Q 2013 Swaps do not meet the criteria to qualify for hedge accounting treatment; therefore, changes in the fair value of each contract is recognized in net income (loss) in the consolidated statement of comprehensive income (loss).
On August 1, 2012, the Company entered into two interest rate swap agreements (3Q 2012 Swaps) used to hedge a portion of the Companys exposure to changes in its variable interest rate debt. The swaps in place cover an aggregate notional amount of $100.00 million, with each $50.0 million contract having a fixed rate of 0.655% and expiring in June 2016. The counterparty to each swap is a major financial institution. The 3Q 2012 Swaps do not meet the criteria to qualify for hedge accounting treatment; therefore, changes in the fair value of each contract is recognized in net income (loss) in the consolidated statement of comprehensive income (loss).
On September 23, 2011, the Company entered into two interest rate swap agreements (3Q 2011 Swaps) used to hedge a portion of the Companys exposure to changes in its variable interest rate debt. The swaps in place cover an aggregate notional amount of $100.0 million, of which $50.0 million is at a fixed rate of 0.74% and will expire in September 2014 and $50.0 million is at a fixed rate of 1.0% and will expire in September 2015. The counterpart to each swap is a major financial institution. The 3Q 2011 Swaps do not meet the criteria to qualify for hedge accounting treatment; therefore, changes in the fair value of each contract is recognized in net income (loss) in the consolidated statement of comprehensive income (loss).
F-31
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On February 24, 2011, the Company entered into two interest rate swap agreements (1Q 2011 Swaps) used to hedge a portion of the Companys exposure to changes in its variable interest rate debt. The swaps in place covered an aggregate notional amount of $75.0 million, of which $25.0 million was at a fixed interest rate of 0.585% and expired in February 2012. The remaining swap covered an aggregate notional amount of $50.0 million at a fixed interest rate of 1.105% and expired in February 2013. The counterparty to each swap was a major financial institution. Neither swap met the criteria to qualify for hedge accounting treatment; therefore, changes in the fair value of each contract were recognized in net income (loss) in the consolidated statement of comprehensive income (loss).
The following table presents the fair values of the Companys derivative instruments included within the consolidated balance sheets as of December 28, 2013 and December 29, 2012:
Liability Derivatives |
||||||||||||
In thousands |
Balance Sheet |
December 28, |
December 29, |
|||||||||
Derivatives not designated as hedges: |
||||||||||||
1Q 2011 swap$50 million notional |
Accrued expenses | $ | | $ | 149 | |||||||
3Q 2011 swaps$100 million notional |
Accrued expenses | 792 | 1,314 | |||||||||
3Q 2012 swaps$100 million notional |
Accrued expenses | 280 | 750 | |||||||||
3Q 2013 swaps$200 million notional |
Accrued expenses | 1,880 | | |||||||||
|
|
|
|
|||||||||
Total |
$ | 2,952 | $ | 2,213 | ||||||||
|
|
|
|
The pre-tax effect of the Companys derivative instruments on the consolidated statement of comprehensive income (loss) was as follows:
(Gain) Loss Recognized |
||||||||||||||||
In thousands |
Location of |
Fiscal Year |
Fiscal Year |
Fiscal Year |
||||||||||||
Derivatives not designated as hedges: |
||||||||||||||||
1Q 2011 swap$50 million notional |
Interest Expense | $ | (149 | ) | $ | (154 | ) | $ | 303 | |||||||
1Q 2011 swap$25 million notional |
Interest Expense | | (12 | ) | 12 | |||||||||||
3Q 2011 swaps$100 million notional |
Interest Expense | (522 | ) | 764 | 551 | |||||||||||
3Q 2012 swaps$100 million notional |
Interest Expense | (470 | ) | 750 | | |||||||||||
3Q 2013 swaps$200 million notional |
Interest Expense | 1,880 | | | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total |
$ | 739 | $ | 1,348 | $ | 866 | ||||||||||
|
|
|
|
|
|
11. Fair Value of Financial Instruments:
The accounting standard for fair value measurements establishes a framework for measuring fair value that is based on the inputs market participants use to determine the fair value of an asset or liability and establishes a fair value hierarchy to prioritize those inputs. The fair value hierarchy is comprised of three levels that are described below:
| Level 1Inputs based on quoted prices in active markets for identical assets or liabilities. |
| Level 2Inputs other than Level 1 quoted prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. |
F-32
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| Level 3Unobservable inputs based on little or no market activity and that are significant to the fair value of the assets and liabilities, therefore requiring an entity to develop its own assumptions. |
The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs are obtained from independent sources and can be validated by a third party, whereas unobservable inputs reflect assumptions regarding what a third party would use in pricing an asset or liability based on the best information available under the circumstances. A financial instruments categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The following table presents the fair value and hierarchy levels for the Companys assets and liabilities, which are measured at fair value on a recurring basis as of December 28, 2013:
Fair Value Measurements |
||||||||||||||||
In thousands |
Total |
Level 1 |
Level 2 |
Level 3 |
||||||||||||
Assets: |
||||||||||||||||
Benefit trust assets |
$ | 3,412 | $ | 3,412 | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 3,412 | $ | 3,412 | $ | | $ | | ||||||||
Liabilities: |
||||||||||||||||
Derivative instruments |
$ | 2,952 | $ | | $ | 2,952 | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 2,952 | $ | | $ | 2,952 | $ | | ||||||||
|
|
|
|
|
|
|
|
ASC 820Fair Value Measurements and Disclosures defines fair value as the exchange price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company determines fair value of its financial assets and liabilities using the following methodologies:
| Benefit trust assetsThese assets include money market and mutual funds that are the underlying for deferred compensation plan assets, held in a rabbi trust. The fair value of the assets is based on observable market prices quoted in readily accessible and observable markets. |
| Derivative instrumentsThese instruments consist of interest rate swaps. The fair value is based upon quoted prices for similar instruments from a financial institution that is counterparty to the transaction. |
The fair values of cash and cash equivalents, restricted cash, accounts receivable and accounts payable approximate their carrying values due to the short-term nature of these instruments. The methodologies used by the Company to determine the fair value of its financial assets and liabilities on a recurring basis at December 28, 2013 are the same as those used at December 29, 2012. As a result, there have been no transfers between Level 1and Level 2 categories.
12. Employee Benefits:
The Company accounts for stock-based compensation awards in accordance with ASC 718Compensation, which requires a fair-value based method for measuring the value of stock-based compensation. Fair value is measured once at the date of grant and is not adjusted for subsequent changes. The Companys stock-based compensation plans include programs for stock options and restricted stock units.
F-33
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock Options
In August 2010, the Company adopted a Management Equity Incentive Plan (the 2010 Plan), pursuant to which the Company will grant options to selected employees and directors of the Company. The 2010 Plan, which includes both time-based and performance-based awards, was amended on February 15, 2013 by the board of directors of the Company to increase the maximum number of shares of common stock for which stock options may be granted under the 2010 Plan, from 48.6 million to 52.1 million. In addition to the increase in the maximum number of shares, on February 15, 2013 the board of directors of the Company approved the issuance of stock options to certain members of management. The approved options are for the purchase of up to 3.5 million shares of common stock, have an exercise price of $1.20 per share, and vest over a three to five-year vesting period. As of December 28, 2013, the Company has 2.5 million shares available for future incentive awards. See Note 18 regarding a recent amendment to the 2010 Plan and the issuance of stock options subsequent to the year ended December 28, 2013.
Changes in options outstanding under the 2010 Plan are as follows:
Options |
Weighted |
Options |
Weighted |
|||||||||||||
January 1, 2011 |
44,448,000 | 1.00 | | | ||||||||||||
Granted |
1,900,000 | 1.00 | n/a | n/a | ||||||||||||
Cancelled |
(1,749,600 | ) | 1.00 | n/a | n/a | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
December 31, 2011 |
44,598,400 | $ | 1.00 | 8,710,401 | $ | 1.00 | ||||||||||
Granted |
2,277,600 | 1.14 | n/a | n/a | ||||||||||||
Exercised |
(38,000 | ) | 1.00 | n/a | n/a | |||||||||||
Cancelled |
(156,400 | ) | 1.00 | n/a | n/a | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
December 29, 2012 |
46,681,600 | $ | 1.01 | 17,594,936 | $ | 1.00 | ||||||||||
Granted |
3,500,002 | 1.20 | n/a | n/a | ||||||||||||
Exercised |
| | n/a | n/a | ||||||||||||
Cancelled |
(665,099 | ) | 1.01 | n/a | n/a | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
December 28, 2013 |
49,516,503 | $ | 1.02 | 27,794,844 | $ | 1.01 | ||||||||||
|
|
|
|
|
|
|
|
As of December 28, 2013, the aggregate intrinsic value of options outstanding and options exercisable was $23.7 million and $13.6 million, respectively. The aggregate intrinsic value is based on the estimated fair value of the Companys common stock of $1.50 as of December 28, 2013. The total intrinsic value of options exercised during the year ended December 29, 2012 was less than $0.1 million. No options were exercised during the years ended December 28, 2013 and December 31, 2011. The total fair value of shares vested during the years ended December 28, 2013, December 29, 2012 and December 31, 2011 was $5.2 million, $4.1 million and $3.9 million, respectively.
Options granted under the 2010 Plan expire no later than 10 years from the date of grant and vest based on the passage of time and/or the achievement of certain performance targets in equal installments over three or five years. The weighted-average remaining contractual term for options outstanding and exercisable at December 28, 2013 was 6.9 years and 6.8 years, respectively. The fair value of each of the Companys time-based stock option awards is expensed on a straight-line basis over the requisite service period, which is generally the three or five-year vesting period of the options. However, for options granted with performance target requirements, compensation expense is recognized when it is probable that both the performance target will be achieved and the requisite service period is satisfied. At December 28, 2013 unrecognized compensation expense related to non-vested options granted under the 2010 Plan totaled $7.6 million and the weighted-average period over which this expense will be recognized is 1.3 years.
F-34
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The weighted average fair value of the stock options granted during the fiscal years ended December 28, 2013, December 29, 2012 and December 31, 2011 was $0.54, $0.50 and $0.44, respectively, using the Black-Scholes option pricing model. The following weighted average assumptions were used:
Fiscal Year Ended |
||||||||||||
December 28, |
December 29, |
December 31, |
||||||||||
Risk-free interest rate |
1.38 | % | 1.48 | % | 2.41 | % | ||||||
Dividend yield |
| | | |||||||||
Expected life |
6.0 years | 6.5 years | 6.4 years | |||||||||
Volatility |
45.39 | % | 42.81 | % | 40.75 | % |
As the Company does not have sufficient historical volatility data for the Companys own common stock, the stock price volatility utilized in the fair value calculation is based on the Companys peer group in the industry in which it does business. The risk-free interest rate is based on the yield curve of a zero-coupon U.S. Treasury bond on the date the award is granted with a maturity equal to the expected term of the award. Because the Company does not have relevant data available regarding the expected life of the award, the expected life of the award is derived from the Simplified Method as allowed under SAB Topic 14.
Restricted Stock Units (RSUs)
In October 2010, the Company adopted the Non-Employee Director Restricted Stock Plan (the 2010 RSU Plan), pursuant to which the Company will grant restricted stock units to non-employee directors of the Company. Upon vesting, these awards entitle the holder to receive one share of common stock for each restricted stock unit granted. The 2010 RSU Plan provides that a maximum of 0.8 million shares of common stock of the Company may be granted to non-employee directors of the Company, of which 0.3 million remain available at December 28, 2013 for future incentive awards. See Note 18 regarding the issuance of RSUs subsequent to the year ended December 28, 2013.
The following table summarizes RSU activity under the 2010 RSU Plan:
Number |
Weighted |
|||||||
Outstanding and unvested at January 1, 2011 |
150,000 | $ | 1.00 | |||||
Granted |
100,000 | 1.00 | ||||||
Vested |
(75,000 | ) | 1.00 | |||||
Cancelled |
| | ||||||
|
|
|
|
|||||
Outstanding and unvested at December 31, 2011 |
175,000 | $ | 1.00 | |||||
Granted |
219,298 | 1.14 | ||||||
Vested |
(125,000 | ) | 1.00 | |||||
Cancelled |
| | ||||||
|
|
|
|
|||||
Outstanding and unvested at December 29, 2012 |
269,298 | $ | 1.11 | |||||
Granted |
| | ||||||
Vested |
(159,649 | ) | 1.10 | |||||
Cancelled |
(21,930 | ) | 1.14 | |||||
|
|
|
|
|||||
Outstanding and unvested at December 28, 2013 |
87,719 | $ | 1.14 | |||||
|
|
|
|
The fair value of each of the RSU awards is measured as the grant-date price of the common stock and is expensed on a straight- line basis over the requisite service period, which is generally the two year vesting period. At December 28, 2013, the Company has recognized all compensation expense related to non-vested RSUs granted under the 2010 RSU Plan as all outstanding and unvested RSUs at December 28, 2013 will vest at the beginning of fiscal 2014.
F-35
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Compensation Expense
Stock-based compensation expense is included in selling general and administrative expenses within the accompanying consolidated statement of comprehensive income (loss). The amount of compensation expense recognized during a period is based on the portion of the granted awards that are expected to vest. Ultimately, the total expense recognized over the vesting period will equal the fair value of the awards as of the grant date that actually vest. The following table summarizes the compensation expense recognized:
Fiscal Year Ended |
||||||||||||
In thousands |
December 28, |
December 29, |
December 31, |
|||||||||
Stock Options |
$ | 2,524 | $ | 4,118 | $ | 3,999 | ||||||
Restricted Stock Units |
110 | 231 | 115 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 2,634 | $ | 4,349 | $ | 4,114 | ||||||
|
|
|
|
|
|
Deferred Compensation Plan
The Company has a deferred compensation plan for its top executives and divisional employees covered by the executive bonus plan to encourage each participant to promote the long-term interests of the Company. Each participant is allowed to defer portions of their annual salary as well as bonuses received into the plan. In addition to employee deferrals, the Company makes contributions on behalf of its top executives and certain of the divisional employees in varying amounts. The plan provides that an employee who becomes a participant on or before November 23, 1998, shall be fully vested in all amounts credited to such participants account. An employee who becomes a participant after November 23, 1998 shall be at all times fully vested in elective deferrals into such participants account and, as to contributions made by the Company, shall vest at a rate of twenty percent (20%) per year as long as such participant is an employee on January 1 of each year. The deferred compensation plan may be altered and amended by the Companys Board of Directors.
At December 28, 2013, the Companys obligation related to its deferred compensation plan was $3.4 million, recorded in the consolidated balance sheet within other non-current liabilities. At December 29, 2012, the Companys obligation related to its deferred compensation plan was $2.7 million. The Company provides for funding of the obligation through a Rabbi Trust, which holds various investments, including mutual funds and money market funds. Amounts related to the Rabbi Trust were $3.4 million and $2.7 million at December 28, 2013 and December 29, 2012, respectively, and are recorded in the consolidated balance sheets within other non-current assets. Contributions made by the Company on behalf of its employees were less than $0.1 million during fiscal 2013, 2012 and 2011.
401(k) Plans
The Company maintains a qualified profit sharing and 401(k) plan for eligible employees. All accounts are funded based on employee contributions to the plan, with the limits of such contributions determined by the Board of Directors. Effective January 1, 2002, the benefit formula for all participants was determined to be a match of 50% of participant contributions, up to 6% of their compensation. The plan also provides for contributions in such amounts as the Board of Directors may annually determine for the profit sharing portion of the plan. Employees vest in the 401(k) match and profit sharing contribution over a 5-year period.
The Company match of participant contributions is recorded within selling, general and administrative expense. For the fiscal years ended December 28, 2013, December 29, 2012 and December 31, 2011, the Company contributed $2.8 million, $2.0 million and $2.1 million, respectively.
F-36
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Commitments and Contingencies:
Leases
The Company leases land, buildings, equipment and vehicles under various noncancellable operating leases, which expire between 2014 and 2027. Future minimum lease commitments, net of sublease income, at December 28, 2013 are as follows:
In thousands |
||||
2014 |
$ | 88,941 | ||
2015 |
79,087 | |||
2016 |
68,646 | |||
2017 |
60,772 | |||
2018 |
51,786 | |||
Thereafter |
175,115 | |||
|
|
|||
Total |
$ | 524,347 | ||
|
|
The Companys rent expense, net of sublease income, under these operating leases was $92.9 million in fiscal 2013, $75.1 million in fiscal 2012 and $59.1 million in fiscal 2011.
On March 27, 2002, the Company completed an agreement for the sale and leaseback of three of its owned facilities. On February 1, 2012, the Company reacquired one of the three facilities included in the 2002 sale-leaseback transaction. Accordingly, the original lease was amended to extend the lease term on the two remaining facilities by 5 years as well as to adjust the future lease payments over the remaining 15 years. The Company reports this transaction as a capital lease using direct financing lease accounting. As such, the Company has a capital lease obligation of $12.2 million at December 28, 2013. See Note 9 for more information on this capital lease. Obligations under the Companys other capital leases are not material.
The Company remains liable as a guarantor on certain leases related to Winston Tire Company. As of December 28, 2013, the Companys total obligations, as guarantor on these leases, are approximately $2.0 million extending over five years. However, the Company has secured assignments or sublease agreements for the vast majority of these commitments with contractually assigned or subleased rentals of approximately $1.8 million. A provision has been made for the net present value of the estimated shortfall.
Legal and Tax Proceedings
The Company is involved from time to time in various lawsuits, including class action lawsuits as well as various audits and reviews regarding its federal, state and local tax filings, arising out of the ordinary conduct of its business. Management does not expect that any of these matters will have a material adverse effect on the Companys business or financial condition. As to tax filings, the Company believes that the various tax filings have been made in a timely fashion and in accordance with applicable federal, state, foregin and local tax code requirements. Additionally, the Company believes that it has adequately provided for any reasonably foreseeable resolution of any tax disputes, but will adjust its reserves if events so dictate in accordance with FASB authoritative guidance. To the extent that the ultimate results differ from the original or adjusted estimates of the Company, the effect will be recorded in accordance with the accounting standards for income taxes. See Note 14 for further description of the accounting standards for income taxes and the related impacts.
F-37
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Income Taxes:
The Companys income (loss) from operations before income taxes was taxed within the following jurisdictions:
Fiscal Year Ended |
||||||||||||
In thousands |
December 28, |
December 29, |
December 31, |
|||||||||
United States |
$ | (11,168 | ) | $ | (15,621 | ) | $ | 4,474 | ||||
Foreign |
866 | (4,403 | ) | | ||||||||
|
|
|
|
|
|
|||||||
Total |
(10,302 | ) | (20,024 | ) | 4,474 | |||||||
|
|
|
|
|
|
The Companys income tax provision (benefit) consisted of the following components:
Fiscal Year Ended |
||||||||||||
In thousands |
December 28, |
December 29, |
December 31, |
|||||||||
Federal: |
||||||||||||
Current provision (benefit) |
$ | 13,721 | $ | 4,986 | $ | 6,937 | ||||||
Deferred provision (benefit) |
(17,989 | ) | (9,675 | ) | (5,679 | ) | ||||||
|
|
|
|
|
|
|||||||
Total |
(4,268 | ) | (4,689 | ) | 1,258 | |||||||
State: |
||||||||||||
Current provision (benefit) |
3,700 | 1,876 | 3,263 | |||||||||
Deferred provision (benefit) |
(3,604 | ) | (2,009 | ) | (57 | ) | ||||||
|
|
|
|
|
|
|||||||
Total |
96 | (133 | ) | 3,206 | ||||||||
|
|
|
|
|
|
|||||||
Foreign: |
||||||||||||
Current provision (benefit) |
1,963 | 49 | | |||||||||
Deferred provision (benefit) |
(1,773 | ) | (1,192 | ) | | |||||||
|
|
|
|
|
|
|||||||
Total |
190 | (1,143 | ) | | ||||||||
|
|
|
|
|
|
|||||||
Total provision (benefit) |
$ | (3,982 | ) | $ | (5,965 | ) | $ | 4,464 | ||||
|
|
|
|
|
|
The provision (benefit) for income taxes differs from the amount of income taxes computed by applying the applicable U.S. statutory federal income tax rate of 35% to pretax income (loss), as a result of the following differences:
Fiscal Year Ended |
||||||||||||
In thousands |
December 28, 2013 |
December 29, 2012 |
December 31, 2011 |
|||||||||
Income tax provision (benefit) computed at the federal statutory rate |
$ | (3,666 | ) | $ | (7,057 | ) | $ | 1,516 | ||||
State income taxes, net of federal income tax benefit |
698 | (86 | ) | 607 | ||||||||
Benefit of lower foreign rate |
(84 | ) | 395 | | ||||||||
Increase in state effective tax rate |
| | 2,167 | |||||||||
Permanent differences |
647 | 437 | 505 | |||||||||
Debt issuance costs |
(244 | ) | (221 | ) | (200 | ) | ||||||
Non-deductible transaction costs |
566 | 430 | | |||||||||
Tax settlements and other adjustments to uncertain tax positions (1) |
(1,542 | ) | (2 | ) | (376 | ) | ||||||
Increase (decrease) in valuation allowance |
(281 | ) | 132 | 245 | ||||||||
Other |
(76 | ) | 7 | | ||||||||
|
|
|
|
|
|
|||||||
Income tax provision (benefit) |
$ | (3,982 | ) | $ | (5,965 | ) | $ | 4,464 | ||||
|
|
|
|
|
|
F-38
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) | The amount for the year ended December 28, 2013 reflects the lapse of uncertain tax positions for three tax years due to the settlement of an IRS audit during the year. |
Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting purposes and (b) operating loss and tax credit carry-forwards. As of December 28, 2013 and December 29, 2012, amounts related to deferred income taxes have been classified in the accompanying consolidated balance sheet as follows:
In thousands |
December 28, 2013 |
December 29, 2012 |
||||||
Deferred tax assets (liabilities): |
||||||||
Current |
$ | 15,719 | $ | 16,458 | ||||
Noncurrent |
(268,432 | ) | (283,009 | ) | ||||
|
|
|
|
|||||
Total |
$ | (252,713 | ) | $ | (266,551 | ) | ||
|
|
|
|
The tax effects of the significant temporary differences that comprise deferred tax assets and liabilities at December 28, 2013 and December 29, 2012 for the Company are as follows:
In thousands |
December 28, 2013 |
December 29, 2012 |
||||||
Deferred tax assets: |
||||||||
Accrued expenses and liabilities |
$ | 8,686 | $ | 8,491 | ||||
Net operating loss carry-forwards |
1,232 | 2,062 | ||||||
Employee benefits |
9,622 | 7,594 | ||||||
Inventory cost capitalization |
6,359 | 7,633 | ||||||
Other assets |
(925 | ) | 954 | |||||
Other |
5,215 | 5,534 | ||||||
|
|
|
|
|||||
Gross deferred tax assets |
30,189 | 32,268 | ||||||
Less: Deferred tax valuation allowances |
(750 | ) | (762 | ) | ||||
|
|
|
|
|||||
Net deferred tax assets |
29,439 | 31,506 | ||||||
|
|
|
|
|||||
Deferred tax liabilities: |
||||||||
Depreciation and amortization of intangibles |
(280,888 | ) | (296,929 | ) | ||||
Other |
(1,264 | ) | (1,128 | ) | ||||
|
|
|
|
|||||
Gross deferred tax liabilities |
(282,152 | ) | (298,057 | ) | ||||
|
|
|
|
|||||
Net deferred tax assets (liabilities) |
$ | (252,713 | ) | $ | (266,551 | ) | ||
|
|
|
|
As part of the acquisition of the Company by TPG, the Company generated substantial tax deductions relating to the exercise of stock options and payments made for transaction expenses. At December 28, 2013, the balance of this acquired non-current deferred tax asset is $5.9 million, which represents the anticipated tax benefits that the Company expects to achieve in future years from such deductions. The remaining net deferred tax liability primarily relates to the expected future tax liability associated with the non-deductible, identified, intangible assets that were recorded during the Merger less existing tax deductible intangibles, assuming an effective tax rate of 39.6%. It is the Companys intention to indefinitely reinvest all undistributed earnings of non-U.S. subsidiaries. As these earnings are considered permanently reinvested, no provisions for U.S. federal or state income taxes are required under ASC 740-30. Determination of the amount of unrecognized U.S. federal and state deferred tax liabilities on these unremitted earnings is not practicable.
F-39
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Management regularly reviews the recoverability of deferred tax assets, and where appropriate, establishes a valuation allowance against them. The Company concluded that certain deferred tax assets related to certain capital losses do not meet the requirement of being more likely than not that they will be realized. As a result, the Company established a valuation allowance against them.
At December 28, 2013, the Company had $1.6 million of NOLs available for federal tax purposes as well as $14.2 million available for state tax purposes. The NOLs are available to offset taxable income in future years and expire between 2014 and 2029. While the Company has generated net losses during the last two years, the Company expects to generate taxable income in future years based on its long-term expected profitability as well as significant unfavorable tax adjustments related to non-deductible, identified intangible assets. Therefore, the Company expects to utilize these NOLs prior to their expiration date.
At December 28, 2013, the Company had unrecognized tax benefits of $0.7 million, of which $0.4 million is included within accrued expenses and $0.3 million is included within other liabilities within the accompanying consolidated balance sheet. The total amount of unrecognized tax benefits that, if recognized, would affect the Companys effective tax rate is $0.2 million as of December 28, 2013. In addition, $0.5 million related to temporary timing differences.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
In thousands |
December 28, |
December 29, |
December 31, |
|||||||||
Beginning balance |
$ | 1,953 | $ | 1,815 | $ | 2,181 | ||||||
(Reductions) additions based on tax positions related to the current year, net |
(688 | ) | 138 | (366 | ) | |||||||
Settlements |
| | | |||||||||
Reductions for lapse in statute of limitations |
(559 | ) | | | ||||||||
|
|
|
|
|
|
|||||||
Ending balance |
$ | 706 | $ | 1,953 | $ | 1,815 | ||||||
|
|
|
|
|
|
During the next 12 months, management does not believe it is reasonably possible that there will be a significant change in the Companys uncertain tax benefits.
While the Company believes that it has adequately provided for all tax positions, amounts asserted by taxing authorities could be greater than the Companys accrued position. Accordingly, additional provisions of federal and state-related matters could be recorded in the future as revised estimates are made or the underlying matters are settled or otherwise resolved.
The Company files federal income tax returns, as well as multiple state jurisdiction tax returns. The tax years 20102012 remain open to examination by the Internal Revenue Service. The tax years 20102012 remain open to examination by other major taxing jurisdictions to which the Company is subject (primarily Canada and other state and local jurisdictions).
In September 2013, the Internal Revenue Service released final Tangible Property Regulations (the Final Regulations). The Final Regulations provide guidance on applying Section 263(a) of the Code to amounts paid to acquire, produce or improve tangible property, as well as rules for materials and supplies (Code Section 162). These regulations contain certain changes from the temporary and proposed tangible property regulations that were issued on December 27, 2011. The Final Regulations are generally effective for taxable years beginning on or after January 1, 2014. In addition, taxpayers are permitted to early adopt the Final Regulations for taxable years beginning on or after January 1, 2012. The Company does not expect the Final Regulations to have a material effect on its results of operations. The Company is currently evaluating the impact on its financial condition.
F-40
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Stockholders Equity
See Note 18 regarding recent equity contribution received from TPG and certain co-investors.
In connection with the Merger on May 28, 2010, TPG and certain co-investors contributed $675.4 million through the purchase of the Companys common stock. Subsequent to May 28, 2010, certain members of the Companys management and certain board members purchased common stock in the Company. At December 28, 2013 and December 29, 2012, these amounts totaled $8.7 million. Accordingly, the Company recorded the basis in these shares in additional paid-in capital.
On November 30, 2012, TPG and certain co-investors contributed $60.0 million through the purchase of 50.0 million shares of the Companys common stock. The proceeds from this equity contribution were used to fund a portion of the purchase price for the acquisition of TriCan. Accordingly, the Company recorded the basis in these shares in additional paid-in capital. See Note 3 for additional information on the TriCan acquisition.
Common Stock
The Company is authorized to issue up to 2,000,000,000 shares of common stock, par value $0.01 per share. At December 28, 2013 and December 29, 2012, 734,168,402 shares of common stock were issued and outstanding.
Accumulated Other Comprehensive Income (Loss)
The Company maintains a deferred compensation plan for certain eligible employees, in which the obligation is funded through a Rabbi Trust. Unrealized gains and losses on Rabbi Trust assets are recorded net of tax in accumulated other comprehensive income (loss) and amounted to a gain of $0.2 and $0.1 million at December 28, 2013 and December 29, 2012, respectively.
In addition, gains and losses resulting from the translation of foreign currency are recorded in accumulated other comprehensive income (loss) and amounted to a loss of $9.1 million and $0.3 million at December 28, 2013 and December 29, 2012, respectively.
16. Related Party Transaction:
Upon the closing of the Merger, the Company entered into a transaction and monitoring fee letter agreement with TPG pursuant to which the Company retained TPG to provide certain management, consulting, and financial services to the Company, when and as requested by the Company. The Company agreed to pay TPG a monitoring fee equal to 2.0% of adjusted earnings before interest, taxes, depreciation, amortization and other adjustments (Adjusted EBITDA). The monitoring fee is payable in quarterly installments in arrears at the end of each fiscal quarter. In the event of an initial public offering, sale of all or substantially all of the Companys assets or a change of control transaction, TPG is entitled to receive, on its request and in lieu of any continuing payment of the monitoring fee, an aggregate termination fee of $12.5 million. For the fiscal years ended December 28, 2013, December 29, 2012 and December 31, 2011, the Company recorded $5.8 million, $7.4 million and $4.6 million, respectively in expense related to the monitoring fee for fiscal years 2013, 2012 and 2011 which is included in selling, general and administrative expense in the accompanying consolidated statements of comprehensive income (loss).
F-41
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Geographic Area Information:
The following table presents net sales and long-lived assets by geographic area. Net sales by country were determined based on the location of the selling subsidiary. Long-lived assets consisted of property and equipment, net
Fiscal Year Ended |
||||||||||||
In thousands |
December 28, 2013 |
December 29, 2012 |
December 31, 2011 |
|||||||||
Net sales to external customers: |
||||||||||||
United States |
$ | 3,499,770 | 3,443,781 | 3,050,240 | ||||||||
Canada |
339,499 | 12,083 | | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 3,839,269 | $ | 3,455,864 | $ | 3,050,240 | ||||||
|
|
|
|
|
|
Fiscal Year Ended |
||||||||
In thousands |
December 28, |
December 29, |
||||||
Long-lived assets: |
||||||||
United States |
$ | 141,055 | 128,724 | |||||
Canada |
6,801 | 1,158 | ||||||
|
|
|
|
|||||
Total |
$ | 147,856 | $ | 129,882 | ||||
|
|
|
|
18. Earnings per share:
Basic earnings per share is calculated using the Companys weighted-average outstanding common shares. Diluted earnings per share is calculated using the Companys weighted-average outstanding common shares including the dilutive effect of stock options and restricted stock units as determined under the treasury stock method.
The following table sets forth the computation of basic and diluted earnings per share for the fiscal years ended December 28, 2013, December 29, 2012 and December 31, 2011:
In thousands, except per share data |
Fiscal |
Fiscal |
Fiscal |
|||||||||
Basic earnings per share calculation: |
||||||||||||
Net income (loss) |
$ | (6,376 | ) | $ | (14,201 | ) | $ | (132 | ) | |||
Weighted average common shares outstanding |
734,168 | 688,300 | 684,172 | |||||||||
Net income (loss) per sharebasic |
$ | (0.01 | ) | $ | (0.02 | ) | $ | (0.00 | ) | |||
|
|
|
|
|
|
|||||||
Diluted earnings per share calculation: |
||||||||||||
Net income (loss) |
$ | (6,376 | ) | $ | (14,201 | ) | $ | (132 | ) | |||
Weighted average common shares outstanding |
734,168 | 688,300 | 684,172 | |||||||||
Effect of dilutive securities: |
||||||||||||
Stock Options (1) |
| | | |||||||||
Restricted Stock Units (2) |
| | | |||||||||
Diluted weighted average common shares outstanding |
734,168 | 688,300 | 684,172 | |||||||||
|
|
|
|
|
|
|||||||
Net income (loss) per sharediluted |
$ | (0.01 | ) | $ | (0.02 | ) | $ | (0.00 | ) | |||
|
|
|
|
|
|
F-42
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) | Options to purchase 49,517, 46,682 and 44,598 shares of common stock during the fiscal years ended December 28, 2013, December 29, 2012 and December 31, 2011, respectively, were outstanding but were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive. |
(2) | Shares of common stock issuable upon the vesting of restricted stock units of 447, 469 and 250 during the fiscal years ended December 28, 2013, December 29, 2012 and December 31, 2011, respectively, were outstanding but were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive. |
19. Subsequent Event:
We have evaluated subsequent events for recognition through March 7, 2014, the original issuance date of our subsidiary American Tire Distributors Holdings, Inc.s financial statements. Subsequent events have been evaluated for disclosure through June 16, 2014, the date of reissuance.
Kipling Acquisition
On January 17, 2014, TriCan entered into an Asset Purchase Agreement with Kipling Tire Co. LTD., a corporation governed by the laws of the Province of Ontario (Kipling), pursuant to which TriCan agreed to acquire the wholesale distribution business of Kipling. Kipling has operated as a retail-wholesale business since 1982. Kiplings wholesale business distributes tires from its Etobicoke facilities to approximately 400 retail customers in Southern Ontario. Kiplings retail operations were not acquired by TriCan and will continue to operate under its current ownership. This acquisition will further strengthen TriCans presence in the Southern Ontario region of Canada. The acquisition was completed on January 17, 2014 and was funded through the Companys Canadian ABL Facility. The Company does not believe the acquisition of Kipling is a material transaction subject to the disclosures and supplemental pro forma information required by ASC 805Business Combinations. As a result, the information is not presented.
Hercules Acquisition
On January 31, 2014, pursuant to an Agreement and Plan of Merger, dated January 24, 2014 (the Merger Agreement), among ATD Merger Sub II LLC (Merger Sub), an indirect wholly-owned subsidiary of Holdings, ATDI, Hercules Tire Holdings LLC, a Delaware limited liability company (Hercules Holdings), the equityholders of Hercules Holdings (each a Seller and, collectively the Sellers) and the Sellers Representative, Merger Sub merged with and into Hercules Holdings, with Hercules Holdings being the surviving entity (the Merger). As a result of the Merger, Hercules Holdings became an indirect 100% owned subsidiary of Holdings. Hercules Holdings owns all of the capital stock of The Hercules Tire & Rubber Company, a Connecticut corporation (Hercules). Hercules Holdings has no material assets or operations other than its ownership of Hercules. Hercules is engaged in the business of purchasing, marketing, distributing and selling replacement tires for passenger cars, trucks, and certain off road vehicles to tire dealers, wholesale distributors, retail distributors and others in the United States, Canada and internationally. Hercules operated 15 distribution centers in the United States, 6 distribution centers in Canada and one warehouse in northern China. Hercules also markets the Hercules brand, which is one of the most sought-after proprietary tire brands in the industry. The acquisition of Hercules will strengthen the Companys presence in major markets such as California, Texas and Florida in addition to increasing its presence in Canada. Additionally, Hercules strong logistics and sourcing capabilities, including a long-standing presence in China, will also allow the Company to capitalize on the growing import market, as well as, providing the ability to expand the international sales of the
F-43
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Hercules brand. Finally, this acquisition, will allow the Company to be a brand marketer of the Hercules brand which today has a 2% market share of the passenger and light truck market in North America and a 3% share of highway truck tires in North America.
The acquisition closed for an aggregate purchase price of approximately $319.3 million (the Hercules Closing Purchase Price), consisting of net cash consideration of $310.4 million, contingent consideration of $3.5 million and non-cash consideration for debt assumed of $5.4 million. The Hercules Closing Purchase Price includes an estimate for initial working capital adjustments. The Merger Agreement provides for the payment of up to $6.5 million in additional consideration contingent upon the occurrence of certain post-closing events (to the extent payable, the Hercules Additional Purchase Price and, collectively with the Hercules Closing Purchase Price, the Hercules Purchase Price). The cash consideration paid for the Merger was funded by a combination of the issuance of additional Senior Subordinated Notes, as more fully described below, an equity contribution of $50.0 million from Holdings indirect parent, and borrowings under the Companys credit agreement. The Hercules Closing Purchase Price is subject to certain post-closing adjustments, including, but not limited to, working capital adjustments.
The Merger was recorded during the quarter ended April 5, 2014 using the acquisition method of accounting in accordance with current accounting guidance for business combinations and non-controlling interest. As a result, the Hercules Closing Purchase Price has been preliminarily allocated to assets acquired and liabilities assumed based on the estimated fair market value of such assets and liabilities at the date of acquisition. The preliminary allocation of the Hercules Closing Purchase Price is as follows:
In thousands |
||||
Cash |
$ | 12,187 | ||
Accounts receivable |
61,610 | |||
Inventory |
156,652 | |||
Other current assets |
5,064 | |||
Property and equipment |
29,970 | |||
Intangible assets |
155,704 | |||
|
|
|||
Total assets acquired |
421,187 | |||
Accounts payable |
95,616 | |||
Accrued and other liabilities |
6,154 | |||
Deferred income taxes |
69,872 | |||
Other liabilities |
2,325 | |||
|
|
|||
Total liabilities assumed |
173,967 | |||
Net assets acquired |
247,220 | |||
Goodwill |
72,082 | |||
|
|
|||
Purchase price |
$ | 319,302 | ||
|
|
The excess of the purchase price over the amounts allocated to identifiable assets and liabilities is included in goodwill for the Companys quarter ended April 5, 2014, and amounted to $72.1 million. The premium in the purchase price for the Merger primarily relates to growth opportunities associated with the Hercules brand and the anticipated realization of operational and cost synergies.
Cash and cash equivalents, accounts receivable and accounts payable were stated at their historical carrying values, which approximate their fair value, given the short-term nature of these assets and liabilities. Inventory was recorded at fair value, based on computations which considered many factors including the estimated selling price of the inventory, the cost to dispose the inventory as well as the replacement cost of the inventory, where applicable.
F-44
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company recorded intangible assets during the quarter ended April 5, 2014 based on their estimated fair value which consisted of the following:
In thousands |
Estimated Useful Life |
Estimated Fair Value |
||||||
Customer list |
18 years | $ | 147,216 | |||||
Trade names |
15 years | 8,488 | ||||||
|
|
|||||||
Total |
$ | 155,704 | ||||||
|
|
The Company determined the fair value of the intangible assets acquired based on a third-party valuation report. The independent third party valuation firm utilized the excess earnings method, a derivation of the income approach, to determine the fair value of the customer list intangible asset. The excess earnings method estimates the discounted net earnings attributable to the customer relationships that were acquired after considering items such as possible customer attrition. Based on the length and trend of projected cash flows, an estimated useful life of 18 years was determined. The length of the projected cash flow period was determined by how quickly the customer relationships attrit based on the Companys historical experience in renewing and extending similar customer relationships and future expectations for renewing and extending similar existing customer relationships and represents the number of years over which the Company expects the customer relationships to economically contribute to the business. This estimate is based on the year in which 95.0% of the annual discounted cash flows were captured in the value of the customer list intangible asset.
Terrys Tire Acquisition
On March 28, 2014, ATDI completed its acquisition of Terrys Tire Town Holdings, Inc., an Ohio corporation (Terrys Tire and such acquisition, the Terrys Tire Acquisition). The Terrys Tire Acquisition was completed pursuant to a Stock Purchase Agreement (the Stock Purchase Agreement) entered into on February 17, 2014 between ATDI and TTT Holdings, Inc., a Delaware corporation. Terrys Tire and its subsidiaries are engaged in the business of purchasing, marketing, distributing and selling tires, wheels and related tire and wheel accessories on a wholesale basis to tire dealers, wholesale distributors, retail chains, automotive dealers and others, retreading tires and selling retread and other commercial tires through commercial outlets to end users and selling tires directly to consumers via the internet. Terrys Tire operated 10 distribution centers spanning from Virginia to Maine and in Ohio. The acquisition of Terrys Tire will enhance the Companys market position in these areas and aligns very well with their distribution centers, especially the new distribution centers opened by the Company over the past two years in the Northeast and Ohio.
The Terrys Tire acquisition closed for an aggregate purchase price of approximately $378.1 million (the Terrys Tire Purchase Price), consisting of cash consideration of approximately $363.4 million, contingent consideration of $12.5 million and non-cash consideration for debt assumed of $2.2 million. The cash consideration paid for the Terrys Tire Acquisition included estimated working capital adjustments and a portion of consideration contingent on certain events achieved prior to closing. The Terrys Tire Purchase Price was funded by a combination of borrowings under a new senior secured term loan facility, as more fully described below, and borrowings of approximately $72.5 million under the Companys existing U.S. ABL Facility. The Terrys Tire Purchase Price is subject to certain post-closing adjustments, including but not limited to, working capital adjustments. Of the $363.4 million in cash consideration, $41.4 million is held in escrow pending the resolution of the post-closing adjustments and other escrow release conditions in accordance with the terms of the Stock Purchase Agreement and escrow agreement.
F-45
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The acquisition of Terrys Tire was recorded during the quarter ended April 5, 2014 using the acquisition method of accounting in accordance with current accounting guidance for business combinations and non-controlling interest. As of the date of these financial statements, the Company is in the process of finalizing intangible asset valuations as well as continuing to evaluate the initial purchase price allocation. Accordingly, management has used its best estimates in the allocation of the purchase price to assets acquired and liabilities assumed based on the estimated preliminary fair market value of such assets and liabilities at the date of acquisition. As additional information is obtained about these assets and liabilities within the measurement period, the Company expects to refine its estimates of fair value to allocate the purchase price more accurately. The preliminary allocation of the Terrys Tire Purchase Price is as follows:
In thousands |
||||
Cash |
$ | 7,238 | ||
Accounts receivable |
42,515 | |||
Inventory |
101,328 | |||
Assets held for sale |
3,321 | |||
Other current assets |
2,203 | |||
Deferred income taxes |
4,947 | |||
Property and equipment |
7,072 | |||
Intangible asset |
201,000 | |||
Other assets |
541 | |||
|
|
|||
Total assets acquired |
370,165 | |||
Accounts payable |
78,488 | |||
Accrued and other liabilities |
3,470 | |||
Liabilities held for sale |
436 | |||
|
|
|||
Total liabilities assumed |
82,394 | |||
Net assets acquired |
287,771 | |||
Goodwill |
90,280 | |||
|
|
|||
Purchase price |
$ | 378,051 | ||
|
|
The excess of the purchase price over the amounts allocated to identifiable assets and liabilities is included in goodwill for the Companys quarter ended April 5, 2014, and amounted to $90.3 million. The premium in the purchase price paid for the acquisition of Terrys Tire primarily reflects the anticipated realization of operational and cost synergies.
Cash and cash equivalents, accounts receivable and accounts payable were stated at their historical carrying values, which approximate their fair value, given the short-term nature of these assets and liabilities. Inventory was recorded at fair value, based on computations which considered many factors including the estimated selling price of the inventory, the cost to dispose the inventory as well as the replacement cost of the inventory, where applicable.
During the quarter ended April 5, 2014, the Company recorded a finite-lived customer list intangible asset based on its estimated fair value of $201.0 million. The Company determined the fair value of the intangible assets acquired based on a third-party valuation report. The independent third party valuation firm utilized the excess earnings method, a derivation of the income approach, to determine the fair value of the customer list intangible asset. The excess earnings method estimates the discounted net earnings attributable to the customer relationships that were acquired after considering items such as possible customer attrition. Based on the length and trend of projected cash flows, an estimated useful life of 18 years was determined. The length of the projected cash flow period was determined by how quickly the customer relationships attrit based on the
F-46
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Companys historical experience in renewing and extending similar customer relationships and future expectations for renewing and extending similar existing customer relationships and represents the number of years over which the Company expects the customer relationships to economically contribute to the business. This estimate is based on the year in which 95.0% of the annual discounted cash flows were captured in the value of the customer list intangible asset. The estimated useful life of the customer list intangible asset is based on the Companys internal estimates to be finalized when the third-party intangible asset valuations are completed.
As part of the acquisition of Terrys Tire, the Company acquired Terrys Tires commercial and retread businesses. As the Companys core business does not include commercial and retread operations, the Company decided that it would divest of these businesses. As it is managements intention to divest the commercial and retread businesses during fiscal 2014 and as all held for sale criteria has been met, the related assets and liabilities of the commercial and retread businesses were classified as held for sale at the acquisition date. As part of the preliminary purchase price allocation, the estimated fair value of the assets held for sale was $3.3 million, including $2.5 million in current assets and net property and equipment of $0.8 million. The estimated fair value of the liabilities held for sale was $0.4 million of which the entire amount related to current liabilities. As additional information is obtained about these assets and liabilities within the measurement period, the Company expects to refine its estimate of the fair values related to these assets and liabilities.
Amendment of Senior Subordinated Indenture
On January 31, 2014, ATDI entered into the Sixth Supplemental Indenture (the Sixth Supplemental Indenture) with The Bank of New York Mellon Trust company, N.A., as trustee (the Trustee) and the guarantors party thereto (the Guarantors) to the Subordinated Notes Indenture, dated as of May 28, 2010, among ATDI, the guarantors party thereto and the Trustee (as amended and supplemented from time to time, the Subordinated Indenture) relating to the $200.0 million aggregate principal amount of 11.50% Senior Subordinated Notes due 2018 of ATDI initially issued on May 28, 2010 (the Initial Subordinated Notes). ATDI received consents from a 100% of the holders of the Initial Subordinated Notes and accepted such consents. The amendments included in the Sixth Supplemental Indenture provide for ATDIs ability to incur additional senior debt under the Subordinated Indenture under certain circumstances.
Subordinated Notes Offering
In connection with the consummation of the Hercules Merger, on January 31, 2014, ATDI completed the sale to certain purchasers of $225.0 million in aggregate principal amount of its 11.50% Senior Subordinated Notes due 2018 (the Additional Subordinated Notes). The net proceeds to ATDI from the sale of the Additional Subordinated Notes was approximately $221.1 million.
The Additional Subordinated Notes were issued pursuant to the Seventh Supplemental Indenture, dated as of January 31, 2014, among ATDI, the Guarantors and the Trustee (the Seventh Supplemental Indenture) to the Senior Subordinated Indenture. The Additional Subordinated Notes have identical terms to the Initial Subordinated Notes, except the Additional Subordinated Notes will accrue interest from January 31, 2014. The Additional Subordinated Notes and the Initial Subordinated Notes will be treated as a single class of securities for all purposes under the Subordinated Indenture. However, the Additional Subordinated Notes will be issued with separate CUSIP numbers from the Initial Subordinated Notes and will not be fungible for U.S. federal income tax purposes with the Initial Subordinated Notes.
Interest on the Additional Subordinated Notes will be paid semi-annually in arrears on June 1 and December 1 of each year, commencing on June 1, 2014. The Additional Subordinated Notes will mature on June 1, 2018. The Additional Subordinated Notes may be redeemed at any time at the option of ATDI, in whole or in part, upon not less than 30 nor more than 60 days notice at a redemption price of 104.0% of the principal amount if the redemption rate occurs between June 1, 2013 and May 31, 2014, 102.0% of the principal amount if the redemption date occurs between June 1, 2014 and May 31, 2015 and 100.0% of the principal amount if the redemption date occurs on June 1, 2015 or thereafter.
F-47
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Credit Agreement Amendment
Also in connection with the Hercules Merger, on January 31, 2014, the Company entered into the Second Amendment to Sixth Amended and Restated Credit Agreement (the Second Amendment). The Second Amendment (1) increases the aggregate principal amount available under the Canadian ABL Facility from $100.0 million to $125.0 million, subject to the Canadian borrowing base, (2) increases the aggregate principal amount available under the U.S. first-in last-out facility (the U.S. FILO Facility) from $60.0 million to $80.0 million, subject to the borrowing base specific thereto as modified by the Second Amendment (3) extends the maturity date for the U.S. FILO Facility to 36 months from January 31, 2014, (4) increases the inventory advance rate under the U.S. FILO Facility borrowing base from 7.5% to 10.0% of net orderly liquidation value, and (5) provides the Canadian Borrowers under the agreement with a new first-in last-out facility (the Canadian FILO Facility) in an aggregate principal amount of up to $15.0 million, subject to a borrowing base specific thereto. The Canadian FILO borrowing base at any time equals the sum (subject to certain reserves and other adjustments) of (i) 5% of eligible accounts receivable of the Canadian loan parties, as applicable; plus (ii) 10.0% of the net orderly liquidation value of the eligible tire and non-tire inventory of the Canadian loan parties, as applicable. The maturity date for the Canadian FILO Facility is the date that is 36 months from January 31, 2014. Hercules, and certain of its subsidiaries, was made a party to, and its equity interests were pledged as collateral under, the Sixth Amended and Restated Credit Agreement upon closing of the Merger. The Second Amendment also made certain other changes to the Sixth Amended and Restated Credit Agreement. The Second Amendment did not change the maturity dates of the U.S. ABL Facility or the Canadian ABL Facility or the material terms under which either facility may be accelerated or the U.S. ABL Facility may be increased. Approximately $40.4 million, net of cash received in the Merger, was drawn under the U.S. ABL Facility to finance a portion of the Hercules Closing Purchase Price. Immediately following the closing of the Merger, $5.6 million was drawn on the Canadian FILO Facility with a corresponding decrease to the Canadian ABL Facility.
Senior Secured Term Loan
In connection with the acquisition of Terrys Tire, on March 28, 2014, ATDI entered into a credit agreement that provided for a senior secured term loan facility in the aggregate principal amount of $300.0 million (the Term Loan). The Term Loan was issued at a discount of 0.25% which, combined with certain debt issuance costs paid at closing, resulted in net proceeds of approximately $290.9 million. The Term Loan will accrete based on an effective interest rate of 6% to an aggregate accreted value of $300.0 million, the full principal amount at maturity. The net proceeds from the Term Loan were used to finance a portion of the Terrys Tire Purchase Price. The maturity date for the Term Loan is June 1, 2018.
Borrowings under the Term Loan bear interest at a rate per annum equal to, at the Companys option, initially, either (a) a Eurodollar rate determined by reference to LIBOR, plus an applicable margin of 4.75% or (b) a base rate determined by reference to the highest of (1) the federal funds rate plus 1⁄2 of 1%, (2) the prime commercial lending rate published by the Bank of America, N.A. as its prime rate for commercial loans and (3) the one month Eurodollar rate plus 1.0%, plus an applicable margin of 3.75%. The Eurodollar rate is subject to an interest rate floor of 1.0%. The applicable margins under the Term Loan are subject to a step down based on a consolidated net leverage ratio, as defined in the agreement.
All obligations under the Term Loan are unconditionally guaranteed by Holdings and, subject to certain customary exceptions, all of ATDIs existing and future, direct and indirect, wholly-owned domestic material subsidiaries. Obligations under the Term Loan are secured by a first-priority lien on substantially all property, assets and capital stock of ATDI except accounts receivable, inventory and related intangible assets and a second-priority lien on all accounts receivable and related intangible assets.
F-48
ATD CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Term Loan contains customary covenants, including covenants that restrict the Companys ability to incur additional debt, create liens, enter into guarantees, enter into certain mergers, make certain loans and investments, dispose of assets, prepay certain debt, declare dividends, modify certain material agreements, enter into transactions with affiliates, change the nature of the Companys business or change the Companys fiscal year.
Subject to certain exceptions, the Company is required to repay the Term Loan in certain circumstances, including with 50% (which percentage will be reduced to 25% and 0%, as applicable, subject to attaining certain senior secured net leverage ratios) of its annual excess cash flow, as defined in the Term Loan agreement. The Term Loan also contains repayments provision related to non-ordinary course asset or property sales when certain conditions are met, and related to the incurrence of debt that is not permitted under the agreement.
Amendment of Management Equity Incentive Plan and Issuance of Stock Options and Restricted Stock Units
On April 28, 2014, the board of directors of the Company amended the Management Equity Incentive Plan, or the 2010 Plan, to increase the maximum number of shares of common stock of the Company for which stock options may be granted under the 2010 Plan from 52.1 million to 54.4 million. In addition to the increase in the maximum number of shares, on April 28, 2014 the board of directors of the Company approved the issuance of stock options to certain members of management and the issuance of restricted stock units to the non-employee directors of the Company. The approved stock options are for the purchase of up to 4.5 million shares of common stock, have an exercise price of $1.50 per share and vest over a two-year vesting period. The approved restricted stock units are for the issuance of up to 0.1 million shares of common stock, have a grant date fair value of $1.50 per share and vest over a two-year vesting period.
On June 16, 2014, the Company amended its credit agreement relating to its senior secured term loan facility to borrow an additional $340 million on the same terms as our existing Term Loan. Pursuant to the amendment, until August 15, 2014, the Company also has the right to borrow up to an additional $80 million on the same terms as its existing Term Loan. The proceeds from these additional borrowings were or will be used to redeem all amounts outstanding under the Companys Senior Secured Notes and pay related fees and expenses, as well as for working capital requirements and other general corporate purposes, including the financing of potential future acquisitions.
F-49
SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS
For the Fiscal Years ended December 28, 2013, December 29, 2012 and December 31, 2011
Additions |
||||||||||||||||||||||||
In thousands |
Balance |
Charged to Costs |
Charged |
Deductions |
Currency |
Balance |
||||||||||||||||||
2013 |
||||||||||||||||||||||||
Allowance for doubtful accounts |
$ | 950 | $ | 1,795 | $ | | $ | (491 | ) (1) | $ | (85 | ) | $ | 2,169 | ||||||||||
Acquisition exit cost reserves (2) |
1,839 | 636 | | (1,094 | ) | (171 | ) | 1,210 | ||||||||||||||||
Inventory reserves |
410 | 611 | | (616 | ) | (262 | ) | 143 | ||||||||||||||||
Sales returns and allowances |
2,167 | 1,485 | | (753 | ) | (55 | ) | 2,844 | ||||||||||||||||
Valuation allowance on deferred tax assets |
762 | | | (12 | ) | | 750 | |||||||||||||||||
2012 |
||||||||||||||||||||||||
Allowance for doubtful accounts |
$ | 696 | $ | 1,996 | $ | | $ | (1,740 | ) (1) | $ | (2 | ) | $ | 950 | ||||||||||
Acquisition exit cost reserves (2) |
3,865 | 528 | | (2,549 | ) | (5 | ) | 1,839 | ||||||||||||||||
Inventory reserves |
514 | 419 | | (502 | ) | (21 | ) | 410 | ||||||||||||||||
Sales returns and allowances |
1,982 | 2,224 | | (2,036 | ) | (3 | ) | 2,167 | ||||||||||||||||
Valuation allowance on deferred tax assets |
840 | | | (78 | ) | | 762 | |||||||||||||||||
2011 |
||||||||||||||||||||||||
Allowance for doubtful accounts |
$ | 340 | $ | 1,911 | $ | | $ | (1,555 | ) (1) | $ | | $ | 696 | |||||||||||
Acquisition exit cost reserves (2) |
6,975 | (498 | ) | | (2,612 | ) | | 3,865 | ||||||||||||||||
Inventory reserves |
192 | 480 | | (158 | ) | | 514 | |||||||||||||||||
Sales returns and allowances |
29 | 2,996 | | (1,043 | ) | | 1,982 | |||||||||||||||||
Valuation allowance on deferred tax assets |
596 | 244 | | | | 840 |
(1) | Accounts written off during the year, net of recoveries. |
(2) | Amounts represent facilities closing cost of acquired distribution centers due to existing distribution centers being located in close proximity to the acquired distribution facilities. |
F-50
ATD CORPORATION
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INDEX
F-51
Condensed Consolidated Balance Sheets
(Unaudited)
In thousands, except share amounts |
July 5, 2014 |
December 28, 2013 |
||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 27,533 | $ | 35,760 | ||||
Accounts receivable, net |
457,560 | 305,247 | ||||||
Inventories |
1,109,606 | 772,733 | ||||||
Income tax receivable |
27,113 | 369 | ||||||
Deferred income taxes |
18,923 | 15,719 | ||||||
Assets held for sale |
5,529 | 910 | ||||||
Other current assets |
35,110 | 19,684 | ||||||
|
|
|
|
|||||
Total current assets |
1,681,374 | 1,150,422 | ||||||
|
|
|
|
|||||
Property and equipment, net |
202,756 | 147,856 | ||||||
Goodwill |
706,134 | 504,333 | ||||||
Other intangible assets, net |
1,122,374 | 713,294 | ||||||
Other assets |
35,328 | 25,750 | ||||||
|
|
|
|
|||||
Total assets |
$ | 3,747,966 | $ | 2,541,655 | ||||
|
|
|
|
|||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 739,706 | $ | 563,691 | ||||
Accrued expenses |
71,597 | 45,116 | ||||||
Liabilities held for sale |
426 | | ||||||
Current maturities of long-term debt |
10,120 | 564 | ||||||
|
|
|
|
|||||
Total current liabilities |
821,849 | 609,371 | ||||||
|
|
|
|
|||||
Long-term debt |
1,934,177 | 966,436 | ||||||
Deferred income taxes |
319,222 | 268,432 | ||||||
Other liabilities |
23,659 | 17,362 | ||||||
Commitments and contingencies |
||||||||
Stockholders equity: |
||||||||
Common stock, par value $.01 per share; 2,000,000,000 shares authorized; 768,082,437 and 734,168,402 shares, respectively, issued and outstanding |
7,681 | 7,342 | ||||||
Additional paid-in capital |
803,278 | 751,630 | ||||||
Accumulated earnings (deficit) |
(153,378 | ) | (69,818 | ) | ||||
Accumulated other comprehensive income (loss) |
(8,522 | ) | (9,100 | ) | ||||
|
|
|
|
|||||
Total stockholders equity |
649,059 | 680,054 | ||||||
|
|
|
|
|||||
Total liabilities and stockholders equity |
$ | 3,747,966 | $ | 2,541,655 | ||||
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
F-52
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
In thousands, except per share amounts |
Quarter 2014 |
Quarter |
Six Months 2014 |
Six Months |
||||||||||||
Net sales |
$ | 1,267,582 | $ | 955,075 | $ | 2,343,051 | $ | 1,795,053 | ||||||||
Cost of goods sold, excluding depreciation included in selling, general and administrative expenses below |
1,063,376 | 802,492 | 1,980,690 | 1,510,648 | ||||||||||||
Selling, general and administrative expenses |
204,003 | 137,312 | 381,313 | 272,825 | ||||||||||||
Management fees |
14,967 | 1,255 | 15,575 | 2,246 | ||||||||||||
Transaction expenses |
15,490 | 2,266 | 20,176 | 3,289 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating income (loss) |
(30,254 | ) | 11,750 | (54,703 | ) | 6,045 | ||||||||||
Other income (expense): |
||||||||||||||||
Interest expense |
(32,223 | ) | (17,387 | ) | (56,622 | ) | (34,627 | ) | ||||||||
Loss on extinguishment of debt |
(17,113 | ) | | (17,113 | ) | | ||||||||||
Other, net |
3,752 | (1,935 | ) | 1,950 | (2,908 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) from continuing operations before income taxes |
(75,838 | ) | (7,572 | ) | (126,488 | ) | (31,490 | ) | ||||||||
Income tax provision (benefit) |
(26,370 | ) | (1,735 | ) | (42,976 | ) | (9,362 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) from continuing operations |
(49,468 | ) | (5,837 | ) | (83,512 | ) | (22,128 | ) | ||||||||
Income (loss) from discontinued operations, net of tax |
(48 | ) | | (48 | ) | | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) |
$ | (49,516 | ) | $ | (5,837 | ) | $ | (83,560 | ) | $ | (22,128 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Net income (loss) per share: |
||||||||||||||||
Basic |
$ | (0.06 | ) | $ | (0.01 | ) | $ | (0.11 | ) | $ | (0.03 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Diluted |
$ | (0.06 | ) | $ | (0.01 | ) | $ | (0.11 | ) | $ | (0.03 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Other comprehensive income (loss): |
||||||||||||||||
Unrealized gain (loss) on rabbi trust assets, net of tax tax of $40, $34, $37, $77, respectively |
$ | 45 | $ | 52 | $ | 57 | $ | 119 | ||||||||
Foreign currency translation |
5,762 | (5,431 | ) | 521 | (7,242 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other comprehensive income (loss) |
5,807 | (5,379 | ) | 578 | (7,123 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Comprehensive income (loss) |
$ | (43,709 | ) | $ | (11,216 | ) | $ | (82,982 | ) | $ | (29,251 | ) | ||||
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
F-53
Condensed Consolidated Statement of Stockholders Equity
(Unaudited)
In thousands, except share amounts |
Total Stockholders Equity |
Additional Paid-In Capital |
Accumulated Earnings (Deficit) |
Accumulated Other Comprehensive (Loss) Income |
||||||||||||||||||||
Common Stock |
||||||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||
Balance, December 28, 2013 |
$ | 680,054 | 734,168,402 | $ | 7,342 | $ | 751,630 | $ | (69,818 | ) | $ | (9,100 | ) | |||||||||||
Net income (loss) |
(83,560 | ) | | | | (83,560 | ) | | ||||||||||||||||
Unrealized gain (loss) on rabbi trust assets, net of tax |
57 | | | | | 57 | ||||||||||||||||||
Foreign currency translation |
521 | | | | | 521 | ||||||||||||||||||
Equity contribution |
50,000 | 33,333,334 | 333 | 49,667 | ||||||||||||||||||||
Issuance of restricted stock |
| 133,333 | 1 | (1 | ) | |||||||||||||||||||
Correction of previously issued restricted stock |
| 447,368 | 5 | (5 | ) | |||||||||||||||||||
Stock-based compensation expense |
1,987 | | | 1,987 | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance, July 5, 2014 |
$ | 649,059 | 768,082,437 | $ | 7,681 | $ | 803,278 | $ | (153,378 | ) | $ | (8,522 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
F-54
Condensed Consolidated Statements of Cash Flows
(Unaudited)
In thousands |
Six Months July 5, 2014 |
Six Months |
||||||
Cash flows from operating activities: |
||||||||
Net income (loss) |
$ | (83,560 | ) | $ | (22,128 | ) | ||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
||||||||
Income (loss) from discontinued operations, net of tax |
48 | | ||||||
Loss on extinguishment of debt |
17,113 | | ||||||
Call premium and interest paid on redemption of Senior Secured Notes |
(16,303 | ) | | |||||
Depreciation and amortization |
66,013 | 51,140 | ||||||
Amortization of other assets |
2,959 | 2,131 | ||||||
Provision (benefit) for deferred income taxes |
(12,357 | ) | (12,632 | ) | ||||
Non-cash inventory step-up amortization |
31,640 | 4,907 | ||||||
Provision for doubtful accounts |
1,207 | 1,223 | ||||||
Stock-based compensation |
1,987 | 1,452 | ||||||
Other, net |
1,500 | (868 | ) | |||||
Change in operating assets and liabilities (excluding impact from acquisitions): |
||||||||
Accounts receivable |
(38,303 | ) | 4,976 | |||||
Inventories |
(100,057 | ) | (11,127 | ) | ||||
Income tax receivable |
(26,652 | ) | 644 | |||||
Other current assets |
(8,141 | ) | 2,931 | |||||
Accounts payable and accrued expenses |
(8,974 | ) | 6,364 | |||||
Other, net |
4,335 | 20 | ||||||
|
|
|
|
|||||
Net cash provided by (used in) continuing operating activities |
(167,545 | ) | 29,033 | |||||
|
|
|
|
|||||
Net cash provided by (used in) discontinued operations |
350 | | ||||||
|
|
|
|
|||||
Net cash provided by (used in) operating activities |
(167,195 | ) | 29,033 | |||||
|
|
|
|
|||||
Cash flows from investing activities: |
||||||||
Acquisitions, net of cash acquired |
(822,166 | ) | (64,844 | ) | ||||
Purchase of property and equipment |
(34,241 | ) | (23,848 | ) | ||||
Purchase of assets held for sale |
(28 | ) | (875 | ) | ||||
Proceeds from sale of property and equipment |
228 | 64 | ||||||
Proceeds from sale of assets held for sale |
784 | 971 | ||||||
|
|
|
|
|||||
Net cash provided by (used in) continuing investing activities |
(855,423 | ) | (88,532 | ) | ||||
|
|
|
|
|||||
Net cash provided by (used in) discontinued investing activities |
| | ||||||
|
|
|
|
|||||
Net cash provided by (used in) investing activities |
(855,423 | ) | (88,532 | ) | ||||
|
|
|
|
|||||
Cash flows from financing activities: |
||||||||
Borrowings from revolving credit facility |
2,532,401 | 1,476,178 | ||||||
Repayments of revolving credit facility |
(2,252,811 | ) | (1,404,157 | ) | ||||
Outstanding checks |
9,208 | (7,765 | ) | |||||
Payments of deferred financing costs |
(15,796 | ) | (1,067 | ) | ||||
Payments of other long-term debt |
(3,057 | ) | (189 | ) | ||||
Payment for Senior Secured Notes redemption |
(246,900 | ) | | |||||
Proceeds from issuance of long-term debt |
940,313 | | ||||||
Equity contribution |
50,000 | | ||||||
|
|
|
|
|||||
Net cash provided by (used in) continuing financing activities |
1,013,358 | 63,000 | ||||||
|
|
|
|
|||||
Net cash provided by (used in) discontinued financing activities |
| | ||||||
|
|
|
|
|||||
Net cash provided by (used in) financing activities |
1,013,358 | 63,000 | ||||||
|
|
|
|
|||||
Effect of exchange rate changes on cash |
1,033 | (2,548 | ) | |||||
Net increase (decrease) in cash and cash equivalents |
(8,227 | ) | 953 | |||||
Cash and cash equivalentsbeginning of period |
35,760 | 34,700 | ||||||
|
|
|
|
|||||
Cash and cash equivalentsend of period |
$ | 27,533 | $ | 35,653 | ||||
|
|
|
|
|||||
Supplemental disclosures of cash flow information: |
||||||||
Cash payments for interest |
$ | 58,025 | $ | 33,036 | ||||
Cash payments (receipts) for taxes, net |
$ | 3,817 | $ | 2,464 |
See accompanying notes to condensed consolidated financial statements.
F-55
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Nature of Business:
ATD Corporation (also referred to herein as ATD Corp and formerly Accelerate Parent Corp.) is a Delaware corporation that indirectly owns 100% of the issued and outstanding capital stock of American Tire Distributors Holdings, Inc. (Holdings), a Delaware corporation. Holdings owns 100% of the issued and outstanding capital stock of American Tire Distributors, Inc. (ATDI), a Delaware corporation. ATD Corp has no significant assets or operations other than its ownership of ATDI. The operations of ATDI and its subsidiaries constitute the operations of ATD Corp presented under accounting principles generally accepted in the United States. ATDI is primarily engaged in the wholesale distribution of tires, custom wheels and accessories, and related tire supplies and tools. Its customer base is comprised primarily of independent tire dealers with the remainder of other customers representing various national and corporate accounts. ATDI serves a majority of the contiguous United States, as well as Canada, through one operating and reportable segment. Unless the context otherwise requires, Company herein refers to ATD Corp and its consolidated subsidiaries. In June 2014, the Company changed its name from Accelerate Parent Corp. to ATD Corporation. On May 28, 2010, pursuant to an Agreement and Plan of Merger, dated as of April 20, 2010, the Company was acquired by TPG Capital, L.P. (TPG or the Sponsor) and certain co-investors (the TPG Merger).
2. Basis of Presentation:
The accompanying condensed consolidated financial statements reflect the consolidated operations of the Company and have been prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) as defined by the Financial Accounting Standards Board (FASB) within the FASB Accounting Standards Codification (FASB ASC). In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments, which include normal recurring adjustments, necessary to present fairly the consolidated unaudited results for the interim periods presented. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the fiscal year ended December 28, 2013.
The Companys fiscal year is based on either a 52- or 53-week period ending on the Saturday closest to each December 31. Therefore, the financial results of 53-week fiscal years, and the associated 14-week quarter, will not be comparable to the prior and subsequent 52-week fiscal years and the associated quarters having only 13 weeks. The quarters ended July 5, 2014 and June 29, 2013 each contain operating results for 13 weeks. The six months ended July 5, 2014 contains 27 weeks while the six months ended June 29, 2013 contains 26 weeks. It should be noted that the Company and its recently acquired subsidiaries, Hercules, Terrys Tire, Trail Tire, Extreme Wheel, Kirks Tire, RTD Edmonton and RTD Calgary, all as defined below, have different quarter-end reporting dates. Each of these acquired subsidiaries has a June 30 quarter-end reporting date. There were no significant changes to the business subsequent to their fiscal period ends that would have a material impact on the condensed consolidated balance sheet or condensed consolidated statement of comprehensive income (loss) as of and for the quarter and six months ended July 5, 2014.
3. Recent Accounting Pronouncements:
In July 2013, the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. ASU 2013-11 clarifies guidance and eliminates diversity in practice on the presentation of unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. This new guidance is effective for annual reporting periods beginning on or after December 15, 2013 and subsequent interim periods. The Company adopted this guidance on December 29, 2013 (the first day of its 2014 fiscal year) and its adoption did not have a material impact on the Companys consolidated financial statements.
F-56
ATD Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
In April 2014, the FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, (ASU 2014-08). Under ASU 2014-08, only disposals representing a strategic shift in operations that have a major effect on the companys operations and financial results should be presented as discontinued operations. Additionally, ASU 2014-08 requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The amendments in ASU 2014-08 are effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. However, ASU 2014-08 should not be applied to a component that is classified as held for sale before the effective date even if the component is disposed of after the effective date. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in financial statement previously issued. The Company is currently assessing the impact, if any, on its consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which provides guidance for revenue recognition. ASU 2014-09 affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets and supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. This ASU also supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type Contracts. The standards core principle is that a company should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under todays guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 is effective for the Company beginning in fiscal year 2018 and, at that time the Company may adopt the new standard under the full retrospective method or the modified retrospective method. Early adoption is not permitted. The Company is currently evaluating the method and impact the adoption of ASU 2014-08 will have on the Companys consolidated financial statements and disclosures.
4. Acquisitions:
2014 Acquisitions
On June 27, 2014, TriCan Tire Distributors Inc. (TriCan), an indirect wholly-owned subsidiary of Holdings, entered into and closed an Asset Purchase Agreement (the Trail Tire Purchase Agreement) with Trail Tire Distributors Ltd., a corporation formed under the laws of the Province of Alberta (Trail Tire) and the shareholders and principals of Trail Tire, pursuant to which TriCan agreed to acquire the wholesale distribution business of Trail Tire. Trail Tire is a wholesale distributor of tires, tire parts, tire accessories and related equipment in Canada. The acquisition of Trail Tire will further strengthen TriCans presence in the Alberta Province of Canada and complements TriCans current operations in Canada.
The Trail Tire acquisition closed for aggregate cash consideration of approximately $20.8 million (the Trail Tire Purchase Price). The aggregate cash consideration was funded through borrowings under the Companys existing ABL credit facility. The Trail Tire Purchase Price is subject to certain post-closing adjustments, including, but not limited to, working capital adjustments.
On June 27, 2014, TriCan entered into and closed an Asset Purchase Agreement (the Extreme Purchase Agreement) with Extreme Wheel Distributors Ltd., a corporation formed under the laws of the Province of Alberta (Extreme), and the shareholder and principal of Extreme, pursuant to which TriCan agreed to acquire
F-57
ATD Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
the wholesale distribution business of Extreme. Extreme is a wholesale distributor of wheels and related accessories in Canada. The acquisition of Extreme will further strengthen TriCans presence in the Alberta Province of Canada and complements TriCans current operations in Canada.
The Extreme acquisition closed for aggregate cash consideration of approximately $6.5 million (the Extreme Purchase Price). The aggregate cash consideration was funded through borrowings under the Companys existing ABL credit facility. The Extreme Purchase Price is subject to certain post-closing adjustments, including, but not limited to, working capital adjustments.
On June 27, 2014, TriCan entered into and closed an Asset Purchase Agreement (the Kirks Tire Purchase Agreement) with Kirks Tire Ltd., a corporation formed under the laws of the Province of Alberta (Kirks Tire), and the shareholders and principals of Kirks Tire, pursuant to which TriCan agreed to acquire the wholesale distribution business of Kirks Tire. Kirks Tire is engaged in (i) the wholesale distribution of tires, tire parts, tire accessories and related equipment and (ii) the retail sale and installation of tires, tire parts, and tire accessories and the manufacturing and sale of retread tires. Kirks Tires retail operations were not acquired by TriCan and will continue to operate under its current ownership. The acquisition of the wholesale distribution business of Kirks Tire will further strengthen TriCans presence in the Alberta Province of Canada and complements TriCans current operations in Canada.
The Kirks Tire acquisition closed for aggregate cash consideration of approximately $73.0 million (the Kirks Tire Purchase Price). The Kirks Tire Purchase Price was funded through borrowings under the Companys existing ABL credit facility. The Kirks Tire Purchase Price is subject to certain post-closing adjustments, including, but not limited to, working capital adjustments.
On June 27, 2014, TriCan entered into and closed an Asset Purchase Agreement (the RTD Edmonton Purchase Agreement) with Regional Tire Distributors (Edmonton) Inc. (RTD Edmonton), a corporation formed under the laws of the Province of Alberta, and the shareholders and principals of RTD Edmonton, pursuant to which TriCan agreed to acquire the wholesale distribution business of RTD Edmonton. RTD Edmonton is a wholesale distributor of tires, tire parts, tire accessories and related equipment. The acquisition of RTD Edmonton will further strengthen TriCans presence in the Alberta Province of Canada and complements TriCans current operations in Canada.
The RTD Edmonton acquisition closed for aggregate cash consideration of approximately $31.9 million (the RTD Edmonton Purchase Price). The RTD Edmonton Purchase Price was funded through borrowings under the Companys existing ABL credit facility. The RTD Edmonton Purchase Price is subject to certain post-closing adjustments, including, but not limited to, working capital adjustments.
On June 27, 2014, TriCan entered into and closed an Asset Purchase Agreement (the RTD Calgary Purchase Agreement) with Regional Tire Distributors (Calgary) Inc. (RTD Calgary), a corporation formed under the laws of the Province of Alberta, and the shareholders and principals of RTD Calgary, pursuant to which TriCan agreed to acquire the wholesale distribution business of RTD Calgary. RTD Calgary is a wholesale distributor of tires, tire parts, tire accessories and related equipment. The acquisition of RTD Calgary will further strengthen TriCans presence in the Alberta Province of Canada and complements TriCans current operations in Canada.
The RTD Calgary acquisition closed for aggregate cash consideration of approximately $20.7 million (the RTD Calgary Purchase Price). The RTD Calgary Purchase Price was funded by borrowings under the Companys existing ABL credit facility. The RTD Calgary Purchase Price is subject to certain post-closing adjustments, including, but not limited to, working capital adjustments.
F-58
ATD Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
On March 28, 2014, ATDI completed its acquisition of Terrys Tire Town Holdings, Inc., an Ohio corporation (Terrys Tire and such acquisition, the Terrys Tire Acquisition). The Terrys Tire Acquisition was completed pursuant to a Stock Purchase Agreement (the Stock Purchase Agreement) entered into on February 17, 2014 between ATDI and TTT Holdings, Inc., a Delaware corporation. Terrys Tire and its subsidiaries are engaged in the business of purchasing, marketing, distributing and selling tires, wheels and related tire and wheel accessories on a wholesale basis to tire dealers, wholesale distributors, retail chains, automotive dealers and others, retreading tires and selling retread and other commercial tires through commercial outlets to end users and selling tires directly to consumers via the internet. Terrys Tire operated 10 distribution centers spanning from Virginia to Maine and in Ohio. The acquisition of Terrys Tire will enhance the Companys market position in these areas and aligns very well with their distribution centers, especially the new distribution centers opened by the Company over the past two years in the Northeast and Ohio.
The Terrys Tire acquisition closed for an aggregate purchase price of approximately $372.7 million (the Terrys Tire Purchase Price), consisting of cash consideration of approximately $358.0 million, contingent consideration of $12.5 million and non-cash consideration for debt assumed of $2.2 million. The cash consideration paid for the Terrys Tire Acquisition included estimated working capital adjustments and a portion of consideration contingent on certain events achieved prior to closing. During second quarter 2014, the Company finalized the post-closing working capital adjustments in accordance with the purchase agreement. This adjustment decreased the Terrys Tire Purchase Price by $5.4 million to $372.7 million with a corresponding decrease to goodwill of $5.4 million. The Terrys Tire Purchase Price was funded by a combination of borrowings under a new senior secured term loan facility, as more fully described in Note 9, and borrowings of approximately $72.5 million under Holdings existing U.S. ABL Facility. The Terrys Tire Purchase Price is subject to certain post-closing adjustments, including but not limited to, working capital adjustments. Of the $358.0 million in cash consideration, $41.4 million is held in escrow pending the resolution of the post-closing adjustments and other escrow release conditions in accordance with the terms of the Stock Purchase Agreement and escrow agreement.
On January 31, 2014, pursuant to an Agreement and Plan of Merger, dated January 24, 2014 (the Merger Agreement), among ATD Merger Sub II LLC (Merger Sub), an indirect wholly-owned subsidiary of Holdings, ATDI, Hercules Tire Holdings LLC, a Delaware limited liability company (Hercules Holdings), the equityholders of Hercules Holdings (each a Seller and, collectively the Sellers) and the Sellers Representative, Merger Sub merged with and into Hercules Holdings, with Hercules Holdings being the surviving entity (the Merger). As a result of the Merger, Hercules Holdings became an indirect 100% owned subsidiary of Holdings. Hercules Holdings owns all of the capital stock of The Hercules Tire & Rubber Company, a Connecticut corporation (Hercules). Hercules Holdings has no material assets or operations other than its ownership of Hercules. Hercules is engaged in the business of purchasing, marketing, distributing and selling after-market replacement tires for passenger cars, trucks, and certain off road vehicles to tire dealers, wholesale distributors, retail distributors and others in the United States, Canada and internationally. Hercules operated 15 distribution centers in the United States, 6 distribution centers in Canada and one warehouse in northern China. Hercules also markets the Hercules brand, which is one of the most sought-after proprietary tire brands in the industry. The acquisition of Hercules will strengthen the Companys presence in major markets such as California, Texas and Florida in addition to increasing its presence in Canada. Additionally, Hercules strong logistics and sourcing capabilities, including a long-standing presence in China, will also allow the Company to capitalize on the growing import market, as well as, providing the ability to expand the international sales of the Hercules brand. Finally, this acquisition, will allow the Company to be a brand marketer of the Hercules brand which today has a 2% market share of the passenger and light truck market in North America and a 3% share of highway truck tires in North America.
F-59
ATD Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Merger closed for an aggregate purchase price of approximately $318.9 million (the Hercules Closing Purchase Price), consisting of net cash consideration of $310.0 million, contingent consideration of $3.5 million and non-cash consideration for debt assumed of $5.4 million. The Hercules Closing Purchase Price includes an estimate for initial working capital adjustments. During second quarter 2014, the Company finalized the post-closing working capital adjustments in accordance with the Merger Agreement. This adjustment decreased the Hercules Closing Purchase Price by $0.4 million to $318.9 million with a corresponding decrease to goodwill of $0.4 million. The Merger Agreement provides for the payment of up to $6.5 million in additional consideration contingent upon the occurrence of certain post-closing events (to the extent payable, the Hercules Additional Purchase Price and, collectively with the Hercules Closing Purchase Price, the Hercules Purchase Price). The cash consideration paid for the Merger was funded by a combination of the issuance of additional Senior Subordinated Notes, as more fully described in Note 9, an equity contribution of $50.0 million from Holdings indirect parent, as more fully described in Note 14 and borrowings under Holdings credit agreement, as more fully described in Note 9. The Hercules Closing Purchase Price is subject to certain post-closing adjustments, including, but not limited to, working capital adjustments.
On January 17, 2014, TriCan entered into an Asset Purchase Agreement with Kipling Tire Co. LTD., a corporation governed by the laws of the Province of Ontario (Kipling), pursuant to which TriCan agreed to acquire the wholesale distribution business of Kipling. Kipling has operated as a retail-wholesale business since 1982. Kiplings wholesale business distributes tires from its Etobicoke facilities to approximately 400 retail customers in Southern Ontario. Kiplings retail operations were not acquired by TriCan and will continue to operate under its current ownership. This acquisition will further strengthen TriCans presence in the Southern Ontario region of Canada. The acquisition was completed on January 17, 2014 and was funded through the Companys Canadian ABL Facility. The Company does not believe the acquisition of Kipling is a material transaction subject to the disclosures and supplemental pro forma information required by ASC 805Business Combinations. As a result, the information is not presented.
F-60
ATD Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The acquisitions of Trail Tire, Extreme, Kirks Tire, RTD Edmonton, RTD Calgary, Terrys Tire and Hercules (collectively the 2014 Acquisitions) were recorded using the acquisition method of accounting in accordance with current accounting guidance for business combinations and non-controlling interest. As of the date of these financial statements, the Company is in the process of finalizing intangible asset valuations as well as continuing to evaluate the initial purchase price allocation for each of the 2014 Acquisitions with the exception of Hercules. Accordingly, management has used its best estimates in the allocation of the purchase price to assets acquired and liabilities assumed based on the estimated preliminary fair market value of such assets and liabilities at the date of each acquisition. As additional information is obtained about these assets and liabilities within the measurement period, the Company expects to refine its estimates of fair value to allocate the purchase price for the 2014 Acquisitions, with the exception of Hercules, more accurately. As of July 5, 2014, the purchase price allocation for Hercules is final. The preliminary allocation of the purchase price for each of the 2014 Acquisitions is as follows:
In thousands |
Terrys |
Hercules |
Trail |
Extreme |
Kirks |
RTD |
RTD |
Total |
||||||||||||||||||||||||
Cash |
$ | 7,431 | $ | 12,187 | $ | | $ | | $ | | $ | | $ | | $ | 19,618 | ||||||||||||||||
Accounts receivable |
39,772 | 61,193 | 5,571 | 987 | 5,315 | 1,164 | 1,924 | 115,926 | ||||||||||||||||||||||||
Inventory |
92,445 | 153,644 | 6,587 | 1,320 | 5,929 | 2,622 | 5,911 | 268,458 | ||||||||||||||||||||||||
Assets held for sale |
5,819 | | | | | | | 5,819 | ||||||||||||||||||||||||
Other current assets |
2,222 | 5,064 | | | | | | 7,286 | ||||||||||||||||||||||||
Deferred income taxes |
4,947 | | 124 | | | | | 5,071 | ||||||||||||||||||||||||
Property and equipment |
7,072 | 29,970 | 323 | 32 | | 6 | 556 | 37,959 | ||||||||||||||||||||||||
Intangible assets |
186,161 | 155,704 | 14,703 | 4,369 | 52,818 | 23,286 | 13,556 | 450,597 | ||||||||||||||||||||||||
Other assets |
289 | | | | | | | 289 | ||||||||||||||||||||||||
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Total assets acquired |
346,158 | 417,762 | 27,308 | 6,708 | 64,062 | 27,078 | 21,947 | 911,023 | ||||||||||||||||||||||||
Accounts payable |
80,771 | 95,616 | 7,025 | 891 | | 1,549 | 1,802 | 186,532 | ||||||||||||||||||||||||
Accrued and other liabilities |
3,904 | 6,154 | | | | | | 11,180 | ||||||||||||||||||||||||
Liabilities held for sale |
319 | | | | | | | 319 | ||||||||||||||||||||||||
Deferred income taxes |
| 68,516 | | | | | | 68,516 | ||||||||||||||||||||||||
Other liabilities |
| 2,325 | 468 | | 47 | | | 2,840 | ||||||||||||||||||||||||
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|||||||||||||||||
Total liabilities assumed |
84,994 | 172,611 | 7,493 | 891 | 47 | 1,549 | 1,802 | 269,387 | ||||||||||||||||||||||||
Net assets acquired |
261,164 | 245,151 | 19,815 | 5,817 | 64,015 | 25,529 | 20,145 | 641,636 | ||||||||||||||||||||||||
Goodwill |
111,492 | 73,708 | 948 | 685 | 8,975 | 6,382 | 526 | 202,716 | ||||||||||||||||||||||||
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Purchase price |
$ | 372,656 | $ | 318,859 | $ | 20,763 | $ | 6,502 | $ | 72,990 | $ | 31,911 | $ | 20,671 | $ | 844,352 | ||||||||||||||||
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The excess of the purchase price over the amounts allocated to identifiable assets and liabilities is included in goodwill. The premium in the purchase price paid for the 2014 Acquisitions primarily reflects growth opportunities from expanding the Companys distribution footprint into Western Canada and through the anticipated realization of operational and cost synergies. In addition, growth opportunities associated with the Hercules® brand also contributed to the premium in the purchase price paid for the Hercules acquisition.
Cash and cash equivalents, accounts receivable and accounts payable were stated at their historical carrying values, which approximate their fair value, given the short-term nature of these assets and liabilities. Inventory was recorded at fair value, based on computations which considered many factors including the estimated selling price of the inventory, the cost to dispose the inventory as well as the replacement cost of the inventory, where applicable.
F-61
ATD Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Company recorded intangible assets based on their estimated fair value which consisted of the following:
In thousands |
Terrys |
Hercules |
Trail |
Extreme |
Kirks |
RTD |
RTD |
Total |
||||||||||||||||||||||||
Customer list (1) |
$ | 185,776 | $ | 147,216 | $ | 14,703 | $ | 4,369 | $ | 52,818 | $ | 23,286 | $ | 13,556 | $ | 441,724 | ||||||||||||||||
Tradenames (2) |
| 8,488 | | | | | | 8,488 | ||||||||||||||||||||||||
Favorable leases (3) |
385 | | | | | | | 385 | ||||||||||||||||||||||||
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|
|||||||||||||||||
Total |
$ | 186,161 | $ | 155,704 | $ | 14,703 | $ | 4,369 | $ | 52,818 | $ | 23,286 | $ | 13,556 | $ | 450,597 | ||||||||||||||||
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(1) | Estimated useful lives range from sixteen to eighteen years. |
(2) | Esimated useful life is fifteen years |
(3) | Esimated useful lives range from four to five years. |
The Company utilized the excess earnings method, a derivation of the income approach, as well as the assistance of a third-party valuation report for certain acquisitions, to determine the fair value of the customer list intangible assets. The excess earnings method estimates the discounted net earnings attributable to the customer relationships that were acquired after considering items such as possible customer attrition. Based on the length and trend of projected cash flows, an estimated useful life of eighteen years was determined. The length of the projected cash flow period was determined by how quickly the customer relationships attrit based on the Companys historical experience in renewing and extending similar customer relationships and future expectations for renewing and extending similar existing customer relationships and represents the number of years over which the Company expects the customer relationships to economically contribute to the business. This estimate is based on the year in which 95.0% of the annual discounted cash flows were captured in the value of the customer list intangible asset. As of the date of this report, the Company is in the process of obtaining third-party valuations for the fair value of the intangible assets acquired from Trail Tire, Extreme, Kirks Tire, RTD Edmonton and RTD Calgary. Accordingly, the preliminary allocation for these acquisitions reflects managements best estimate of fair value using the excess earnings method.
As part of the acquisition of Terrys Tire, the Company acquired Terrys Tires commercial and retread businesses. As the Companys core business does not include commercial and retread operations, the Company decided that it would divest of these businesses. As it is managements intention to divest the commercial and retread businesses during fiscal 2014 and as all held for sale criteria has been met, the related assets, including the allocation of purchase price, and the related liabilities of the commercial and retread businesses are classified as held for sale within the accompanying condensed consolidated balance sheet. As part of the preliminary purchase price allocation, the estimated fair value of the assets held for sale was $5.8 million, including $4.5 million in current assets, net property and equipment of $0.8 million and goodwill of $0.5 million. The estimated fair value of the liabilities held for sale was $0.3 million of which the entire amount related to current liabilities. As additional information is obtained about these assets and liabilities within the measurement period, the Company expects to refine its estimate of the fair values related to these assets and liabilities.
The 2014 Acquisitions contributed net sales of approximately $265.5 million to the Company for the six months ended July 5, 2014. Net loss contributed by the 2014 Acquisitions during the six months ended July 5, 2014 was approximately $25.9 million which included non-cash amortization of the inventory step-up of $31.6 million and non-cash amortization expense on acquired intangible assets of $11.5 million.
2013 Acquisitions
On December 13, 2013, TriCan entered into a Share Purchase Agreement with Wholesale Tire Distributors Inc., a corporation formed under the laws of the Province of Ontario (WTD), Allan Bishop, an
F-62
ATD Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
individual resident in the Province of Ontario (Allan) and The Bishop Company Inc., a corporation formed under the laws of the Province of Ontario (BishopCo) (Allan and BishopCo each, a Seller and collectively, the Sellers), pursuant to which TriCan agreed to acquire from the Sellers all of the issued and outstanding shares of WTD. WTD operated two distribution centers serving over 2,300 customers. The acquisition of WTD strengthened the Companys market presence in the Southern Ontario region of Canada. The acquisition was completed on December 13, 2013 and was funded through cash on hand. The Company does not believe the acquisition of WTD is a material transaction, individually or when aggregated with the other non-material acquisitions discussed herein, subject to the disclosures and supplemental pro forma information required by ASC 805Business Combinations. As a result, the information is not presented.
The acquisition of WTD was recorded using the acquisition method of accounting in accordance with the accounting guidance for business combinations and non-controlling interest. The purchase price has been allocated to assets acquired and liabilities assumed based on the estimated fair market value of such assets and liabilities at the date of acquisition. A majority of the net assets acquired relate to a customer list intangible asset, which had an acquisition date fair value of $4.4 million. The excess of the purchase price over the amounts allocated to identifiable assets and liabilities is included in goodwill, and amounted to $1.2 million. The premium in the purchase price paid for the acquisition of WTD reflects the anticipated realization of operational and cost synergies.
On August 30, 2013, the Company entered into a Stock Purchase Agreement with Tire Distributors, Inc. (TDI) to acquire 100% of the outstanding capital stock of TDI. TDI operated one distribution center serving over 1,700 customers across Maryland and northeastern Virginia. The acquisition was completed on August 30, 2013 and was funded through the Companys ABL Facility. The Company does not believe the acquisition of TDI is a material transaction, individually or when aggregated with the other non-material acquisitions discussed herein, subject to the disclosures and supplemental pro forma information required by ASC 805Business Combinations. As a result, the information is not presented.
The acquisition of TDI was recorded using the acquisition method of accounting in accordance with the accounting guidance for business combinations and non-controlling interest. The purchase price has been allocated to assets acquired and liabilities assumed based on the estimated fair market value of such assets and liabilities at the date of acquisition. A majority of the net assets acquired relate to a customer list intangible asset, which had an acquisition date fair value of $3.4 million. The excess of the purchase price over the amounts allocated to identifiable assets and liabilities is included in goodwill, and amounted to $2.4 million. The premium in the purchase price paid for the acquisition of TDI reflects the anticipated realization of operational and cost synergies.
On March 22, 2013, TriCan and ATDI entered into a Share Purchase Agreement with Regional Tire Holdings Inc., a corporation formed under the laws of the Province of Ontario (Holdco), Regional Tire Distributors Inc. (RTD), a corporation formed under the laws of the Province of Ontario and a 100% owned subsidiary of Holdco, and the shareholders of Holdco, pursuant to which TriCan agreed to acquire from the shareholders of Holdco all of the issued and outstanding shares of Holdco for a purchase price of $62.5 million. Holdco has no significant assets or operations other than its ownership of RTD. The operations of RTD constitute the operations of Holdco. RTD is a wholesale distributor of tires, tire parts, tire accessories and related equipment in the Ontario and Atlantic provinces of Canada. The acquisition of RTD significantly expanded the Companys presence in the Ontario and Atlantic Provinces of Canada and complemented the Companys current operations in Canada.
The acquisition of RTD was completed on April 30, 2013 for aggregate cash consideration of approximately $64.9 million (the Adjusted Purchase Price) which includes initial working capital adjustments.
F-63
ATD Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The acquisition of RTD was funded by borrowings under the Companys ABL Facility and FILO Facility, as more fully described in Note 9. The Adjusted Purchase Price was subject to certain post-closing adjustments, including, but not limited to, the finalization of working capital adjustments. Of the $64.9 million Adjusted Purchase Price, $6.3 million is held in escrow pending the resolution of the post-closing adjustments and other escrow release conditions in accordance with the terms of the purchase agreement and escrow agreement. During third quarter 2013, the Company and the shareholders of Holdco agreed on the post-closing working capital adjustments in accordance with the purchase agreement. This adjustment increased the Adjusted Purchase Price by $1.0 million to $65.9 million with a corresponding increase to goodwill of $1.0 million.
The acquisition of RTD was recorded using the acquisition method of accounting in accordance with current accounting guidance for business combinations and non-controlling interest. As a result, the Adjusted Purchase Price has been allocated to assets acquired and liabilities assumed based on the estimated fair market value of such assets and liabilities at the date of acquisition. The allocation of the Adjusted Purchase Price is as follows:
In thousands |
||||
Cash |
$ | 904 | ||
Accounts receivable |
10,093 | |||
Inventory |
21,685 | |||
Other current assets |
998 | |||
Property and equipment |
1,050 | |||
Intangible assets |
42,990 | |||
Other assets |
52 | |||
|
|
|||
Total assets acquired |
77,772 | |||
Debt |
| |||
Accounts payable |
7,817 | |||
Accrued and other liabilities |
12,740 | |||
Deferred income taxes |
11,692 | |||
|
|
|||
Total liabilities assumed |
32,249 | |||
Net assets acquired |
45,523 | |||
Goodwill |
20,375 | |||
|
|
|||
Purchase price |
$ | 65,898 | ||
|
|
The excess of the purchase price over the amounts allocated to identifiable assets and liabilities is included in goodwill, and amounted to $20.4 million. The premium in the purchase price paid for the acquisition of RTD primarily relates to growth opportunities from expanding the Companys distribution footprint into Eastern Canada and through operating synergies available via the consolidation of certain distribution centers in Eastern Canada.
Cash and cash equivalents, accounts receivable and accounts payable were stated at their historical carrying values, which approximate their fair value, given the short-term nature of these assets and liabilities. Inventory was recorded at fair value, based on computation which considered many factors including the estimated selling price of the inventory, the cost to dispose the inventory as well as the replacement cost of the inventory, where applicable.
F-64
ATD Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Company recorded intangible assets based on their estimated fair value which consisted of the following:
In thousands |
Estimated |
Estimated |
||||||
Customer list |
16 years | $ | 40,720 | |||||
Tradenames |
5 years | 1,900 | ||||||
Favorable leases |
4 years | 370 | ||||||
|
|
|||||||
Total |
$ | 42,990 | ||||||
|
|
The following unaudited pro forma supplementary data gives effect to the 2014 Acquisitions as if these transactions had occurred on December 30, 2012 (the first day of the Companys 2013 fiscal year) and gives effect to the acquisition of RTD as if this transaction had occurred on January 1, 2012 (the first day of the Companys 2012 fiscal year). The pro forma supplementary data is provided for informational purposes only and should not be construed to be indicative of the Companys results of operations had the 2014 Acquisitions and the RTD acquisition been consummated on the date assumed or of the Companys results of operations for any future date.
Pro Forma |
||||||||||||||||
In thousands |
Quarter 2014 |
Quarter 2013 |
Six Months 2014 |
Six Months 2013 |
||||||||||||
Net sales |
$ | 1,304,618 | $ | 1,283,844 | $ | 2,552,328 | $ | 2,433,185 | ||||||||
Net income (loss) |
(35,532 | ) | (18,707 | ) | (78,948 | ) | (49,666 | ) | ||||||||
Net income (loss) per sharebasic |
$ | (0.05 | ) | $ | (0.03 | ) | $ | (0.10 | ) | $ | (0.07 | ) | ||||
Net income (loss) per sharediluted |
$ | (0.05 | ) | $ | (0.03 | ) | $ | (0.10 | ) | $ | (0.07 | ) |
The pro forma supplementary data for the quarters ended July 5, 2014 and June 29, 2013 includes $3.9 million and $11.1 million, respectively, as an increase to historical amortization expense as a result of acquired intangible assets while the six months ended July 5, 2014 and June 29, 2013 includes $13.1 million and $22.6 million, respectively. In addition, the pro forma supplementary data for the quarters ended July 5, 2014 and June 29, 2013 includes $1.3 million and $9.6 million, respectively, as an increase to historical interest expense as a result of the issuance of the additional Senior Subordinated Notes and the new senior secured term loan facility, as more fully described in Note 9, while the six months ended July 5, 2014 and June 29, 2013 includes $6.9 million and $19.7 million, respectively. For the quarter and six months ended July 5, 2014, the Company has included a reduction in non-recurring historical transaction expenses of $10.7 million and $42.9 million, respectively. These transaction expenses were incurred prior to the acquisition of Hercules and Terrys Tire and they are directly related to the acquisitions and are non-recurring. Additionally, for the quarter and six months ended July 5, 2014, the Company has included a reduction in historical cost of goods sold of $12.5 million and $31.5 million, respectively. The reduction in cost of goods sold relates to the elimination of the non-cash amortization of the inventory step-up recorded in connection with the Hercules and Terrys Tire acquisitions as this amortization is directly related to the acquisitions and non-recurring.
5. Inventories:
Inventories consist primarily of automotive tires, custom wheels and accessories and tire supplies and tools. Reported amounts are valued at the lower of cost, determined on the first-in, first-out (FIFO) method, or
F-65
ATD Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
fair market value. The Company performs periodic assessments to determine the existence of obsolete, slow-moving and non-saleable inventories and records necessary provisions to reduce such inventories to net realizable value. A majority of the Companys tire vendors allow for the return of tire products, subject to certain limitations, specified in supply arrangements with the vendors. In addition, the Companys inventory is collateral under the ABL Facility and the FILO Facility. See Note 9 for further information.
As a result of the TriCan acquisition in November 2012, the RTD, TDI and WTD acquisitions in fiscal 2013 and the 2014 Acquisitions, the carrying value of the acquired inventory was increased by $6.3 million, $2.7 million, $0.2 million, $0.5 million, and $34.4 million, respectively, to adjust to estimated fair value in accordance with the accounting guidance for business combinations. The step-up in inventory value for each acquisition was amortized into cost of goods sold over the period of the Companys normal inventory turns, which approximates two months. Amortization of the inventory step-up included in cost of goods sold in the accompanying condensed consolidated statements of comprehensive income (loss) for the quarter and six months ended July 5, 2014 was $12.5 million and $31.6 million, respectively, while amortization for the quarter and six months ended June 29, 2013 was $2.7 million and $4.9 million, respectively.
6. Assets Held for Sale:
In accordance with current accounting standards, the Company classifies assets as held for sale in the period in which all held for sale criteria is met. Assets held for sale are reported at the lower of their carrying amount or fair value less cost to sell and are no longer depreciated. During third quarter 2013, the Company classified a facility located in Georgia as held for sale. The facility was previously used as a distribution center within the Companys operations until its activities were relocated to an expanded facility. During the quarter ended July 5, 2014, the Company received $0.4 million in cash for the sale of this facility.
As part of the Terrys Tire acquisition, the Company acquired Terrys Tires commercial and retread businesses. See Note 4 for additional information regarding this acquisition. As it is managements intention to divest the commercial and retread businesses during fiscal 2014 and as all held for sale criteria has been met, the related assets and liabilities of the commercial and retread businesses are classified as held for sale within the accompanying condensed consolidated balance sheet. As of July 5, 2014, the carrying value of the assets held for sale for these businesses was $5.5 million, including $4.2 million in current assets, net property and equipment of $0.8 million and goodwill of $0.5 million.
7. Goodwill:
The Company records as goodwill the excess of the purchase price over the fair value of the net assets acquired. Once the final valuation has been performed for each acquisition, adjustments may be recorded. Goodwill is tested and reviewed annually for impairment during the fourth quarter or whenever there is a significant change in events or circumstances that indicate that the fair value of the asset may be less than the carrying amount of the asset.
The changes in the carrying amount of goodwill are as follows:
In thousands |
||||
Balance, December 28, 2013 |
$ | 504,333 | ||
Purchase accounting adjustments |
128 | |||
Acquisitions |
202,716 | |||
Currency translation |
(1,043 | ) | ||
|
|
|||
Balance, July 5, 2014 |
$ | 706,134 | ||
|
|
F-66
ATD Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
At July 5, 2014, the Company has recorded goodwill of $706.1 million, of which approximately $125.7 million of net goodwill is deductible for income tax purposes in future periods. The balance primarily relates to the TPG Merger on May 28, 2010, in which $418.6 million was recorded as goodwill. The Company does not have any accumulated goodwill impairment losses.
On June 27, 2014, TriCan completed its acquisition of the wholesale distribution businesses of Trail Tire, Extreme, Kirks Tire, RTD Edmonton and RTD Calgary. The purchase price has been preliminarily allocated to assets acquired and liabilities assumed based on the estimated fair market value of such assets and liabilities at the date of acquisition. As a result, the Company recorded $0.9 million, $0.7 million, $9.0 million, $6.4 million and $0.5 million, respectively, as goodwill. See Note 4 for additional information.
On March 28, 2014, ATDI completed its acquisition of Terrys Tire pursuant to a Stock Purchase Agreement entered into on February 17, 2014. The purchase price has been preliminarily allocated to assets acquired and liabilities assumed based on the estimated fair market value of such assets and liabilities at the date of acquisition. As a result, the Company recorded $111.5 million as goodwill. See Note 4 for additional information.
On January 31, 2014, the Company completed its acquisition of Hercules pursuant to an Agreement and Plan of Merger dated January 24, 2014. The purchase price has been preliminarily allocated to assets acquired and liabilities assumed based on the estimated fair market value of such assets and liabilities at the date of acquisition. During second quarter 2014, the Company finalized the post-closing working capital adjustments in accordance with the Merger Agreement. This adjustment decreased goodwill by $0.4 million to $73.7 million at July 5, 2014. See Note 4 for additional information.
On December 13, 2013, TriCan entered into a share Purchase Agreement to acquire all of the issued and outstanding common shares of WTD. The acquisition was funded through cash on hand. The purchase price has been allocated to assets acquired and liabilities assumed based on the estimated fair market value of such assets and liabilities at the date of acquisition. During first quarter 2014, the Company finalized the post-closing working capital adjustments in accordance with the purchase agreement. This increased goodwill by $0.1 million to a total of $1.2 million at July 5, 2014. See Note 4 for additional information.
8. Intangible Assets:
Indefinite-lived intangible assets are tested and reviewed annually for impairment during the fourth quarter or whenever there is a significant change in events or circumstances that indicate that the fair value of the asset may be less than the carrying amount of the asset. All other intangible assets with finite lives are being amortized on a straight-line or accelerated basis over periods ranging from one to nineteen years.
F-67
ATD Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table sets forth the gross amount and accumulated amortization of the Companys intangible assets at July 5, 2014 and December 28, 2013:
July 5, 2014 |
December 28, 2013 |
|||||||||||||||
In thousands |
Gross |
Accumulated |
Gross |
Accumulated |
||||||||||||
Customer lists |
$ | 1,124,662 | $ | 272,779 | $ | 677,062 | $ | 226,614 | ||||||||
Noncompete agreements |
13,878 | 8,235 | 12,007 | 6,400 | ||||||||||||
Favorable leases |
1,074 | 210 | 688 | 119 | ||||||||||||
Tradenames |
19,026 | 4,935 | 10,531 | 3,754 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total finite-lived intangible assets |
1,158,640 | 286,159 | 700,288 | 236,887 | ||||||||||||
Tradenames (indefinite-lived) |
249,893 | | 249,893 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total intangible assets |
$ | 1,408,533 | $ | 286,159 | $ | 950,181 | $ | 236,887 | ||||||||
|
|
|
|
|
|
|
|
At July 5, 2014, the Company had $1,122.4 million of intangible assets. The balance primarily relates to the TPG Merger on May 28, 2010, in which $781.3 million was recorded as intangible assets. As part of the preliminary purchase price allocation of Trail Tire, Extreme, Kirks Tire, RTD Edmonton and RTD Calgary, the Company allocated $14.7 million, $4.4 million, $52.8 million, $23.3 million and $13.6 million, respectively, to a finite-lived customer list intangible asset with a useful life of sixteen years. As part of the preliminary purchase price allocation of Terrys Tire, the Company allocated $185.8 million to a finite-lived customer list intangible asset with a useful life of eighteen years and $0.4 million to a favorable leases intangible asset with a useful life of five years. As part of the preliminary purchase price allocation of Hercules, the Company allocated $147.2 million to a finite-lived customer list intangible asset with a useful life of eighteen years and $8.5 million to a finite-lived tradename with a useful life of fifteen years. As part of the purchase price allocation of WTD, the Company allocated $4.4 million to a finite-lived customer list intangible asset with a useful life of sixteen years. As part of the purchase price allocation of TDI, the Company allocated $3.4 million to a finite-lived customer list intangible asset with a useful life of sixteen years. As part of the purchase price allocation of RTD, the Company allocated $40.7 million to a finite-lived customer list intangible asset with a useful life of sixteen years, $1.9 million to a finite-lived tradename with a useful life of five years and $0.4 million to a finite-lived favorable leases intangible asset with a useful life of four years.
Intangible asset amortization expense was $27.7 million and $19.0 million for the quarters ended July 5, 2014 and June 29, 2013 respectively. For the six months ended July 5, 2014 and June 29, 2013, intangible asset amortization expense was $49.0 million and $36.6 million, respectively. Estimated amortization expense on existing intangible assets is expected to approximate $59.5 million for the remaining six months of 2014 and approximately $126.2 million in 2015, $107.8 million in 2016, $93.2 million in 2017 and $79.9 million in 2018.
F-68
ATD Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
9. Long-term Debt:
The following table presents the Companys long-term debt at July 5, 2014 and at December 28, 2013:
In thousands |
July 5, 2014 |
December 28, 2013 |
||||||
U.S. ABL Facility |
$ | 641,639 | $ | 417,066 | ||||
Canadian ABL Facility |
53,165 | 36,424 | ||||||
U.S. FILO Facility |
80,000 | 51,863 | ||||||
Canadian FILO Facility |
10,266 | | ||||||
Term Loan |
717,693 | | ||||||
Senior Secured Notes |
| 248,219 | ||||||
Senior Subordinated Notes |
421,361 | 200,000 | ||||||
Capital lease obligations |
12,577 | 12,330 | ||||||
Other |
7,596 | 1,098 | ||||||
|
|
|
|
|||||
Total debt |
1,944,297 | 967,000 | ||||||
LessCurrent maturities |
(10,120 | ) | (564 | ) | ||||
|
|
|
|
|||||
Long-term debt |
$ | 1,934,177 | $ | 966,436 | ||||
|
|
|
|
The fair value of the Senior Subordinated Notes was $431.5 million at July 5, 2014 and $212.0 million at December 28, 2013 and was estimated using a discounted cash flow analysis with significant inputs that are not observable (Level 3) as there are no quoted prices in active markets for these notes. The fair value of the Term Loan was $718.1 million at July 5, 2014 and was estimated using a discounted cash flow analysis with significant inputs that are not observable (Level 3). The discount rate used in the fair value analysis for the Term Loan was based on borrowing rates available to the Company for debt with the same remaining maturity.
ABL Facility
On January 31, 2014, in connection with the Hercules acquisition, the Company entered into the Second Amendment to Sixth Amended and Restated Credit Agreement (Credit Agreement), which provides for (i) U.S. revolving credit commitments of $850.0 million (of which up to $50.0 million can be utilized in the form of commercial and standby letters of credit), subject to U.S. borrowing base availability (the U.S. ABL Facility) and (ii) Canadian revolving credit commitments of $125.0 million (of which up to $10.0 million can be utilized in the form of commercial and standby letters of credit), subject to Canadian borrowing base availability (the Canadian ABL Facility and, collectively with the U.S. ABL Facility, the ABL Facility). In addition, the Credit Agreement provides (i) the U.S. borrowers under the agreement with a first-in last-out facility (the U.S. FILO Facility) in the aggregate principal amount of up to $80.0 million, subject to a borrowing base specific thereto and (ii) the Canadian borrowers under the agreement with a first-in last-out facility (the Canadian FILO Facility and collectively with the U.S. FILO Facility, the FILO Facility) in an aggregate principal amount of up to $15.0 million, subject to a borrowing base specific thereto. The U.S. ABL Facility is available to ATDI, Am-Pac Tire Dist. Inc., Hercules and any other U.S. subsidiary that the Company designates in the future in accordance with the terms of the agreement. The Canadian ABL Facility is available to TriCan and any other Canadian subsidiaries that the Company designates in the future in accordance with the terms of the agreement. Provided that no default or event of default then exists or would arise therefrom, the Company has the option to request that the ABL Facility be increased by an amount not to exceed $175.0 million (up to $25.0 million of which may be allocated to the Canadian ABL Facility), subject to certain rights of the administrative agent, swingline lender and issuing banks providing commitments for such increase. The maturity date for the ABL
F-69
ATD Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Facility is November 16, 2017. The maturity date for the FILO Facility is January 31, 2017. During the six months ended July 5, 2014, the Company paid $0.7 million in debt issuance costs related to the ABL Facility and FILO Facility.
As of July 5, 2014, the Company had $641.6 million outstanding under the U.S. ABL Facility. In addition, the Company had certain letters of credit outstanding in the aggregate amount of $10.0 million, leaving $198.4 million available for additional borrowings under the U.S. ABL Facility. The outstanding balance of the Canadian ABL Facility at July 5, 2014 was $53.1 million, leaving $70.8 million available for additional borrowings. As of July 5, 2014, the outstanding balance of the U.S. FILO Facility was $80.0 million and the outstanding balance of the Canadian FILO Facility was $10.3 million.
Borrowings under the U.S. ABL Facility bear interest at a rate per annum equal to, at the Companys option, either (a) 200 basis points over an adjusted LIBOR rate or (b) 100 basis points over an alternative base rate (the higher of the prime rate, the federal funds rate plus 50 basis points and one month-adjusted LIBOR rate plus 100 basis points). The applicable margins under the U.S. ABL Facility are subject to step ups and step downs based on average excess borrowing availability under the ABL Facility.
Borrowings under the Canadian ABL Facility bear interest at a rate per annum equal to, at the Companys option, either (a) 100 basis points over an alternative Canadian base rate (the higher of the base rate as published by Bank of America, N.A., acting through its Canada branch, the federal funds rate plus 50 basis points and one month-LIBOR plus 100 basis points), (b) 100 basis points over a Canadian prime rate determined in accordance with the Canadian ABL Facility, (c) 200 basis points over a rate determined by reference to the average rate applicable to Canadian Dollar bankers acceptances having an identical or comparable term as the proposed loan amount or (d) 200 basis points over an adjusted LIBOR rate. The applicable margins under the Canadian ABL Facility are subject to step ups and step downs based on average excess borrowing availability under the ABL Facility.
Borrowings under the U.S. FILO Facility bear interest at a rate per annum equal to, at the Companys option, either (a) 350 basis points over an adjusted LIBOR rate or (b) 250 basis points over an alternative base rate (the higher of the prime rate, the federal funds rate plus 50 basis points and one month-adjusted LIBOR plus 100 basis points. The applicable margins under the U.S. FILO Facility are subject to step ups and step downs based on average excess borrowing availability under the ABL Facility.
Borrowings under the Canadian FILO Facility bear interest at a rate per annum equal to, at the Companys option, either (a) 250 basis points over an alternative Canadian base rate (the higher of the base rate as published by Bank of America, N.A., acting through its Canada branch, the federal funds rate plus 50 basis points and one month-LIBOR plus 100 basis points), (b) 250 basis points over a Canadian prime rate determined in accordance with the Canadian ABL Facility, (c) 350 basis points over a rate determined by reference to the average rate applicable to Canadian Dollar bankers acceptances having an identical or comparable term as the proposed loan amount or (d) 350 basis points over an adjusted LIBOR rate. The applicable margins under the Canadian FILO Facility are subject to step ups and step downs based on average excess borrowing availability under the ABL Facility.
The U.S. and Canadian borrowing base at any time equals the sum (subject to certain reserves and other adjustments) of:
| 85% of eligible accounts receivable of the U.S. or Canadian loan parties, as applicable; plus |
| The lesser of (a) 70% of the lesser of cost or market value of eligible tire inventory of the U.S. or Canadian loan parties, as applicable and (b) 85% of the net orderly liquidation value of eligible tire inventory of the U.S. or Canadian loan parties, as applicable; plus |
F-70
ATD Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| The lesser of (a) 50% of the lower of cost or market value of eligible non-tire inventory of the U.S. or Canadian loan parties, as applicable and (b) 85% of the net orderly liquidation value of eligible non-tire inventory of the U.S. or Canadian loan parties, as applicable. |
The U.S. FILO and the Canadian FILO borrowing base at any time equals the sum (subject to certain reserves and other adjustments) of:
| 5% of eligible accounts receivable of the U.S. or Canadian loan parties, as applicable; plus |
| 10% of the net orderly liquidation value of the eligible tire and non-tire inventory of the U.S. or Canadian loan parties, as applicable. |
All obligations under the U.S. ABL Facility and the U.S. FILO Facility are unconditionally guaranteed by Holdings and substantially all of ATDIs existing and future, direct and indirect, wholly-owned domestic material restricted subsidiaries, other than Tire Pros Francorp. The Canadian ABL Facility and the Canadian FILO Facility are unconditionally guaranteed by the U.S. loan parties, TriCan and any future, direct and indirect, wholly-owned, material restricted Canadian subsidiaries. Obligations under the U.S. ABL Facility and the U.S. FILO Facility are secured by a first-priority lien on inventory, accounts receivable and related assets and a second-priority lien on substantially all other assets of the U.S. loan parties, subject to certain exceptions. Obligations under the Canadian ABL Facility and the Canadian FILO Facility are secured by a first-priority lien on inventory, accounts receivable and related assets of the U.S. loan parties and the Canadian loan parties and a second-priority lien on substantially all other assets of the U.S. loan parties and the Canadian loan parties, subject to certain exceptions.
The ABL Facility and FILO Facility contain customary covenants, including covenants that restricts the Companys ability to incur additional debt, grant liens, enter into guarantees, enter into certain mergers, make certain loans and investments, dispose of assets, prepay certain debt, declare dividends, modify certain material agreements, enter into transactions with affiliates or change the Companys fiscal year. The terms of the ABL Facility and FILO Facility generally restrict distributions or the payment of dividends in respect of the Companys stock subject to certain exceptions requiring compliance with certain availability levels and fixed charge coverage ratios under the ABL Facility and other customary negotiated exceptions. As of July 5, 2014, the Company was in compliance with these covenants. If the amount available for additional borrowings under the ABL Facility is less than the greater of (a) 10.0% of the lesser of (x) the aggregate commitments under the ABL Facility and (y) the aggregate borrowing base and (b) $25.0 million, then the Company would be subject to an additional covenant requiring them to meet a fixed charge coverage ratio of 1.0 to 1.0. As of July 5, 2014, the Companys additional borrowing availability under the ABL Facility was above the required amount and the Company was therefore not subject to the additional covenants.
Senior Secured Term Loan
In connection with the acquisition of Terrys Tire, on March 28, 2014, ATDI entered into a credit agreement that provided for a senior secured term loan facility in the aggregate principal amount of $300.0 million (the Initial Term Loan). The Initial Term Loan was issued at a discount of 0.25% which, combined with certain debt issuance costs paid at closing, resulted in net proceeds of approximately $290.9 million. The Initial Term Loan will accrete based on an effective interest rate of 6% to an aggregate accreted value of $300.0 million, the full principal amount at maturity. The net proceeds from the Initial Term Loan were used to finance a portion of the Terrys Tire Purchase Price.
On June 16, 2014, ATDI amended the Initial Term Loan (the Incremental Amendment) to borrow an additional $340.0 million (the Incremental Term Loan) on the same terms as the Initial Term Loan. Pursuant to
F-71
ATD Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
the Incremental Amendment, until August 15, 2014 ATDI also has the right to borrow up to an additional $80.0 million (the Delayed Draw Term Loan and collectively with the Initial Term Loan and the Incremental Term Loan, the Term Loan) on the same terms as the Initial Term Loan. The proceeds from the Incremental Term Loan, net of related debt issuance costs paid at closing, amounted to approximately $335.7 million, and were used, in part, to redeem all $250.0 million aggregate principal amounts of notes outstanding under ATDIs Senior Secured Notes and related fees and expenses as more fully described below, and the remaining proceeds will be used for working capital requirements and other general corporate purposes, including the financing of potential future acquisitions. The Company received the proceeds from the Delayed Draw Term Loan at the end of the second quarter of 2014. The maturity date for the Term Loan is June 1, 2018. During the six months ended July 5, 2014, the Company paid $13.8 million in debt issuance cost related to the Term Loan.
Borrowings under the Term Loan bear interest at a rate per annum equal to, at the Companys option, either (a) a Eurodollar rate determined by reference to LIBOR, plus an applicable margin of 475 basis points or (b) 375 basis points over an alternative base rate determined by reference of the higher of the federal funds rate plus 50 basis points, the prime rate and 100 basis points over the one month Eurodollar rate. The Eurodollar rate is subject to an interest rate floor of 100 basis points. The applicable margins under the Term Loan are subject to a step down based on a consolidated net leverage ratio, as defined in the agreement.
All obligations under the Term Loan are unconditionally guaranteed by Holdings and, subject to certain customary exceptions, all of ATDIs existing and future, direct and indirect, wholly-owned domestic material subsidiaries. Obligations under the Term Loan are secured by a first-priority lien on substantially all property, assets and capital stock of ATDI except accounts receivable, inventory and related intangible assets and a second-priority lien on all accounts receivable and related intangible assets.
The Term Loan contains customary covenants, including covenants that restrict the Companys ability to incur additional debt, create liens, enter into guarantees, enter into certain mergers, make certain loans and investments, dispose of assets, prepay certain debt, declare dividends, modify certain material agreements, enter into transactions with affiliates, change the nature of the Companys business or change the Companys fiscal year. The terms of the Term Loan generally restrict distributions or the payment of dividends in respect to the Companys stock subject to certain exceptions such as the amount of 50% of net income (reduced by 100% of net losses) for the period beginning January 1, 2014 and other customary negotiated exceptions. As of July 5, 2014, the Company was in compliance with these covenants.
The Company is required to make principal payments equal to 0.25% of the aggregate principal amount outstanding under the Term Loan on the last business day of each March, June, September and December, commencing with the last business day of June 2014. In addition, subject to certain exceptions, the Company is required to repay the Term Loan in certain circumstances, including with 50% (which percentage will be reduced to 25% and 0%, as applicable, subject to attaining certain senior secured net leverage ratios) of its annual excess cash flow, as defined in the Term Loan agreement. The Term Loan also contains repayments provision related to non-ordinary course asset or property sales when certain conditions are met, and related to the incurrence of debt that is not permitted under the agreement.
Senior Secured Notes
On May 16, 2014, ATDI delivered a Notice of Full Redemption, providing for the redemption of all $250.0 million aggregate principal amount of the 9.75% Senior Secured Notes (Senior Secured Notes) on June 16, 2014 (the Redemption Date) at a price equal to 104.875% of the principal amount of the Senior
F-72
ATD Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Secured Notes redeemed plus accrued and unpaid interest, if any, to, but excluding the Redemption Date (the Redemption Price). On June 16, 2014, using proceeds from the Incremental Term Loan, the Senior Secured Notes were redeemed for a Redemption Price of $263.2 million.
Senior Subordinated Notes
On May 28, 2010, ATDI issued $200.0 million in aggregate principal amount of its 11.50% Senior Subordinated Notes due 2018 (the Initial Subordinated Notes). Interest on the Initial Subordinated Notes is payable semi-annually in arrears on June 1 and December 1 of each year, commencing on December 1, 2010.
In connection with the consummation of the Hercules acquisition, on January 31, 2014, ATDI completed the sale to certain purchasers of an additional $225.0 million in aggregate principal amount of its 11.50% Senior Subordinated Notes due 2018 (the Additional Subordinated Notes and, collectively with the Initial Subordinated Notes, the Senior Subordinated Notes). The Additional Subordinated Notes were issued at a discount from their principal amount at maturity and generated net proceeds of approximately $221.1 million. The Additional Subordinated Notes will accrete based on an effective interest rate of 12% to an aggregate accreted value of $225.0 million, the full principal amount at maturity. During the six months ended July 5, 2014, the Company paid $1.2 million in debt issuance cost related to the Additional Subordinated Notes.
The Additional Subordinated Notes have identical terms to the Initial Subordinated Notes except the Additional Subordinated Notes will accrue interest from January 31, 2014. The Additional Subordinated Notes and the Initial Subordinated Notes are treated as a single class of securities for all purposes under the indenture. The Senior Subordinated Notes will mature on June 1, 2018.
The Senior Subordinated Notes may be redeemed at any time at the option of ATDI, in whole or in part, upon not less than 30 nor more than 60 days notice at a redemption price of 102.0% of the principal amount if the redemption date occurs between June 1, 2014 and May 31, 2015 and 100.0% of the principal amount if the redemption date occurs between June 1, 2015 and May 31, 2016.
The Senior Subordinated Notes are unconditionally guaranteed by Holdings and substantially all of ATDIs existing and future, direct and indirect, wholly-owned domestic material restricted subsidiaries, other than Tire Pros Francorp, subject to certain exceptions.
The indenture governing the Senior Subordinated Notes contains covenants that, among other things, limits ATDIs ability and the ability of its restricted subsidiaries to incur additional debt or issue preferred stock; pay certain dividends or make certain distributions in respect of ATDIs or repurchase or redeem ATDIs capital stock; make certain loans, investments or other restricted payments; place restrictions on the ability of ATDIs subsidiaries to pay dividends or make other payments to ATDI; engage in transactions with stockholders or affiliates; transfer or sell certain assets; guarantee indebtedness or incur other contingent obligations; incur certain liens without securing the Senior Subordinated Notes; consolidate, merge or sell all or substantially all of ATDIs assets; enter into certain transactions with ATDIs affiliates; and designate ATDIs subsidiaries as unrestricted subsidiaries. The terms of the Senior Subordinated Notes generally restrict distributions or the payment of dividends in respect of the Companys stock subject to certain exceptions such as the amount of 50% of net income (reduced by 100% of net losses) for the period beginning April 4, 2010 and other customary negotiated exceptions. As of July 5, 2014, the Company was in compliance with these covenants.
F-73
ATD Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
10. Derivative Instruments:
In the normal course of business, the Company is exposed to the risk associated with exposure to fluctuations in interest rates on our variable rate debt. These fluctuations can increase the cost of financing, investing and operating the business. The Company has used derivative financial instruments to help manage this risk and reduce the impacts of these exposures and not for trading or other speculative purposes. All derivatives are recognized on the condensed consolidated balance sheet at their fair value as either assets or liabilities. Changes in the fair value of contracts that qualify for hedge accounting treatment are recorded in accumulated other comprehensive income (loss), net of taxes, and are recognized in the statement of comprehensive income (loss) at the time earnings are affected by the hedged transaction. For other derivatives, changes in the fair value of the contract are recognized immediately in net income (loss) in the statement of comprehensive income (loss).
On September 4, 2013, the Company entered into a spot interest rate swap and two forward-starting interest rate swaps (collectively the 3Q 2013 Swaps) each of which are used to hedge a portion of the Companys exposure to changes in its variable interest rate debt. The spot interest rate swap in place covers a notional amount of $100.0 million at a fixed interest rate of 1.145% and expires in September 2016. The forward-starting interest rate swaps in place cover an aggregate notional amount of $100.0 million, of which $50.0 million becomes effective in September 2014 at a fixed interest rate of 1.464% and will expire in September 2016 and $50.0 million becomes effective in September 2015 at a fixed interest rate of 1.942% and will expire in September 2016. The counterparty to each swap is a major financial institution. The 3Q 2013 Swaps do not meet the criteria to qualify for hedge accounting treatment; therefore, changes in the fair value of each contract is recognized in net income (loss) in the condensed consolidated statement of comprehensive income (loss).
On August 1, 2012, the Company entered into two interest rate swap agreements (3Q 2012 Swaps) used to hedge a portion of the Companys exposure to changes in its variable interest rate debt. The swaps in place cover an aggregate notional amount of $100.0 million, with each $50.0 million contract having a fixed rate of 0.655% and expiring in June 2016. The counterparty to each swap is a major financial institution. The 3Q 2012 Swaps do not meet the criteria to qualify for hedge accounting treatment; therefore, changes in the fair value of each contract is recognized in net income (loss) in the condensed consolidated statement of comprehensive income (loss).
On September 23, 2011, the Company entered into two interest rate swap agreements (3Q 2011 Swaps) used to hedge a portion of the Companys exposure to changes in its variable interest rate debt. The swaps in place cover an aggregate notional amount of $100.0 million, of which $50.0 million is at a fixed rate of 0.74% and will expire in September 2014 and $50.0 million is at a fixed rate of 1.0% and will expire in September 2015. The counterparty to each swap is a major financial institution. The 3Q 2011 Swaps do not meet the criteria to qualify for hedge accounting treatment; therefore, changes in the fair value of each contract is recognized in net income (loss) in the condensed consolidated statement of comprehensive income (loss).
On February 24, 2011, the Company entered into two interest rate swap agreements (1Q 2011 Swaps) used to hedge a portion of the Companys exposure to changes in its variable interest rate debt. The swaps in place covered an aggregate notional amount of $75.0 million, of which $25.0 million was at a fixed interest rate of 0.585% and expired in February 2012. The remaining swap covered an aggregate notional amount of $50.0 million at a fixed interest rate of 1.105% and expired in February 2013. The counterparty to each swap was a major financial institution. Neither swap met the criteria to qualify for hedge accounting treatment; therefore, changes in the fair value of each contract were recognized in net income (loss) in the condensed consolidated statement of comprehensive income (loss).
F-74
ATD Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following tables present the fair values of the Companys derivative instruments included within the condensed consolidated balance sheets as of July 5, 2014 and December 28, 2013:
Liability Derivatives |
||||||||||||
In thousands |
Balance Sheet |
July 5, |
December 28, |
|||||||||
Derivatives not designated as hedges: |
||||||||||||
3Q 2011 swaps$100 million notional |
Accrued expenses | $ | 547 | $ | 792 | |||||||
3Q 2012 swaps$100 million notional |
Accrued expenses | 310 | 280 | |||||||||
3Q 2013 swaps$200 million notional |
Accrued expenses | 1,941 | 1,880 | |||||||||
|
|
|
|
|||||||||
Total |
$ | 2,798 | $ | 2,952 | ||||||||
|
|
|
|
The pre-tax effect of the Companys derivative instruments on the condensed consolidated statement of comprehensive income (loss) was as follows:
(Gain) Loss Recognized |
||||||||||||||||||||
In thousands |
Location of Recognized |
Quarter |
Quarter |
Six Months |
Six Months |
|||||||||||||||
Derivatives not designated as hedges: |
||||||||||||||||||||
1Q 2011 swap$50 million notional |
Interest Expense | $ | | $ | | $ | | $ | (149 | ) | ||||||||||
3Q 2011 swaps$100 million notional |
Interest Expense | (158 | ) | (246 | ) | (245 | ) | (402 | ) | |||||||||||
3Q 2012 swaps$100 million notional |
Interest Expense | (18 | ) | (670 | ) | 30 | (801 | ) | ||||||||||||
3Q 2013 swaps$200 million notional |
Interest Expense | 26 | | 61 | | |||||||||||||||
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|
|
|
|
|
|
|
|||||||||||||
Total |
$ | (150 | ) | $ | (916 | ) | $ | (154 | ) | $ | (1,352 | ) | ||||||||
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11. Fair Value of Financial Instruments:
The accounting standard for fair value measurements establishes a framework for measuring fair value that is based on the inputs market participants use to determine the fair value of an asset or liability and establishes a fair value hierarchy to prioritize those inputs. The fair value hierarchy is comprised of three levels that are described below:
| Level 1 InputsInputs based on quoted prices in active markets for identical assets or liabilities. |
| Level 2 InputsInputs other than Level 1 quoted prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. |
| Level 3 Inputs Unobservable inputs based on little or no market activity and that are significant to the fair value of the assets and liabilities, therefore requiring an entity to develop its own assumptions. |
The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs are obtained from independent sources and can be validated by a third party, whereas unobservable inputs reflect assumptions regarding what a third party would use in pricing an asset or liability based on the best information available under the circumstances. A financial instruments categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
F-75
ATD Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table presents the fair value and hierarchy levels for the Companys assets and liabilities, which are measured at fair value on a recurring basis as of July 5, 2014:
Fair Value Measurements |
||||||||||||||||
In thousands |
Total |
Level 1 |
Level 2 |
Level 3 |
||||||||||||
Assets: |
||||||||||||||||
Benefit trust assets |
$ | 3,530 | $ | 3,530 | $ | | $ | | ||||||||
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|
|
|
|
|
|
|||||||||
Total |
$ | 3,530 | $ | 3,530 | $ | | $ | | ||||||||
Liabilities: |
||||||||||||||||
Contingent consideration |
$ | 16,000 | $ | | $ | | $ | 16,000 | ||||||||
Derivative instruments |
2,798 | | 2,798 | | ||||||||||||
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|
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|
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|
|
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Total |
$ | 18,798 | $ | | $ | 2,798 | $ | 16,000 | ||||||||
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|
|
ASC 820Fair Value Measurements and Disclosures defines fair value as the exchange price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company determines fair value of its financial assets and liabilities using the following methodologies:
| Benefit trust assets These assets include money market and mutual funds that are the underlying for deferred compensation plan assets, held in a rabbi trust. The fair value of the assets is based on observable market prices quoted in readily accessible and observable markets. |
| Contingent considerationAs part of the preliminary purchase price allocation of Terrys Tire and Hercules, the Company recorded $12.5 million and $3.5 million, respectively, in contingent consideration. The fair value was estimated using a discounted cash flow technique with significant inputs that are not observable, including discount rates and probability-weighted cash flows and represents managements best estimate of the amounts to be paid. The contingent consideration includes $12.3 million related to the retention of certain key members of management as employees of the Company and $3.7 million related to securing the rights to continue to distribute certain tire brands previously distributed by Terrys Tire and Hercules. The Company believes the probable outcome could range from approximately $8.0 million to $16.0 million. The recorded contingent consideration is included in Accrued Expenses in the condensed consolidated balance sheet as of July 5, 2014. |
| Derivative instrumentsThese instruments consist of interest rate swaps. The fair value is based upon quoted prices for similar instruments from a financial institution that is counterparty to the transaction. |
The fair values of cash and cash equivalents, accounts receivable and accounts payable approximate their carrying values due to the short-term nature of these instruments. The methodologies used by the Company to determine the fair value of its financial assets and liabilities at July 5, 2014 are the same as those used at December 28, 2013. As a result, there have been no transfers between Level 1 and Level 2 categories.
12. Stock-Based Compensation:
The Company accounts for stock-based compensation awards in accordance with ASC 718Compensation, which requires a fair-value based method for measuring the value of stock-based compensation. Fair value is measured once at the date of grant and is not adjusted for subsequent changes. The Companys stock-based compensation plans include programs for stock options and restricted stock awards.
F-76
ATD Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Stock Options
In August 2010, the Company adopted a Management Equity Incentive Plan (the 2010 Plan), pursuant to which the Company will grant options to selected employees and directors of the Company. The 2010 Plan, which includes both time-based and performance-based awards, was amended on April 28, 2014 by the board of directors of the Company to increase the maximum number of shares of common stock for which stock options may be granted under the 2010 Plan from 52.1 million to 54.4 million. In addition to the increase in the maximum number of shares, on April 28, 2014, the board of directors of the Company approved the issuance of stock options to certain members of management. The approved options are for the purchase of up to 4.5 million shares of common stock, have an exercise price of $1.50 per share and vest over a two-year vesting period. As of July 5, 2014, the Company has 0.3 million shares available for future incentive awards.
Changes in options outstanding under the 2010 Plan are as follows:
Number |
Weighted |
|||||||
OutstandingDecember 28, 2013 |
49,516,503 | $ | 1.02 | |||||
Granted |
4,528,833 | 1.50 | ||||||
Exercised |
| | ||||||
Cancelled |
| | ||||||
|
|
|
|
|||||
OutstandingJuly 5, 2014 |
54,045,336 | $ | 1.06 | |||||
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|
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ExercisableJuly 5, 2014 |
34,080,079 | $ | 1.03 | |||||
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|
As of July 5, 2014, the aggregate intrinsic value of options outstanding and options exercisable was $23.7 million and $16.0 million, respectively. The aggregate intrinsic value is based on the estimated fair value of the Companys common stock of $1.50 as of July 5, 2014. The total fair value of shares vested during the six months ended July 5, 2014 was $6.3 million. No options were exercised during the six months ended July 5, 2014.
Options granted under the 2010 Plan expire no later than 10 years from the date of grant and vest based on the passage of time and/or the achievement of certain performance targets in equal installments over two, three or five years. The weighted-average remaining contractual term for options outstanding and exercisable at July 5, 2014 was 6.7 years and 6.5 years, respectively. The fair value of each of the Companys time-based stock option awards is expensed on a straight-line basis over the requisite service period, which is generally the two, three or five-year vesting period of the options. However, for options granted with performance target requirements, compensation expense is recognized when it is probable that both the performance target will be achieved and the requisite service period is satisfied. At July 5, 2014, unrecognized compensation expense related to non-vested options granted under the 2010 Plan totaled $8.7 million and the weighted-average period over which this expense will be recognized is 0.9 years.
F-77
ATD Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The weighted average fair value of stock options granted during the six months ended July 5, 2014 and June 29, 2013 was $0.68 and $0.54 using the Black-Scholes option pricing model. The following weighted average assumptions were used:
Six Months |
Six Months |
|||||||
Risk-free interest rate |
1.73 | % | 1.38 | % | ||||
Dividend yield |
| | ||||||
Expected life |
5.8 years | 6.0 years | ||||||
Volatility |
46.49 | % | 45.39 | % |
As the Company does not have sufficient historical volatility data for the Companys own common stock, the stock price volatility utilized in the fair value calculation is based on the Companys peer group in the industry in which it does business. The risk-free interest rate is based on the yield-curve of a zero-coupon U.S. Treasury bond on the date the award is granted with a maturity equal to the expected term of the award. Because the Company does not have relevant data available regarding the expected life of the award, the expected life is derived from the Simplified Method as allowed under SAB Topic 14.
Restricted Stock
In October 2010, the Company adopted the Non-Employee Director Restricted Stock Plan (the 2010 Restricted Stock Plan), pursuant to which the Company will grant restricted stock to non-employee directors of the Company. These awards entitle the holder to receive one share of common stock for each restricted stock award granted. The 2010 Restricted Stock Plan provides that a maximum of 0.8 million shares of common stock of the Company may be granted to non-employee directors of the Company, of which 0.2 million remain available at July 5, 2014 for future incentive awards. On April 28, 2014, the board of directors of the Company approved the issuance of restricted stock to the non-employee directors of the Company. The approved restricted stock awards were for the issuance of up to 0.1 million shares of common stock, have a grant date fair value of $1.50 per share and vest over a two-year vesting period.
The following table summarizes restricted stock activity under the 2010 Restricted Stock Plan for the six months ended July 5, 2014:
Number |
Weighted |
|||||||
Outstanding and unvested at December 28, 2013 |
87,719 | $ | 1.14 | |||||
Granted |
133,333 | 1.50 | ||||||
Vested |
(87,719 | ) | 1.14 | |||||
Cancelled |
| | ||||||
|
|
|
|
|||||
Outstanding and unvested at July 5, 2014 |
133,333 | $ | 1.50 | |||||
|
|
|
|
The fair value of each of the restricted stock awards is measured as the grant-date price of the common stock and is expensed on a straight-line basis over the requisite service period, which is generally the two-year vesting period. At July 5, 2014, unrecognized compensation expense related to non-vested restricted stock awards granted under the 2010 Restricted Stock Plan totaled $0.2 million and the weighted-average period over which this expense will be recognized is 1.5 years.
F-78
ATD Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Compensation Expense
Stock-based compensation expense is included in selling, general and administrative expenses within the condensed consolidated statement of comprehensive income (loss). The amount of compensation expense recognized during a period is based on the portion of the granted awards that are expected to vest. Ultimately, the total expense recognized over the vesting period will equal the fair value of the awards as of the grant date that actually vest. The following table summarizes the compensation expense recognized:
In thousands |
Quarter |
Quarter |
Six Months |
Six Months |
||||||||||||
Stock Options |
$ | 1,394 | $ | 753 | $ | 1,962 | $ | 1,379 | ||||||||
Restricted Stock |
25 | 31 | 25 | 73 | ||||||||||||
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|
|
|
|
|
|
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Total |
$ | 1,419 | $ | 784 | $ | 1,987 | $ | 1,452 | ||||||||
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|
13. Income Taxes:
The tax provision for the six months ended July 5, 2014, was calculated on a national jurisdiction basis. The Company accounts for its provision for income taxes in accordance with ASC 740Income Taxes, which requires an estimate of the annual effective tax rate for the full year to be applied to the respective interim period. However, the authoritative guidance allows the use of the discrete method when, in certain situations, the actual interim period effective tax rate provides a better estimate of the income tax provision. For the six months ended July 5, 2014, the discrete method was used to calculate the Companys U.S. and Canadian interim tax expense as management determined that it provided a more reliable estimate of year-to-date income tax expense.
Based on the reported loss before income taxes for the six months ended July 5, 2014, the Company had an income tax benefit of $43.0 million, consisting of a $41.0 million U.S. tax benefit and a $2.0 million foreign tax benefit, and an effective tax benefit rate under the discrete method of 34.0%. For the six months ended June 29, 2013, the Company had an income tax benefit of $9.4 million, consisting of a $7.4 million U.S. tax benefit and a $2.0 million foreign tax benefit, and an effective tax benefit rate of 29.7%. The effective rate of the year-to-date tax benefit is lower than the statutory income tax rate primarily due to earnings in a foreign jurisdiction taxed at rates lower than the statutory U.S. federal rate and non-deductible transaction costs which lowered the effective tax rate by 0.5% and 0.5%, respectively.
At July 5, 2014, the Company has a net deferred tax liability of $300.3 million, of which, $18.9 million was recorded as a current deferred tax asset and $319.2 million was recorded as a non-current deferred tax liability. The net deferred tax liability primarily relates to the expected future tax liability associated with the non-deductible, identified, intangible assets that were recorded during the TPG Merger, assuming an effective tax rate of 39.6%. It is the Companys intention to indefinitely reinvest all undistributed earnings of non-U.S. subsidiaries.
At July 5, 2014, the Company had unrecognized tax benefits of $0.6 million, of which $0.6 million is included within other liabilities within the accompanying condensed consolidated balance sheet. The total amount of unrecognized tax benefits that, if recognized, would affect the Companys effective tax rate is $0.1 million as of July 5, 2014. In addition, $0.5 million is related to temporary timing differences. During the next 12 months, management does not believe that it is reasonably possible that any of the unrecognized tax benefits will be recognized.
While the Company believes that it has adequately provided for all tax positions, amounts asserted by taxing authorities could be greater than the Companys accrued position. Accordingly, additional provisions of
F-79
ATD Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
federal and state-related matters could be recorded in the future as revised estimates are made or the underlying matters are settled or otherwise resolved. The Company files federal income tax returns, as well as multiple state jurisdiction tax returns. The tax years 2010 2012 remain open to examination by the Internal Revenue Service. The tax years 2009 2012 remain open to examination by other major taxing jurisdictions to which the Company is subject (primarily Canada and other state and local jurisdictions).
In September 2013, the Internal Revenue Service released final Tangible Property Regulations (the Final Regulations). The Final Regulations provide guidance on applying Section 263(a) of the Code to amounts paid to acquire, produce or improve tangible property, as well as rules for materials and supplies (Code Section 162). These regulations contain certain changes from the temporary and proposed tangible property regulations that were issued on December 27, 2011. The Final Regulations are generally effective for taxable years beginning on or after January 1, 2014. During 2012, the Company filed a change in tax methodology related to a section of the Final Regulations, specifically the methodology for repairs and maintenance deductions. The Company does not expect any additional adjustments related to the Final Regulations.
14. Stockholders Equity:
On January 31, 2014, TPG and certain co-investors contributed $50.0 million through the purchase of 33.3 million shares of the Companys common stock. The proceeds from this equity contribution were used to fund a portion of the Hercules Closing Purchase Price. Accordingly, the Company recorded the basis in these shares in additional paid-in capital. During the quarter ended July 5, 2014, the Company corrected an error in its presentation of restricted stock awards to reflect such awards as being issued and outstanding common stock. Under the terms of the 2010 Restricted Stock Plan, such awards are considered outstanding shares on the date of grant. This correction resulted in an increase of 447,368 shares to the number of issued and outstanding shares as of July 5, 2014. This error has no impact on the basic and diluted earnings per share calculation for any of the Companys previously issued consolidated financial statements or the current year consolidated financial statements.
15. Commitments and Contingencies:
The Company is involved from time to time in various lawsuits, including class action lawsuits as well as various audits and reviews regarding its federal, state and local tax filings, arising out of the ordinary conduct of its business. Management does not expect that any of these matters will have a material adverse effect on the Companys business or financial condition. As to tax filings, the Company believes that the various tax filings have been made in a timely fashion and in accordance with applicable federal, state and local tax code requirements. Additionally, the Company believes that it has adequately provided for any reasonably foreseeable resolution of any tax disputes, but will adjust its reserves if events so dictate in accordance with FASB authoritative guidance. To the extent that the ultimate results differ from the original or adjusted estimates of the Company, the effect will be recorded in accordance with the accounting standards for income taxes.
Guaranteed Lease Obligations
The Company remains liable as a guarantor on certain leases related to the Winston Tire Company, which was sold in 2001. As of July 5, 2014, the Companys total obligations are $1.6 million extending over five years. However, the Company has secured assignments or sublease agreements for the vast majority of these commitments with contractual assigned or subleased rentals of $1.4 million. A provision has been made for the net present value of the estimated shortfall.
16. Discontinued Operations:
As part of the acquisition of Terrys Tire, the Company acquired Terrys Tires commercial and retread businesses. As the Companys core business does not include commercial and retread operations, the Company
F-80
ATD Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
decided that it would divest of these businesses. As it is managements intention to divest the commercial and retread businesses during fiscal 2014 and as all held for sale criteria has been met, the related assets and liabilities of the commercial and retread businesses are classified as held for sale within the accompanying condensed consolidated balance sheet. As of July 5, 2014, the amount classified as assets held for sale was $5.5 million, consisting of $4.2 million in current assets, net property and equipment of $0.8 million and goodwill of $0.5 million. The amount classified as liabilities held for sale was $0.4 million as of July 5, 2014 of which the entire amount related to current liabilities.
The Company has reflected the results of Terrys Tires commercial and retread businesses as discontinued operations in the accompanying condensed consolidated statement of comprehensive income (loss) for the quarter and six months ended July 5, 2014. The components of income (loss) from discontinued operations, net of tax for the quarter and six months ended July 5, 2014 were as follows:
In thousands |
Quarter Ended |
Six Months Ended |
||||||
Net sales |
$ | 5,418 | $ | 5,418 | ||||
|
|
|
|
|||||
Income (loss) from operations before income taxes |
$ | (74 | ) | $ | (74 | ) | ||
Income tax provision (benefit) |
(26 | ) | (26 | ) | ||||
|
|
|
|
|||||
Income (loss) from discontinued operations, net of tax |
$ | (48 | ) | $ | (48 | ) | ||
|
|
|
|
17. Earnings per share:
Basic earnings per share is calculated using the Companys weighted-average outstanding common shares. Diluted earnings per share is calculated using the Companys weighted-average outstanding common shares including the dilutive effect of stock options and restricted stock awards as determined under the treasury stock method.
The following table sets forth the computation of basic and diluted earnings per share for the quarters and six months ended July 5, 2014 and June 29, 2013:
Quarter Ended |
Quarter Ended |
Six Months Ended |
Six Months Ended |
|||||||||||||
Basic earnings per share calculation: |
||||||||||||||||
Net income (loss) |
$ | (49,516 | ) | $ | (5,837 | ) | $ | (83,560 | ) | $ | (22,128 | ) | ||||
Weighted average common shares outstanding |
767,949 | 734,168 | 761,951 | 734,168 | ||||||||||||
Net income (loss) per sharebasic |
$ | (0.06 | ) | $ | (0.01 | ) | $ | (0.11 | ) | $ | (0.03 | ) | ||||
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|
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|||||||||
Diluted earnings per share calculation: |
||||||||||||||||
Net income (loss) |
$ | (49,516 | ) | $ | (5,837 | ) | $ | (83,560 | ) | $ | (22,128 | ) | ||||
Weighted average common shares outstanding |
767,949 | 734,168 | 761,951 | 734,168 | ||||||||||||
Effect of dilutive securities: |
||||||||||||||||
Stock Options (1) |
| | | | ||||||||||||
Restricted Stock Units (2) |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted weighted average common shares outstanding |
767,949 | 734,168 | 761,951 | 734,168 | ||||||||||||
Net income (loss) per sharediulted |
$ | (0.06 | ) | $ | (0.01 | ) | $ | (0.11 | ) | $ | (0.03 | ) | ||||
|
|
|
|
|
|
|
|
F-81
ATD Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) | Options to purchase 54,045 shares of common stock during both the quarter and six months ended July 5, 2014 and 50,182 shares during both the quarter and six months ended June 29, 2013, were outstanding but were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive. |
(2) | Unvested restricted stock awards of 133,333 for both the quarter and six months ended July 5, 2014 and 109,649 for both the quarter and six months ended June 29, 2013 were outstanding but were not included in the computation of diluted earnings per share because the effect would have been anti-dilutive. |
18. Subsequent Event:
On July 31, 2014, the Company completed a transaction to sell the commercial and retread businesses acquired as part of the Terrys Tire acquisition for a purchase price of approximately $3.9 million. Subsequent events were evaluated for recognition and disclosure through August 15, 2014, the date these financial statements were issued.
F-82
Trail Tire Distributors LTD.
Index
February 28, 2014 and 2013
Page | ||||
F-84 | ||||
Financial Statements |
||||
F-85 | ||||
F-86 | ||||
F-87 | ||||
F-88 | ||||
F-89 |
F-83
Collins Barrow Edmonton LLP | ||||
2380 Commerce Place | ||||
10155102 Street N.W. | ||||
Edmonton, Alberta | ||||
T5J 4G8 Canada | ||||
T. 780.428.1522 | ||||
To the Shareholders of Trail Tire Distributors Ltd. | F. 780.425.8189 | |||
www.collinsbarrow.com |
We have audited the accompanying financial statements of Trail Tire Distributors Ltd., which comprise the balance sheets as of February 28, 2014 and February 28, 2013, and the related statements of operations, retained earnings and cash flows for the years then ended, and the related notes to the financial statements.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian Accounting Standards for Private Enterprises; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entitys preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Trail Tire Distributors Ltd. as of February 28, 2014 and February 28, 2013, and the results of their operations and their cash flows for the years then ended in accordance with Canadian Accounting Standards for Private Enterprises.
Basis of Accounting
As more fully described in Note 2 to the financial statements, the Companys policy is to prepare its financial statements on the basis of Canadian Accounting Standards for Private Enterprises which differ from accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to that matter. Information relating to the nature and effect of such differences is presented in note 14 to the financial statements.
Edmonton, Alberta |
/s/ Collins Barrow Edmonton LLP | |
June 20, 2014 except for Note 14 (footnotes (a), (c) and (d)) which are as of August 18, 2014 | Chartered Accountants |
This office is independently owned and operated by Collins Barrow Edmonton LLP | ||
The Collins Barrow trademarks are used under License. |
F-84
Balance Sheets
As at February 28, 2014 and February 28, 2013
(In Canadian Dollars)
February 28, |
February 28, |
|||||||
ASSETS |
||||||||
Current Assets |
||||||||
Cash |
$ | 1,876,070 | $ | 2,928,693 | ||||
Accounts receivable (Note 4) |
3,716,217 | 4,340,454 | ||||||
Goods and Services Tax recoverable |
88,812 | 40,340 | ||||||
Inventories (Note 5) |
4,748,358 | 6,217,267 | ||||||
Prepaid expenses and deposits |
46,418 | 42,013 | ||||||
Income taxes receivable |
310,383 | | ||||||
|
|
|
|
|||||
10,786,258 | 13,568,767 | |||||||
Loans receivable from related parties (Note 6) |
5,962,211 | 3,600,739 | ||||||
Property and equipment (Note 7) |
413,431 | 362,557 | ||||||
|
|
|
|
|||||
$ | 17,161,900 | $ | 17,532,063 | |||||
|
|
|
|
|||||
LIABILITIES |
||||||||
Current Liabilities |
||||||||
Accounts payable and accrued liabilities (Note 6) |
$ | 5,132,908 | $ | 5,881,151 | ||||
Income taxes payable |
| 904,005 | ||||||
Management remuneration payable |
93,500 | 694,000 | ||||||
|
|
|
|
|||||
5,226,408 | 7,479,156 | |||||||
Shareholders loans (Note 9) |
5,122,943 | 5,122,943 | ||||||
|
|
|
|
|||||
10,349,351 | 12,602,099 | |||||||
|
|
|
|
|||||
SHAREHOLDERS EQUITY |
||||||||
Share capital (Note 10) |
100 | 100 | ||||||
Retained earnings |
6,812,449 | 4,929,864 | ||||||
|
|
|
|
|||||
6,812,549 | 4,929,964 | |||||||
|
|
|
|
|||||
$ | 17,161,900 | $ | 17,532,063 | |||||
|
|
|
|
|||||
Commitments and Contingency (Note 12) |
See accompanying notes
F-85
Statements of Operations
For the Years Ended February 28, 2014 and February 28, 2013
(In Canadian Dollars)
2014 |
2013 |
|||||||
Sales (Note 6) |
$ | 45,087,534 | $ | 43,754,191 | ||||
Cost of sales (Note 6) |
37,654,546 | 34,686,365 | ||||||
|
|
|
|
|||||
Gross profit |
7,432,988 | 9,067,826 | ||||||
|
|
|
|
|||||
Expenses |
||||||||
Wages and benefits |
2,986,639 | 2,871,471 | ||||||
Rent (Note 6) |
729,138 | 606,123 | ||||||
Interest and bank charges |
219,525 | 205,414 | ||||||
Telephone and utilities |
191,718 | 139,875 | ||||||
Automotive |
179,943 | 236,845 | ||||||
Office |
158,723 | 131,597 | ||||||
Amortization |
119,040 | 146,385 | ||||||
Repairs and maintenance |
115,737 | 98,408 | ||||||
Insurance |
69,880 | 79,578 | ||||||
Management salaries |
50,750 | 694,000 | ||||||
Travel |
47,171 | 46,793 | ||||||
Professional fees |
43,350 | 25,266 | ||||||
Property taxes |
39,812 | 21,413 | ||||||
Shop supplies |
26,407 | 53,186 | ||||||
Advertising and promotion (Note 6) |
13,711 | 77,477 | ||||||
Dues and memberships |
7,369 | 6,281 | ||||||
Bad debt expense |
2,125 | 13,318 | ||||||
|
|
|
|
|||||
5,001,038 | 5,453,430 | |||||||
|
|
|
|
|||||
Income before other revenue (expenses) and income taxes |
2,431,950 | 3,614,396 | ||||||
Other revenue (expenses) |
||||||||
Foreign exchange gain |
19 | 2,143 | ||||||
Interest income |
33,043 | 78,465 | ||||||
Gain (loss) on sale of equipment |
938 | (15,427 | ) | |||||
Rental income |
42,288 | 85,180 | ||||||
|
|
|
|
|||||
76,288 | 150,361 | |||||||
|
|
|
|
|||||
Income before income taxes |
2,508,238 | 3,764,757 | ||||||
Income taxes expense |
625,653 | 932,369 | ||||||
|
|
|
|
|||||
Net income |
$ | 1,882,585 | $ | 2,832,388 | ||||
|
|
|
|
See accompanying notes
F-86
Statements of Retained Earnings
For the Years Ended February 28, 2014 and February 28, 2013
(In Canadian Dollars)
2014 |
2013 |
|||||||
Balance, beginning of year |
$ | 4,929,864 | $ | 2,097,476 | ||||
Net income |
1,882,585 | 2,832,388 | ||||||
|
|
|
|
|||||
Balance, end of year |
$ | 6,812,449 | $ | 4,929,864 | ||||
|
|
|
|
See accompanying notes
F-87
Statements of Cash Flows
For the Years Ended February 28, 2014 and February 28, 2013
(In Canadian Dollars)
2014 |
2013 |
|||||||
Cash provided by (used in): |
||||||||
Operating Activities |
||||||||
Net income |
$ | 1,882,585 | $ | 2,832,388 | ||||
Items not affecting cash |
||||||||
Amortization |
119,040 | 146,385 | ||||||
(Gain) loss on sale of equipment |
(938 | ) | 15,427 | |||||
Change in non-cash working capital items (Note 11) |
(522,862 | ) | 745,287 | |||||
|
|
|
|
|||||
1,477,825 | 3,739,487 | |||||||
|
|
|
|
|||||
Investing Activities |
||||||||
Advances to related parties |
(2,387,027 | ) | (1,895,580 | ) | ||||
Repayments from related parties |
25,555 | | ||||||
Advances to shareholders |
| (13,640 | ) | |||||
Purchase of equipment |
(179,676 | ) | (202,544 | ) | ||||
Proceeds on disposal of equipment |
10,700 | 22,360 | ||||||
|
|
|
|
|||||
(2,530,448 | ) | (2,089,404 | ) | |||||
|
|
|
|
|||||
(Decrease) increase in cash |
(1,052,623 | ) | 1,650,083 | |||||
Cash, beginning of year |
2,928,693 | 1,278,610 | ||||||
|
|
|
|
|||||
Cash, end of year |
$ | 1,876,070 | $ | 2,928,693 | ||||
|
|
|
|
See accompanying notes
F-88
Notes to the Financial Statements
February 28, 2014 and February 28, 2013
(In Canadian Dollars)
1. Nature of operations
The Company was incorporated under the Alberta Business Corporations Act on November 24, 2003 and operates a wholesale tire distribution business.
2. Change in accounting policy
Effective March 1, 2012 the company changed its accounting policy for income taxes from the taxes payable method to the future income taxes method. The change in accounting policy was applied retrospectively. The impact of the change in accounting policy did not result in any changes to the opening retained earnings of 2013 nor did it result in the recognition of a future tax asset or future tax liability as at February 29, 2012.
3. Summary of significant accounting policies
Basis of presentation
These financial statements are prepared in accordance with accounting standards for private enterprises, which is a basis of accounting generally accepted in Canada for entities that are privately held.
Revenue recognition
Revenue is recognized when the goods have been delivered, the services have been completed, the transaction has been accepted by the customer and collection is reasonably assured. The Company reports its revenue net of returns, sales discounts and volume rebates to customers.
Interest revenue is recognized on an annual basis as it is earned.
Rental revenue earned under a lease agreement is recognized as revenue over the term of the underlying lease. All rent increases based on escalation clauses in lease agreements are accounted for on a straight-line basis over the term of the respective leases. Property taxes, other operating cost recoveries, and other incidental income are recognized on an accrual basis.
Vendor Rebates and Allowances
The Company participates in various purchase rebate programs with its major tire vendors including early payment incentives and volume purchase rebates based on defined levels of purchase volume. These arrangements enable the Company to earn rebates that reduce the cost of merchandise purchased. Vendor rebates and allowances are accrued as earned. Vendor rebates and allowances earned are initially recorded as a reduction in the cost of merchandise inventories and are included in operations (as a reduction of cost of goods sold) in the period the related product is sold.
Allowance for doubtful accounts
The allowance for doubtful accounts reflects managements best estimate of losses on the accounts receivable balances. The company maintains an allowance for doubtful accounts that is estimated based on a variety of factors including accounts receivable aging, historical experience and other currently available information, including events such as customer bankruptcy and current economic conditions. Interest is charged on overdue account receivable balances. A provision is recorded in the period in which the receivable is deemed uncollectible.
F-89
TRAIL TIRE DISTRIBUTORS LTD.
Notes to the Financial Statements
February 28, 2014 and February 28, 2013
(In Canadian Dollars)
Inventories
Inventories are valued at the lower of cost or net realizable value. The cost of inventories comprises all costs of purchase and other costs incurred in bringing the inventories to their present location and condition including volume rebates and allowances from vendors. The cost of inventories is determined using the first-in, first-out (FIFO) method. Net realizable value is the estimated selling price in the ordinary course of business, less costs necessary to complete the sale. Inventory is reduced for the estimated losses due to obsolescence. This reduction is determined for groups of products based on purchases in the recent past and/or expected future demand.
Property and equipment
Property and equipment are recorded at cost less accumulated amortization.
Amortization is calculated at the following annual rates:
Automotive | - | 30% declining balance basis | ||
Office equipment | - | 20% declining balance basis | ||
Leasehold improvements | - | 5 year straight-line basis | ||
Computer equipment | - | 30% declining balance basis | ||
Computer software | - | 100% declining balance basis | ||
Manufacturing equipment | - | 50% straight-line basis | ||
Shop equipment | - | 20% declining balance basis |
Property and equipment are tested for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. The carrying amount of a long-lived asset is not recoverable when it exceeds the sum of the undiscounted cash flows expected from its use and eventual disposal. In such a case, an impaired loss must be recognized and is equivalent to the excess of the carrying amount of a long-lived asset over its fair value.
Income taxes
The Company uses the future income taxes method to account for income taxes. Under this method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
Translation of Foreign Currency
Monetary assets and liabilities of the Company are translated into Canadian dollars at the rate of exchange in effect at the balance sheet date. Revenue and expense items are translated at rates of exchange in effect at the respective transaction months. The resulting exchange gains or losses are included in net earnings. Non-monetary assets and liabilities, arising from transactions denominated in foreign currencies, are translated at rates of exchange in effect at the date of the transaction.
Use of estimates
The preparation of financial statements in conformity with Accounting Standards for Private Enterprises requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
F-90
TRAIL TIRE DISTRIBUTORS LTD.
Notes to the Financial Statements
February 28, 2014 and February 28, 2013
(In Canadian Dollars)
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The more subjective estimates included in these financial statements are the determination of allowance for doubtful accounts receivable, valuation of inventory and estimated useful lives of property and equipment for purposes of calculating amortization. Actual results could differ from those estimates.
Financial Instruments
Measurement of financial instruments
The company initially measures its financial assets and liabilities at fair value, except for certain non-arms length transactions. The Company subsequently measures all its financial assets and financial liabilities at amortized cost, except for equity instruments that are quoted in an active market, which are measured at fair value. Changes in fair value are recognized in net income.
Financial assets measured at amortized cost include cash, accounts receivable and loans receivable from related parties.
Financial liabilities measured at amortized cost include accounts payable and accrued liabilities, management remuneration payable and shareholders loans.
Impairment
Financial assets measured at cost are tested for impairment when there are indicators of impairment. The amount of the write-down is recognized in net income. The previously recognized impairment loss may be reversed to the extent of the improvement, directly or by adjusting the allowance account, provided it is no greater than the amount that would have been reported at the date of the reversal had the impairment not been recognized previously. The amount of the reversal is recognized in net income.
Transaction costs
Transaction costs relating to financial instruments that are measured subsequently at fair value are recognized in operations in the year in which they are incurred. For instruments that are subsequently measured at amortized cost, the amount initially recognized is adjusted for transaction costs directly attributable to the origination, acquisition, issuance or assumption.
4. Accounts Receivable
Accounts receivable consists of the following:
2014 |
2013 |
|||||||
Accounts receivableTrade |
$ | 3,752,062 | $ | 4,401,224 | ||||
Warranty receivable |
56,430 | 31,126 | ||||||
Allowance for doubtful accounts |
(92,275 | ) | (91,896 | ) | ||||
|
|
|
|
|||||
$ | 3,716,217 | $ | 4,340,454 | |||||
|
|
|
|
F-91
TRAIL TIRE DISTRIBUTORS LTD.
Notes to the Financial Statements
February 28, 2014 and February 28, 2013
(In Canadian Dollars)
5. Inventories
Inventories consist of the following:
2014 |
2013 |
|||||||
Tires |
$ | 4,736,085 | $ | 6,198,642 | ||||
Parts |
8,010 | 8,764 | ||||||
Other |
4,263 | 9.861 | ||||||
|
|
|
|
|||||
$ | 4,748,358 | $ | 6,217,267 | |||||
|
|
|
|
At the fiscal year end, inventory included volume rebates and allowances of $nil (February 28, 2013$nil).
Cost of sales reported on the statement of operations include $37,674,546 (February 28, 2013$34,686,365) of inventories recognized as an expense during the year.
6. Loans Receivable from Related Parties and Related Party Transactions
Loans Receivable from Related Parties
Loans receivable from related parties are as follows:
2014 |
2013 |
|||||||
Trail Tire Services Ltd. |
$ | 32,051 | $ | 31,457 | ||||
Extreme Wheel Distributors Ltd. |
234,994 | 77,450 | ||||||
Regional Tire Distributors (Edmonton) Inc. |
3,584,288 | 1,475,597 | ||||||
Tirecraft Western Canada Ltd. |
472,548 | 497,102 | ||||||
1470242 Alberta Ltd. |
755,791 | 755,791 | ||||||
1694352 Alberta Ltd. |
213,743 | 213,743 | ||||||
Trail Tire (Kingsway) Ltd. |
548,598 | 549,599 | ||||||
Tire Storage Direct (Edmonton) Ltd. |
26,355 | | ||||||
Integra Tire Canada Ltd. |
93,843 | | ||||||
|
|
|
|
|||||
$ | 5,962,211 | $ | 3,600,739 | |||||
|
|
|
|
Loans receivable from the companies noted above are unsecured, non-interest bearing and have no stated terms of repayment. The relationship between Trail Tire Distributors Ltd. and each of these companies is as follows:
Tirecraft Western Canada Ltd., Integra Tire Canada Ltd. and Tire Storage Direct (Edmonton) Ltd. are indirectly owned by a director of Trail Tire Distributors Ltd.
Extreme Wheel Distributors Ltd. is controlled by an immediate family member of a director of Trail Tire Distributors Ltd.
Regional Tire Distributors (Edmonton) Inc. (formerly known as North Alta Tire Distributors Ltd.) is partially owned by a director of Trail Tire Distributors Ltd.
1470242 Alberta Ltd., 1694352 Alberta Ltd. and Trail Tire (Kingsway) Ltd. are companies controlled by a director of Trail Tire Distributors Ltd.
F-92
TRAIL TIRE DISTRIBUTORS LTD.
Notes to the Financial Statements
February 28, 2014 and February 28, 2013
(In Canadian Dollars)
Trail Tire Services Ltd. is controlled by a close family member of the directors of Trail Tire Distributors Ltd.
As the loans receivable have no stated terms of repayment and are not expected to be repaid within the next fiscal year, they have been classified as long term assets.
Related Party Transactions
Sales to related parties are as follows:
2014 |
2013 |
|||||||
Extreme Wheels Distributors Ltd. |
$ | 102,844 | $ | 142,206 | ||||
Regional Tire Distributors (Edmonton) Inc. |
88,701 | 265,241 | ||||||
Trail Tire (Kingsway) Ltd. |
353,551 | 277,777 | ||||||
Trail Tire Services Ltd. |
911,000 | 1,065,402 | ||||||
|
|
|
|
|||||
$ | 1,456,096 | $ | 1,750,626 | |||||
|
|
|
|
Included in accounts receivable are the following balances receivable from related parties as at the fiscal year-end:
2014 |
2013 |
|||||||
Extreme Wheels Distributors Ltd. |
$ | 6,255 | $ | 3,614 | ||||
Tirecraft (Fort Road) Centre |
43,534 | 10,927 | ||||||
Regional Tire Distributors (Edmonton) Inc. |
242,157 | 381,745 | ||||||
Trail Tire (Kingsway) Ltd. |
59,035 | 40,722 | ||||||
|
|
|
|
|||||
$ | 350,981 | $ | 437,008 | |||||
|
|
|
|
Purchases from related parties are as follows:
2014 |
2013 |
|||||||
Extreme Wheels Distributors Ltd. |
$ | | $ | 15,998 | ||||
Regional Tire Distributors (Edmonton) Inc. |
223,912 | 2,585,228 | ||||||
Trail Tire (Kingsway) Ltd. |
555,351 | 230,415 | ||||||
|
|
|
|
|||||
$ | 779,263 | $ | 2,831,641 | |||||
|
|
|
|
Included in the rent expense are lease payments to 1470242 Alberta Ltd., a company that is controlled by a director of the Company, which amounted to $420,000 for the 2014 fiscal year (February 28, 2013$420,000).
Payments made for marketing services to Tirecraft Western Canada Ltd, a company in which a director of the Company has indirect ownership, was $nil for the 2014 fiscal year (February 28, 2013$266,832).
F-93
TRAIL TIRE DISTRIBUTORS LTD.
Notes to the Financial Statements
February 28, 2014 and February 28, 2013
(In Canadian Dollars)
Included in accounts payable and accrued liabilities are the following balances payable to the related parties as at the fiscal year-end:
2014 |
2013 |
|||||||
Extreme Wheels Distributors Ltd. |
$ | 1,626 | $ | 549 | ||||
Tirecraft Western Canada |
80,306 | 7,870 | ||||||
Regional Tire Distributors (Edmonton) Inc. |
294,547 | 256,070 | ||||||
Trail Tire Services Ltd. |
373 | 2,589 | ||||||
Trail Tire (Kingsway) Ltd. |
1,362 | 2,264 | ||||||
|
|
|
|
|||||
$ | 378,214 | $ | 269,342 | |||||
|
|
|
|
The related party transactions are in the normal course of operations and have been reported in these financial statements at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
7. Property and Equipment
2014 |
||||||||||||
Cost |
Accumulated Amortization |
Net |
||||||||||
Automotive |
$ | 435,058 | $ | 273,119 | $ | 161,939 | ||||||
Office equipment |
77,132 | 36,438 | 40,694 | |||||||||
Leasehold improvements |
46,856 | 42,170 | 4,686 | |||||||||
Computer equipment |
92,729 | 57,483 | 35,246 | |||||||||
Computer software |
72,923 | 72,923 | | |||||||||
Manufacturing equipment |
69,303 | 69,303 | | |||||||||
Shop equipment |
368,654 | 197,788 | 170,866 | |||||||||
|
|
|
|
|
|
|||||||
$ | 1,162,655 | $ | 749,224 | $ | 413,431 | |||||||
|
|
|
|
|
|
2013 |
||||||||||||
Cost |
Accumulated Amortization |
Net |
||||||||||
Automotive |
$ | 444,809 | $ | 272,422 | $ | 172,387 | ||||||
Office equipment |
61,928 | 28,166 | 33,762 | |||||||||
Leasehold improvements |
46,856 | 32,799 | 14,057 | |||||||||
Computer equipment |
78,572 | 45,412 | 33,160 | |||||||||
Computer software |
72,923 | 72,923 | | |||||||||
Manufacturing equipment |
69,303 | 69,303 | | |||||||||
Shop equipment |
280,816 | 171,625 | 109,191 | |||||||||
|
|
|
|
|
|
|||||||
$ | 1,055,207 | $ | 692,650 | $ | 362,557 | |||||||
|
|
|
|
|
|
8. Operating Line of Credit
The Company has an operating line of credit bearing interest at prime plus 1.40%, limited to the lesser of $250,000 (increased to $750,000 for the period March 1 to September 30 each year) and 75% of accounts receivable, and is secured by a general security agreement covering a first ranking security interest in all assets of the Company. As at February 28, 2014 and 2013 no amounts were outstanding on the operating line of credit.
F-94
TRAIL TIRE DISTRIBUTORS LTD.
Notes to the Financial Statements
February 28, 2014 and February 28, 2013
(In Canadian Dollars)
9. Shareholders Loans
Shareholders loans at February 28, 2014 which includes amounts outstanding at February 28, 2013 are unsecured, non-interest bearing, and are due March 1, 2015.
10. Share Capital
Authorized: |
Unlimited number of Class A, B and C common voting shares |
2014 |
2013 |
|||||||
Issued: |
||||||||
100 Class A common shares |
$ | 100 | $ | 100 | ||||
|
|
|
|
11. Non-cash Working Capital Items
Non-cash working capital items related to operations are as follows:
2014 |
2013 |
|||||||
Accounts receivable |
$ | 624,237 | $ | (322,039 | ) | |||
Inventories |
1,468,909 | (629,693 | ) | |||||
Prepaid expenses and deposits |
(4,405 | ) | 2,653 | |||||
Goods and Services Tax receivable |
(48,472 | ) | 62,628 | |||||
Income taxes receivable |
(310,383 | ) | 4,422 | |||||
Accounts payable and accrued liabilities |
(748,243 | ) | 1,122,081 | |||||
Income taxes payable |
(904,005 | ) | (398,770 | ) | ||||
Management remuneration payable |
(600,500 | ) | 904,005 | |||||
|
|
|
|
|||||
$ | (522,862 | ) | $ | 745,287 | ||||
|
|
|
|
12. Commitments and Contingency
The Company has entered into various operating leases for its office and warehouse premises as follows:
Location |
Expiration date | |
Main office/Warehouse11771 167 Street |
September 30, 2014 | |
Warehouse16305 117 Avenue |
October 31, 2014 | |
Warehouse11612 163 Street |
December 31, 2014 |
The required lease payments under the various leases are due as follows:
2015 |
$ | 521,756 | ||
|
|
The Company has provided a corporate guarantee related to term loan financing obtained by 1470242 Alberta Ltd., a company that is controlled by a director of the Company. The Company has guaranteed the full amount of the loan maturing June 15, 2014 with an outstanding balance of $3,228,752 as at February 28, 2014 (February 28, 2013$3,490,352). The guarantee is supported by a general security agreement secured by a floating charge on all of the Companys fixed assets.
F-95
TRAIL TIRE DISTRIBUTORS LTD.
Notes to the Financial Statements
February 28, 2014 and February 28, 2013
(In Canadian Dollars)
Under the current credit facility the Company is required to maintain minimum working capital and debt service coverage ratios. As at February 28, 2014 and 2013 the Company was in compliance with these covenants.
The Company has provided a corporate guarantee related to term loan financing obtained by 1694352 Alberta Ltd., a company that is controlled by a director of the Company. The Company has guaranteed the full amount of the loan maturing September 15, 2017 with an outstanding balance of $972,194 as at February 28, 2014 (February 28, 2013$1,019,750). The guarantee is supported by a general security agreement secured by a floating charge on all of the Companys fixed assets.
Under the current credit facility the Company is required to maintain minimum working capital and debt service coverage ratios. As at February 28, 2014 and 2013 the Company was in compliance with these covenants.
13. Financial Instruments
Credit Risk
The Company is susceptible to credit risk on its accounts receivable and mitigates this risk through an extensive credit evaluation process.
Interest Rate Risk
The Companys operating line of credit bears interest based at prime and, accordingly, exposes the Company to interest rate risk through fluctuation in the prime rate. As at February 28, 2014 and 2013 there was no amount due on the operating line of credit.
Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The Company is exposed to this risk mainly in respect to its accounts payable and accrued liabilities and its management remunerations payable. At February 28, 2014 the company had a working capital balance of $5,559,850 (February 28, 2013$6,089,611)
Foreign Currency Risk
Currency risk is the risk to the Companys earnings that arises from fluctuations of foreign exchange rates and the degree of volatility of these rates. The Company is susceptible to foreign currency risk on its US dollar cash balance in the amount of $5,829 as at February 28, 2014 (February 28, 2013$64,018).
14. Canadian Accounting Standards for Private Enterprises and US GAAP Reconciliation
The financial statements of the Company have been prepared in accordance with Canadian Accounting Standards for Private Enterprises. The material differences between the accounting policies used by the Company under Canadian Accounting Standards for Private Enterprises and US GAAP are disclosed below.
a) Income Taxes
Under US GAAP, the Company recognizes a tax benefit if it is more likely than not that a tax position taken or expected to be taken in a tax return will be sustained upon examination by taxing authorities based on the merits of the position. The tax benefit recognized in the financial statements is measured based on the largest amount of benefit that is greater than 50 per cent likely of being realized upon settlement. The difference
F-96
TRAIL TIRE DISTRIBUTORS LTD.
Notes to the Financial Statements
February 28, 2014 and February 28, 2013
(In Canadian Dollars)
between a tax position taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to this guidance represents an unrecognized tax benefit. An unrecognized tax benefit is disclosed as a long-term liability unless the Corporation anticipates a payment or receipt within one year in respect of the position. As a result of implementing these provisions there was no material impact on the Companys financial statements.
Under US GAAP the Company is required to calculate and record corporate income taxes based on enacted corporate income tax rates. Under the Canadian Accounting Standards for Private Enterprises, the Company had calculated and recognized corporate income taxes using substantively enacted corporate income tax rates. For the company, enacted and substantively enacted corporate tax rates are the same; as a result no differences to calculated and recognized corporate income taxes arise. There are no material differences between the Companys statutory income tax rate and the effective tax rate.
b) Variable interest entities
The Company has performed a review of the entities with which it conducts business and has concluded that there are no entities that are required to be consolidated or variable interests that are required to be disclosed under the requirements of ASC Topic 810, Consolidation of Variable Interest Entities.
c) Comprehensive Income
US GAAP requires the presentation of a Statement of Comprehensive Income. The Company has no items that would cause such presentation to differ from the amounts presented as Net Income in the accompanying financial statements.
d) Cash Flows From Financing Activities
The Company did not have any cash flows from financing activities and therefore this caption does not appear on the Statements of Cash Flows.
F-97
Extreme Wheel Distributors LTD.
Index
February 28, 2014 and 2013
Page | ||||
F-99 | ||||
Financial Statements |
||||
F-100 | ||||
F-101 | ||||
F-102 | ||||
F-103 | ||||
F-104 |
F-98
We have audited the accompanying financial statements of Extreme Wheel Distributors Ltd., which comprise the balance sheets as of February 28, 2014 and February 28, 2013, and the related statements of operations, retained earnings and cash flows for the years then ended, and the related notes to the financial statements.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian Accounting Standards for Private Enterprises; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entitys preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Extreme Wheel Distributors Ltd. as of February 28, 2014 and February 28, 2013, and the results of their operations and their cash flows for the years then ended in accordance with Canadian Accounting Standards for Private Enterprises.
Basis of Accounting
As more fully described in Note 2 to the financial statements, the Companys policy is to prepare its financial statements on the basis of Canadian Accounting Standards for Private Enterprises which differ from accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to that matter. Information relating to the nature and effect of such differences is presented in note 12 to the financial statements.
Edmonton, Alberta |
/s/ Collins Barrow Edmonton LLP | |
June 20, 2014 except for Note 12 (footnotes (a) and (c)) which are as of August 18, 2014 | Chartered Accountants |
This office is independently owned and operated by Collins Barrow Edmonton LLP The Collins Barrow trademarks are used under License. |
F-99
EXTREME WHEEL DISTRIBUTORS LTD.
Balance Sheets
As at February 28, 2014 and February 28, 2013
(In Canadian Dollars)
February 28, |
February 28, |
|||||||
ASSETS |
||||||||
Current Assets |
||||||||
Cash |
$ | 1,264,965 | $ | 931,656 | ||||
Accounts receivable (Note 3) |
487,572 | 376,209 | ||||||
Shareholders advance (Note 7) |
125,000 | | ||||||
Inventories (Note 4) |
1,308,687 | 1,000,224 | ||||||
Goods and Services Tax recoverable |
9,249 | 1,517 | ||||||
Prepaid expenses |
5,431 | 4,705 | ||||||
|
|
|
|
|||||
3,200,904 | 2,314,311 | |||||||
Loan receivable from related party (Note 5) |
130,000 | 130,000 | ||||||
Property and equipment (Note 6) |
34,343 | 45,158 | ||||||
Investment (Note 8) |
50,858 | 50,858 | ||||||
|
|
|
|
|||||
$ | 3,416,105 | $ | 2,540,327 | |||||
|
|
|
|
|||||
LIABILITIES |
||||||||
Current Liabilities |
||||||||
Accounts payable and accrued liabilities |
$ | 406,083 | $ | 252,738 | ||||
Management remuneration payable |
188,307 | 314,276 | ||||||
Income taxes payable |
111,636 | 14,300 | ||||||
|
|
|
|
|||||
706,026 | 581,314 | |||||||
Loans payable to related parties (Note 5) |
567,689 | 525,526 | ||||||
|
|
|
|
|||||
1,273,715 | 1,106,840 | |||||||
|
|
|
|
|||||
SHAREHOLDERS EQUITY |
||||||||
Share capital (Note 9) |
100 | 100 | ||||||
Retained earnings |
2,142,290 | 1,433,387 | ||||||
|
|
|
|
|||||
2,142,390 | 1,433,487 | |||||||
|
|
|
|
|||||
$ | 3,416,105 | $ | 2,540,327 | |||||
|
|
|
|
See accompanying notes
F-100
EXTREME WHEEL DISTRIBUTORS LTD.
Statements of Operations
For the Years Ended February 28, 2014 and February 28, 2013
(In Canadian Dollars)
2014 |
2013 |
|||||||
Sales (Note 5) |
$ | 7,678,243 | $ | 6,168,369 | ||||
Cost of sales (Note 5) |
5,978,940 | 4,580,901 | ||||||
|
|
|
|
|||||
Gross profit |
1,699,303 | 1,587,468 | ||||||
|
|
|
|
|||||
Expenses |
||||||||
Wages and benefits |
513,475 | 465,680 | ||||||
Rent (Note 5) |
110,400 | 110,400 | ||||||
Bank charges and processing fees |
38,371 | 33,850 | ||||||
Professional fees |
35,816 | 34,308 | ||||||
Advertising and promotion |
31,237 | 18,132 | ||||||
Automotive and travel |
31,069 | 29,019 | ||||||
Repairs and maintenance |
18,794 | 20,113 | ||||||
Office and shop supplies |
14,727 | 21,342 | ||||||
Insurance and licenses |
11,396 | 9,420 | ||||||
Amortization |
10,815 | 13,122 | ||||||
Management salaries |
7,000 | 324,000 | ||||||
Bad debt expense |
6,956 | 17,413 | ||||||
Utilities |
5,005 | 5,149 | ||||||
|
|
|
|
|||||
835,061 | 1,101,948 | |||||||
|
|
|
|
|||||
Income before other revenue (expenses) and income taxes |
864,242 | 485,520 | ||||||
Other revenue (expenses) |
||||||||
Foreign exchange gain |
| (118 | ) | |||||
Interest income |
10,302 | 5,084 | ||||||
|
|
|
|
|||||
10,302 | 4,966 | |||||||
|
|
|
|
|||||
Income before income taxes |
874,544 | 490,486 | ||||||
Income taxes expense |
165,641 | 68,728 | ||||||
|
|
|
|
|||||
Net income |
$ | 708,903 | $ | 421,758 | ||||
|
|
|
|
See accompanying notes
F-101
EXTREME WHEEL DISTRIBUTORS LTD.
Statements of Retained Earnings
For the Years Ended February 28, 2014 and February 28, 2013
(In Canadian Dollars)
2014 |
2013 |
|||||||
Balance, beginning of year |
$ | 1,433,387 | $ | 1,011,629 | ||||
Net income |
708,903 | 421,758 | ||||||
|
|
|
|
|||||
Balance, end of year |
$ | 2,142,290 | $ | 1,433,387 | ||||
|
|
|
|
See accompanying notes
F-102
EXTREME WHEEL DISTRIBUTORS LTD.
Statements of Cash Flows
For the Years Ended February 28, 2014 and February 28, 2013
(In Canadian Dollars)
2014 |
2013 |
|||||||
Cash provided by (used in): |
||||||||
Operating Activities |
||||||||
Net income |
$ | 708,903 | $ | 421,758 | ||||
Item not affecting cash |
||||||||
Amortization |
10,815 | 13,122 | ||||||
Change in non-cash working capital items (Note 10) |
(303,572 | ) | (121,860 | ) | ||||
|
|
|
|
|||||
416,146 | 313,020 | |||||||
|
|
|
|
|||||
Investing Activities |
||||||||
Purchase of equipment |
| (3,597 | ) | |||||
Advance to shareholder |
(125,000 | ) | | |||||
Repayment from shareholder |
| 12,600 | ||||||
Advance to related party |
| (130,000 | ) | |||||
|
|
|
|
|||||
(125,000 | ) | (120,997 | ) | |||||
|
|
|
|
|||||
Financing Activities |
||||||||
Advances from related parties |
162,163 | 86,483 | ||||||
Repayment to related party |
(120,000 | ) | (120,000 | ) | ||||
|
|
|
|
|||||
42,163 | (33,517 | ) | ||||||
|
|
|
|
|||||
Increase in cash |
333,309 | 158,506 | ||||||
Cash, beginning of year |
931,656 | 773,150 | ||||||
|
|
|
|
|||||
Cash, end of year |
$ | 1,264,965 | $ | 931,656 | ||||
|
|
|
|
See accompanying notes
F-103
EXTREME WHEEL DISTRIBUTORS LTD.
Notes to the Financial Statements
February 28, 2014 and February 28, 2013
(In Canadian Dollars)
1. Nature of Activities
The Company was incorporated under the Alberta Business Corporations Act on June 27, 2007 and commenced operations as a wholesale wheel business.
2. Summary of Significant Accounting Policies
Basis of Accounting
These financial statements are prepared in accordance with accounting standards for private enterprises, which is a basis of accounting generally accepted in Canada for entities that are privately held.
Revenue Recognition
Revenue is recognized when the goods have been delivered, the services have been completed, the transaction has been accepted by the customer and collection is reasonably assured. The Company reports its revenue net of returns, sales discounts and rebates to customers.
Interest revenue is recognized on an annual basis as it is earned.
Vendor Rebates and Allowances
Vendor rebates and allowances earned are initially recorded as a reduction in the cost of inventories and are included in operations (as a reduction of cost of goods sold) in the period the related product is sold.
Allowance for doubtful accounts
The allowance for doubtful accounts reflects managements best estimate of losses on the accounts receivable balances. The company maintains an allowance for doubtful accounts that is estimated based on a variety of factors including accounts receivable aging, historical experience and other currently available information, including events such as customer bankruptcy and current economic conditions. Interest is charged on overdue accounts receivable balances. A provision is recorded in the period in which the receivable is deemed uncollectible.
Inventories
Inventories are valued at the lower of cost or net realizable value. The cost of inventories comprises all costs of purchase and other costs incurred in bringing the inventories to their present location and condition including volume rebates and allowances from vendors. The cost of inventories is determined using the first-in, first-out (FIFO) method. Net realizable value is the estimated selling price in the ordinary course of business, less costs necessary to complete the sale. Inventory is reduced for the estimated losses due to obsolescence. This reduction is determined for groups of products based on purchases in the recent past and/or expected future demand.
F-104
EXTREME WHEEL DISTRIBUTORS LTD.
Notes to the Financial Statements
February 28, 2014 and February 28, 2013
(In Canadian Dollars)
Property and equipment
Property and equipment are recorded at cost less accumulated amortization.
Amortization is calculated at the following annual rates:
Automotive | - | 30% declining balance basis | ||
Office equipment | - | 20% declining balance basis | ||
Leasehold improvements | - | 5 year straight-line basis | ||
Computer equipment | - | 30% declining balance basis | ||
Shop equipment | - | 20% declining balance basis |
Property and equipment are tested for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. The carrying amount of a long-lived asset is not recoverable when it exceeds the sum of the undiscounted cash flows expected from its use and eventual disposal. In such a case, an impaired loss must be recognized and is equivalent to the excess of the carrying amount of a long-lived asset over its fair value.
Investments
The company accounts for its investment using the cost method. The carrying value of the investment is reviewed annually and written down below cost if there is a loss of value.
Income taxes
The Company uses the future income taxes method to account for income taxes. Under this method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
Translation of Foreign Currency Transactions
Monetary assets and liabilities of the Company are translated into Canadian dollars at the rate of exchange in effect at the balance sheet date. Revenue and expense items are translated at rates of exchange in effect at the respective transaction months. The resulting exchange gains or losses are included in net earnings. Non-monetary assets and liabilities, arising from transactions denominated in foreign currencies, are translated at rates of exchange in effect at the date of the transaction.
Use of estimates
The preparation of financial statements in conformity with Accounting Standards for Private Enterprises requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The more subjective estimates included in these financial statements are the determination of allowance for doubtful accounts receivable and valuation of inventory. Actual results could differ from those estimates.
F-105
EXTREME WHEEL DISTRIBUTORS LTD.
Notes to the Financial Statements
February 28, 2014 and February 28, 2013
(In Canadian Dollars)
Financial Instruments
Measurement of financial instruments
The company initially measures its financial assets and liabilities at fair value, except for certain non-arms length transactions. The Company subsequently measures all its financial assets and financial liabilities at amortized cost, except for equity instruments that are quoted in an active market, which are measured at fair value. Changes in fair value are recognized in net income.
Financial assets measured at amortized cost include cash, accounts receivable, shareholders advance and loan receivable from related party.
Financial liabilities measured at amortized cost include accounts payable and accrued liabilities, management remuneration payable and loans payable to related parties.
Impairment
Financial assets measured at cost are tested for impairment when there are indicators of impairment. The amount of the write-down is recognized in net income. A previously recognized impairment loss may be reversed to the extent of the improvement, directly or by adjusting the allowance account, provided it is no greater than the amount that would have been reported at the date of the reversal had the impairment not been recognized previously. The amount of the reversal is recognized in net income.
Transaction costs
Transaction costs relating to financial instruments that are measured subsequently at fair value are recognized in operations in the year in which they are incurred. For instruments that are subsequently measured at amortized cost, the amount initially recognized is adjusted for transaction costs directly attributable to the origination, acquisition, issuance or assumption.
3. Accounts Receivable
Accounts receivable consist of the following:
2014 |
2013 |
|||||||
Accounts receivabletrade |
$ | 487,572 | $ | 384,768 | ||||
Allowance for doubtful accounts |
| (8,559 | ) | |||||
|
|
|
|
|||||
$ | 487,572 | $ | 376,209 | |||||
|
|
|
|
4. Inventories
Inventories consist of the following:
2014 |
2013 |
|||||||
Tires |
$ | 34,781 | $ | 25,338 | ||||
Parts and accessories |
160,761 | 137,304 | ||||||
Custom wheels |
1,113,145 | 837,582 | ||||||
|
|
|
|
|||||
$ | 1,308,687 | $ | 1,000,224 | |||||
|
|
|
|
F-106
EXTREME WHEEL DISTRIBUTORS LTD.
Notes to the Financial Statements
February 28, 2014 and February 28, 2013
(In Canadian Dollars)
Cost of sales reported on the statement of operations include $5,978,940 (February 28, 2013$4,580,901) of inventories recognized as an expense during the year.
5. Loans Receivable from/Payable to Related Parties and Related Party Transactions
Loans Receivable from/Payable to Related Parties
a) Loan receivable from related party is as follows:
2014 |
2013 |
|||||||
1694352 Alberta Ltd. |
$ | 130,000 | $ | 130,000 | ||||
|
|
|
|
Loan receivable from 1694352 Alberta Ltd. is due from a company controlled by an immediate family member of the director of Extreme Wheel Ltd., is unsecured, non-interest bearing and has no stated terms of repayment.
As the loan receivable has no set repayment terms and the balance is not expected to be repaid within the year, it has been classified as a long term asset.
b) Loans payable to related parties are as follows:
2014 |
2013 |
|||||||
Trail Tire Services Ltd. |
$ | 314,037 | $ | 434,037 | ||||
Regional Tire Distributors (Edmonton) Inc. |
17,367 | 12,924 | ||||||
Tirecraft Western Canada Ltd. |
1,291 | 1,115 | ||||||
Trail Tire Distributors Ltd. |
234,994 | 77,450 | ||||||
|
|
|
|
|||||
$ | 567,689 | $ | 525,526 | |||||
|
|
|
|
Loans payable to the companies noted above are unsecured, non-interest bearing and have no stated terms of repayment. The relationship between Extreme Wheel Distributors Ltd. and each of these companies is as follows:
Tirecraft Western Canada Ltd. is indirectly jointly controlled by an immediate family member of the director of Extreme Wheel Distributors Ltd.
Trail Tire Distributors Ltd. is owned by close family members of the sole shareholder of Extreme Wheel Distributors Ltd.
Trail Tire Services Ltd. is controlled by a close family member of the spouse of the sole shareholder of Extreme Wheel Distributors Ltd.
Regional Tire Distributors (Edmonton) Inc. (formerly known as North Alta Tire Distributors Ltd.) is partially owned by a close family member of the director of the Company.
As the related parties have agreed in writing not to demand repayment of any portion of the loan balances prior to March 1, 2015, the loans have been classified as long term liabilities.
F-107
EXTREME WHEEL DISTRIBUTORS LTD.
Notes to the Financial Statements
February 28, 2014 and February 28, 2013
(In Canadian Dollars)
Related Party Transactions
Sales to related parties are as follows:
2014 |
2013 |
|||||||
Trail Tire Distributors Ltd. |
$ | | $ | 15,998 | ||||
Regional Tire Distributors (Edmonton) Inc. |
1,973 | 3,812 | ||||||
Trail Tire (Kingsway) Ltd. |
54,808 | 30,695 | ||||||
Tirecraft (Fort Road) Centre |
91,408 | 54,246 | ||||||
|
|
|
|
|||||
$ | 148,189 | $ | 104,751 | |||||
|
|
|
|
Included in accounts receivable are the following balances receivable from related parties as at the fiscal year-end:
2014 |
2013 |
|||||||
Trail Tire Distributors Ltd. |
$ | 1,626 | $ | 549 | ||||
Regional Tire Distributors (Edmonton) Inc. |
| 855 | ||||||
Trail Tire (Kingsway) Ltd. |
927 | 412 | ||||||
|
|
|
|
|||||
$ | 2,553 | $ | 1,816 | |||||
|
|
|
|
Purchases from related parties are as follows:
2014 |
2013 |
|||||||
Trail Tire Distributors Ltd. |
$ | 102,844 | $ | 142,206 | ||||
Regional Tire Distributors (Edmonton) Inc. |
9,164 | 329 | ||||||
|
|
|
|
|||||
$ | 112,008 | $ | 142,535 | |||||
|
|
|
|
Included in rent expense are lease payments paid to 1470242 Alberta Ltd., a company controlled by an immediate family member of the sole shareholder of the company, which amounted to $110,400 for the 2014 fiscal year (February 28, 2013$110,400).
Included in accounts payable and accrued liabilities are the following balances payable to the related parties as at the fiscal year-end:
2014 |
2013 |
|||||||
Tirecraft Western Canada Ltd. |
$ | 1,551 | $ | 390 | ||||
Regional Tire Distributors (Edmonton) Inc. |
2,731 | 72 | ||||||
Trail Tire Distributors Ltd. |
6,255 | 3,614 | ||||||
|
|
|
|
|||||
$ | 10,537 | $ | 4,076 | |||||
|
|
|
|
The related party transactions are in the normal course of operations and have been reported in these financial statements at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
F-108
EXTREME WHEEL DISTRIBUTORS LTD.
Notes to the Financial Statements
February 28, 2014 and February 28, 2013
(In Canadian Dollars)
6. Property and equipment
2014 |
||||||||||||
Cost |
Accumulated |
Net |
||||||||||
Automotive |
$ | 10,620 | $ | 9,103 | $ | 1,517 | ||||||
Office equipment |
10,250 | 6,924 | 3,326 | |||||||||
Leasehold improvements |
11,190 | 10,285 | 905 | |||||||||
Computer equipment |
15,608 | 14,965 | 643 | |||||||||
Shop equipment |
71,373 | 43,421 | 27,952 | |||||||||
|
|
|
|
|
|
|||||||
$ | 119,041 | $ | 84,698 | $ | 34,343 | |||||||
|
|
|
|
|
|
|||||||
2013 |
||||||||||||
Cost |
Accumulated |
Net |
||||||||||
Automotive |
$ | 10,620 | $ | 8,453 | $ | 2,167 | ||||||
Office equipment |
10,250 | 6,093 | 4,157 | |||||||||
Leasehold improvements |
11,190 | 8,260 | 2,930 | |||||||||
Computer equipment |
15,608 | 14,688 | 920 | |||||||||
Shop equipment |
71,373 | 36,389 | 34,984 | |||||||||
|
|
|
|
|
|
|||||||
$ | 119,041 | $ | 73,883 | $ | 45,158 | |||||||
|
|
|
|
|
|
7. Shareholders advance
Shareholders advance at February 28, 2014 is unsecured, non-interest bearing, and will be repaid within the 2015 fiscal year. As such, the advance has been classified as a current asset.
8. Investment
The Company accounts for its portfolio investment in TireWare Inc. at cost. TireWare Inc. is a non-public company based in the United States of America.
9. Share Capital
Authorized: | ||||
Unlimited number of Class A common shares |
||||
Unlimited number of Class B common shares |
||||
Unlimited number of Class C common shares |
||||
1,000,000 Class D preferred shares without nominal or par value |
2014 |
2013 |
|||||||
Issued: |
||||||||
100 Class A common shares |
$ | 100 | $ | 100 | ||||
|
|
|
|
F-109
EXTREME WHEEL DISTRIBUTORS LTD.
Notes to the Financial Statements
February 28, 2014 and February 28, 2013
(In Canadian Dollars)
10. Non-cash Working Capital Items
Non-cash working capital items related to operations are as follows:
2014 |
2013 |
|||||||
Accounts receivable |
$ | (111,363 | ) | $ | 79,751 | |||
Goods and Services Tax recoverable |
(7,732 | ) | (1,517 | ) | ||||
Inventories |
(308,463 | ) | (102,325 | ) | ||||
Prepaid expenses |
(726 | ) | (288 | ) | ||||
Accounts payable and accrued liabilities |
153,345 | 39,264 | ||||||
Income taxes payable |
97,336 | 3,979 | ||||||
Management remuneration payable |
(125,969 | ) | (140,724 | ) | ||||
|
|
|
|
|||||
$ | (303,572 | ) | $ | (121,860 | ) | |||
|
|
|
|
11. Financial Instruments
Credit Risk
Credit risk arises from the potential that a counter party will fail to perform its obligations. The Company is susceptible to concentration of credit risk on its accounts receivable and mitigates this risk through an extensive credit evaluation process.
Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The Company is exposed to this risk mainly in respect to its accounts payable and accrued liabilities and its management remuneration payable. At February 28, 2014 the company had working capital of $2,494,878 (February 28, 2013$1,732,997)
Foreign Currency Risk
Currency risk is the risk to the Companys earnings that arises from fluctuations of foreign exchange rates and the degree of volatility of these rates. The Company is susceptible to foreign currency risk on its US dollar cash balance in the amount of $5,812 as at February 28, 2014 (February 28, 2013$102,054).
12. Canadian Accounting Standards for Private Enterprises and US GAAP Reconciliation
The financial statements of the Company have been prepared in accordance with Canadian Accounting Standards for Private Enterprises. The material differences between the accounting policies used by the Company under Canadian Accounting Standards for Private Enterprises and US GAAP are disclosed below.
a) Income Taxes
Under US GAAP, the Company recognizes a tax benefit if it is more likely than not that a tax position taken or expected to be taken in a tax return will be sustained upon examination by taxing authorities based on the merits of the position. The tax benefit recognized in the financial statements is measured based on the largest amount of benefit that is greater than 50 per cent likely of being realized upon settlement.
F-110
EXTREME WHEEL DISTRIBUTORS LTD.
Notes to the Financial Statements
February 28, 2014 and February 28, 2013
(In Canadian Dollars)
The difference between a tax position taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to this guidance represents an unrecognized tax benefit. An unrecognized tax benefit is disclosed as a long-term liability unless the Corporation anticipates a payment or receipt within one year in respect of the position. As a result of implementing these provisions there was no material impact on the Companys financial statements.
Under US GAAP the Company is required to calculate and record corporate income taxes based on enacted corporate income tax rates. Under the Canadian Accounting Standards for Private Enterprises, the Company had calculated and recognized corporate income taxes using substantively enacted corporate income tax rates. For the company, enacted and substantively enacted corporate tax rates are the same; as a result no differences to calculated and recognized corporate income taxes arise. There are no material differences between the Companys statutory income tax rate and the effective tax rate.
b) Variable interest entities
The Company has performed a review of the entities with which it conducts business and has concluded that there are no entities that are required to be consolidated or variable interest that are required to be disclosed under the requirements of ASC Topic 810, Consolidation of Variable Interest Entities.
c) Comprehensive Income
US GAAP requires the presentation of a Statement of Comprehensive Income. The Company has no items that would cause such presentation to differ from the amounts presented as Net Income in the accompanying financial statements.
F-111
Kirks Tire LTD.
Index
January 31, 2014, 2013 and 2012
Page | ||||
F-113 | ||||
Financial Statements |
||||
F-114 | ||||
F-115 | ||||
F-116 | ||||
F-118 | ||||
F-117 |
F-112
Collins Barrow Edmonton LLP | ||||
2380 Commerce Place | ||||
10155102 Street N.W. | ||||
Edmonton, Alberta | ||||
T5J 4G8 Canada | ||||
T. 780.428.1522 | ||||
To the Shareholders of Kirks Tire Ltd. | F. 780.425.8189 | |||
www.collinsbarrow.com |
Report on the Financial Statements
We have audited the accompanying financial statements of Kirks Tire Ltd., which comprise the balance sheets as of January 31, 2014, January 31, 2013 and January 31, 2012, and the related statements of operations, retained earnings and cash flows for the years then ended, and the related notes to the financial statements.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian Accounting Standards for Private Enterprises; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entitys preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Kirks Tire Ltd. as of January 31, 2014, January 31, 2013 and January 31, 2012, and the results of their operations and their cash flows for the years then ended in accordance with Canadian Accounting Standards for Private Enterprises.
Basis of Accounting
As more fully described in Note 2 to the financial statements, the Companys policy is to prepare its financial statements on the basis of Canadian Accounting Standards for Private Enterprises which differ from accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to that matter. Information relating to the nature and effect of such differences is presented in note 12 to the financial statements.
Edmonton, Alberta |
/s/ Collins Barrow Edmonton LLP | |
June 25, 2014 except for Note 12 (footnotes (a) and (d)) which are as of August 18, 2014 and Note 13 which is as of September 11, 2014 | Chartered Accountants |
This office is independently owned and operated by Collins Barrow Edmonton LLP The Collins Barrow trademarks are used under License. |
F-113
KIRKS TIRE LTD.
As at January 31, 2014, January 31, 2013 and January 31, 2012
(In Canadian Dollars)
January 31, |
January 31, |
January 31, |
||||||||||
ASSETS |
||||||||||||
Current Assets |
||||||||||||
Cash |
$ | 3,335,664 | $ | 3,003,972 | $ | 3,057,437 | ||||||
Accounts receivable (Note 3) |
4,132,997 | 3,697,496 | 1,252,975 | |||||||||
Related Party Accounts Receivable (Note 5)` |
4,321,033 | 1,960,220 | 4,840,814 | |||||||||
Goods and Services Tax receivable |
30,156 | 192,088 | 185,262 | |||||||||
Inventories (Note 4) |
5,756,489 | 8,980,481 | 7,860,693 | |||||||||
Prepaid expenses |
50,967 | 58,841 | 60,793 | |||||||||
Income taxes receivable |
| | 248,218 | |||||||||
|
|
|
|
|
|
|||||||
17,627,306 | 17,893,098 | 17,506,192 | ||||||||||
Loans receivable from related parties (Note 5) |
3,811,861 | 12,509,058 | 10,778,106 | |||||||||
Equipment (Note 7) |
336,379 | 323,768 | 312,941 | |||||||||
Investment |
100 | 100 | 100 | |||||||||
|
|
|
|
|
|
|||||||
$ | 21,775,646 | $ | 30,726,024 | $ | 28,597,339 | |||||||
|
|
|
|
|
|
|||||||
LIABILITIES |
||||||||||||
Current Liabilities |
||||||||||||
Accounts payable and accrued liabilities |
$ | 913,958 | $ | 3,879,042 | $ | 3,445,598 | ||||||
Related Party Accounts Payable (Note 5) |
1,715,896 | 3,323,190 | 2,514,651 | |||||||||
Income taxes payable |
953,942 | 1,286,971 | | |||||||||
Management remuneration payable |
| 1,735,000 | 5,299,650 | |||||||||
|
|
|
|
|
|
|||||||
3,583,796 | 10,224,203 | 11,259,899 | ||||||||||
Loans payable to related parties (Note 5) |
3,877,762 | 1,881,243 | 3,681,345 | |||||||||
Shareholders loans (Note 6) |
2,614,082 | 3,660,734 | 4,903,868 | |||||||||
|
|
|
|
|
|
|||||||
10,075,640 | 15,766,180 | 19,845,112 | ||||||||||
|
|
|
|
|
|
|||||||
SHAREHOLDERS EQUITY |
||||||||||||
Common shares (Note 8) |
150 | 150 | 150 | |||||||||
Preferred shares (Note 8) |
588,608 | 588,608 | 588,608 | |||||||||
Contributed surplus |
1,894,789 | 1,894,789 | 1,894,789 | |||||||||
Retained earnings |
9,216,459 | 12,476,297 | 6,268,680 | |||||||||
|
|
|
|
|
|
|||||||
11,700,006 | 14,959,844 | 8,752,227 | ||||||||||
|
|
|
|
|
|
|||||||
$ | 21,775,646 | $ | 30,726,024 | $ | 28,597,339 | |||||||
|
|
|
|
|
|
|||||||
Commitments and Contingency (Note 10) |
See accompanying notes
F-114
KIRKS TIRE LTD.
For the Years Ended January 31, 2014, January 31, 2013 and January 31, 2012
(In Canadian Dollars)
January 31, |
January 31, |
January 31, |
||||||||||
Sales third-party |
23,516,358 | 20,344,957 | 16,371,487 | |||||||||
Related party sales (Note 5) |
42,352,565 | 40,741,608 | 36,231,652 | |||||||||
|
|
|
|
|
|
|||||||
Total Sales |
65,868,923 | 61,086,565 | 52,603,139 | |||||||||
|
|
|
|
|
|
|||||||
Cost of sales third-party |
49,745,807 | 48,216,499 | 42,760,849 | |||||||||
Related party cost of sales (Note 5) |
975,085 | 448,584 | 398,921 | |||||||||
|
|
|
|
|
|
|||||||
Total Cost of sales |
50,720,892 | 48,665,083 | 43,159,770 | |||||||||
|
|
|
|
|
|
|||||||
Gross profit |
15,148,031 | 12,421,482 | 9,443,369 | |||||||||
|
|
|
|
|
|
|||||||
Expenses |
||||||||||||
Wages and benefits |
1,497,033 | 1,278,658 | 1,142,440 | |||||||||
Automotive |
222,339 | 164,902 | 165,594 | |||||||||
Administrative |
178,056 | 50,011 | 825 | |||||||||
Repairs and maintenance |
142,723 | 68,195 | 61,987 | |||||||||
Utilities |
119,314 | 112,658 | 112,914 | |||||||||
Related party rent (Note 5) |
115,800 | 115,800 | 115,800 | |||||||||
Interest and bank charges |
105,882 | 68,494 | 65,399 | |||||||||
Office (Note 5) |
105,271 | 86,787 | 69,148 | |||||||||
Amortization |
100,476 | 95,861 | 117,442 | |||||||||
Advertising and promotion |
82,966 | 71,317 | 60,625 | |||||||||
Property taxes |
67,098 | 63,554 | 60,376 | |||||||||
Shop supplies |
62,537 | 25,629 | 20,660 | |||||||||
Travel |
54,695 | 38,004 | 39,015 | |||||||||
Insurance |
50,876 | 52,697 | 41,941 | |||||||||
Telephone |
39,274 | 52,130 | 40,565 | |||||||||
Dues and memberships |
12,394 | 8,871 | 8,059 | |||||||||
Professional fees |
1,548 | 15,071 | 5,588 | |||||||||
Bad debt expense (recovery) |
(35,881 | ) | 104,573 | 771,702 | ||||||||
Management salaries |
| 1,735,000 | 5,299,650 | |||||||||
|
|
|
|
|
|
|||||||
2,922,401 | 4,208,212 | 8,199,730 | ||||||||||
|
|
|
|
|
|
|||||||
Income before other revenue and income taxes |
12,225,630 | 8,213,270 | 1,243,639 | |||||||||
Other revenue |
||||||||||||
Interest income |
55,229 | 54,562 | 45,019 | |||||||||
Gain on sale of equipment |
36,327 | 6,542 | 6,399 | |||||||||
|
|
|
|
|
|
|||||||
Income before income taxes |
12,317,186 | 8,274,374 | 1,295,057 | |||||||||
Income taxes expense |
3,077,024 | 2,066,757 | 343,804 | |||||||||
|
|
|
|
|
|
|||||||
Net income |
$ | 9,240,162 | $ | 6,207,617 | $ | 951,253 | ||||||
|
|
|
|
|
|
See accompanying notes
F-115
KIRKS TIRE LTD.
Statements of Retained Earnings
For the Years Ended January 31, 2014, January 31, 2013 and January 31, 2012
(In Canadian Dollars)
January 31, |
January 31, |
January 31, |
||||||||||
Balance, beginning of year |
$ | 12,476,297 | $ | 6,268,680 | $ | 5,317,427 | ||||||
Net income |
9,240,162 | 6,207,617 | 951,253 | |||||||||
Dividends paid |
(12,500,000 | ) | | | ||||||||
|
|
|
|
|
|
|||||||
Balance, end of year |
$ | 9,216,459 | $ | 12,476,297 | $ | 6,268,680 | ||||||
|
|
|
|
|
|
See accompanying notes
F-116
KIRKS TIRE LTD.
For the Years Ended January 31, 2014, January 31, 2013 and January 31, 2012
(In Canadian Dollars)
January 31, |
January 31, |
January 31, |
||||||||||
Cash provided by (used in): |
||||||||||||
Operating Activities |
||||||||||||
Net income |
$ | 9,240,162 | $ | 6,207,617 | $ | 951,253 | ||||||
Items not affecting cash |
||||||||||||
Amortization |
100,476 | 95,861 | 117,442 | |||||||||
Gain on sale of equipment |
(36,327 | ) | (6,542 | ) | (6,399 | ) | ||||||
|
|
|
|
|
|
|||||||
9,304,311 | 6,296,936 | 1,062,296 | ||||||||||
Change in non-cash working capital items (Note 9) |
(6,042,923 | ) | (1,476,067 | ) | 143,010 | |||||||
|
|
|
|
|
|
|||||||
3,261,388 | 4,820,869 | 1,205,306 | ||||||||||
|
|
|
|
|
|
|||||||
Investing Activities |
||||||||||||
Purchase of equipment |
(154,534 | ) | (193,798 | ) | (157,166 | ) | ||||||
Proceeds on disposal of equipment |
77,774 | 93,652 | 27,416 | |||||||||
Advances to related parties |
(3,807,320 | ) | (8,705,534 | ) | (5,087,723 | ) | ||||||
Repayments from related parties |
12,504,518 | 6,974,582 | 5,567,412 | |||||||||
|
|
|
|
|
|
|||||||
8,620,438 | (1,831,098 | ) | 349,939 | |||||||||
|
|
|
|
|
|
|||||||
Financing Activities |
||||||||||||
Repayments to shareholders |
(15,580,910 | ) | (1,269,568 | ) | | |||||||
Advances from shareholders |
2,034,258 | 26,433 | 790,967 | |||||||||
Advances from related parties |
3,866,554 | 1,324,990 | 3,114,163 | |||||||||
Repayments to related parties |
(1,870,036 | ) | (3,125,091 | ) | (3,454,708 | ) | ||||||
|
|
|
|
|
|
|||||||
(11,550,134 | ) | (3,043,236 | ) | 450,422 | ||||||||
|
|
|
|
|
|
|||||||
Increase (decrease) in cash |
331,692 | (53,465 | ) | 2,005,667 | ||||||||
Cash, beginning of year |
3,003,972 | 3,057,437 | 1,051,770 | |||||||||
|
|
|
|
|
|
|||||||
Cash, end of year |
$ | 3,335,664 | $ | 3,003,972 | $ | 3,057,437 | ||||||
|
|
|
|
|
|
See accompanying notes
F-117
KIRKS TIRE LTD.
Notes to the Financial Statements
January 31, 2014, January 31, 2013 and January 31, 2012
(In Canadian Dollars)
1. Nature of operations
The Company was incorporated under the Alberta Business Corporations Act on January 30, 1990 and operates a tire distribution sales and service business.
2. Summary of significant accounting policies
Basis of presentation
These financial statements are prepared in accordance and in compliance with Canadian accounting standards for private enterprises (ASPE), as issued by the Canadian Institute of Chartered Accountants (CICA).
Revenue recognition
Revenue is recognized when the goods have been delivered, the services have been completed, the transaction has been accepted by the customer and collection is reasonably assured. The Company reports its revenue net of returns, sales discounts and volume rebates to customers.
Interest revenue is recognized on an annual basis as it is earned.
Translation of Foreign Currency
Monetary assets and liabilities of the Company are translated into Canadian dollars at the rate of exchange in effect at the balance sheet date. Revenue and expense items are translated at rates of exchange in effect at the respective transaction months. The resulting exchange gains or losses are included in net earnings. Non-monetary assets and liabilities, arising from transactions denominated in foreign currencies, are translated at rates of exchange in effect at the date of the transaction.
Foreign Currency Contracts
The Company may enter into foreign currency forward contracts to reduce exposure to foreign currency fluctuations. The contracts are measured at fair value and the resulting gains or losses, that would be realized if the position was sold before the valuation dates, are recorded as unrealized gains or losses.
Vendor Rebates and Allowances
The Company participates in various purchase rebate programs with its major tire vendors including early payment incentives and volume purchase rebates based on defined levels of purchase volume. These arrangements enable the Company to earn rebates that reduce the cost of merchandise purchased. Vendor rebates and allowances are accrued as earned. Vendor rebates and allowances earned are initially recorded as a reduction in the cost of merchandise inventories and are included in operations (as a reduction of cost of goods sold) in the period the related product is sold.
Allowance for doubtful accounts
The allowance for doubtful accounts reflects managements best estimate of losses on the accounts receivable balances. The company maintains an allowance for doubtful accounts that is estimated based on a
F-118
KIRKS TIRE LTD.
Notes to the Financial Statements
January 31, 2014, January 31, 2013 and January 31, 2012
(In Canadian Dollars)
variety of factors including accounts receivable aging, historical experience and other currently available information, including events such as customer bankruptcy and current economic conditions. Interest is charged on overdue account receivable balances. A provision is recorded in the period in which the receivable is deemed uncollectible.
Inventories
Inventories are valued at the lower of cost or net realizable value. The cost of inventories comprises all costs of purchase and other costs incurred in bringing the inventories to their present location and condition including volume rebates and allowances from vendors. The cost of inventories is determined using the first-in, first-out (FIFO) method. Net realizable value is the estimated selling price in the ordinary course of business, less costs necessary to complete the sale. Inventory is reduced for the estimated losses due to obsolescence. This reduction is determined for groups of products based on purchases in the recent past and/or expected future demand.
Equipment
Property and equipment are recorded at cost less accumulated amortization.
Amortization is calculated at the following annual rates:
Automotive |
- | 30% declining balance basis | ||||
Computer equipment |
- | 55% declining balance basis | ||||
Manufacturing equipment |
- | 30% straight-line basis | ||||
Shop equipment |
- | 20% declining balance basis |
Property and equipment are tested for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. The carrying amount of a long-lived asset is not recoverable when it exceeds the sum of the undiscounted cash flows expected from its use and eventual disposal. In such a case, an impaired loss must be recognized and is equivalent to the excess of the carrying amount of a long-lived asset over its fair value.
Investments
The company accounts for its investments using the cost method. The carrying value of each investment is reviewed annually and written down below cost if there is a loss of value.
Income taxes
The Company uses the future income taxes method to account for income taxes. Under this method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Future income taxes have not been recorded as they are considered insignificant.
Use of estimates
The preparation of these financial statements in conformity with Canadian Accounting Standards for Private Enterprises requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and
F-119
KIRKS TIRE LTD.
Notes to the Financial Statements
January 31, 2014, January 31, 2013 and January 31, 2012
(In Canadian Dollars)
the reported amounts of revenues and expenses during the reporting period. Significant estimates included in the financial statements are the valuation of accounts receivable, valuation of inventory, and the estimated useful life of long-lived assets for purposes of calculating amortization. Actual results could differ from those estimates.
Financial Instruments
Measurement of financial instruments
The company initially measures its financial assets and liabilities at fair value, except for certain non-arms length transactions. The Company subsequently measures all its financial assets and financial liabilities at amortized cost, except for equity instruments that are quoted in an active market, which are measured at fair value. Changes in fair value are recognized in net income.
Financial assets measured at amortized cost include cash, accounts receivable and loans receivable from related parties.
Financial liabilities measured at amortized cost include accounts payable and accrued liabilities, management remuneration payable, loans payable to related parties and shareholders loans.
Impairment
Financial assets measured at cost are tested for impairment when there are indicators of impairment. The amount of the write-down is recognized in net income. The previously recognized impairment loss may be reversed to the extent of the improvement, directly or by adjusting the allowance account, provided it is no greater than the amount that would have been reported at the date of the reversal had the impairment not been recognized previously. The amount of the reversal is recognized in net income.
Transaction costs
The Company recognizes its transaction costs in net income in the period incurred. However, the carrying amount of the financial instruments that will not be subsequently measured at fair value is reflected in the transaction costs that are directly attributable to their origination, issuance or assumptions.
3. Accounts Receivable
Accounts Receivable consists of the following:
January 31, |
January 31, |
January 31, |
||||||||||
Accounts ReceivableTrade |
$ | 5,658,335 | $ | 5,368,538 | 2,819,444 | |||||||
Allowance for Doubtful Accounts |
(1,525,338 | ) | (1,671,042 | ) | (1,566,469 | ) | ||||||
|
|
|
|
|
|
|||||||
$ | 4,132,997 | $ | 3,697,496 | $ | 1,252,975 | |||||||
|
|
|
|
|
|
4. Inventories
Inventory consists of the following:
January 31, |
January 31, |
January 31, |
||||||||||
Tires |
$ | 5,736,837 | $ | 8,970,484 | $ | 7,856,484 | ||||||
Parts |
19,652 | 9,997 | 4,209 | |||||||||
|
|
|
|
|
|
|||||||
$ | 5,756,489 | $ | 8,980,481 | $ | 7,860,693 | |||||||
|
|
|
|
|
|
F-120
KIRKS TIRE LTD.
Notes to the Financial Statements
January 31, 2014, January 31, 2013 and January 31, 2012
(In Canadian Dollars)
At the fiscal year end, inventory included volume rebates and allowances of $ 595,000 (January 31, 2013$1,093,336, January 31, 2012$898,381).
Cost of sales reported on the statement of operations include $50,720,892 (January 31, 2013$48,665,083, January 31, 2012$43,159,770) of inventories recognized as an expense during the year.
5. Loans Receivable from/Payable to Related Parties and Related Party Transactions
Loans receivable from related parties are as follows:
January 31, |
January 31, |
January 31, |
||||||||||
Integra Tire & Auto Centres Canada Ltd. |
$ | 48,503 | $ | | $ | | ||||||
Kirk Tire Distributors Ltd. |
22,843 | | 1,008 | |||||||||
Pask Technology Group Inc. |
93,878 | 4,541 | | |||||||||
Regional Tire Distributors (Manitoba) Inc. |
3,646,637 | | | |||||||||
Tirecraft Edmonton Truck Centre Ltd. |
| 4,037,756 | 858,110 | |||||||||
Regional Tire Distributors (Vernon) Inc. |
| 1,029,582 | 795,422 | |||||||||
Ranger Tire Inc. |
| 752,997 | 752,998 | |||||||||
Regional Tire Distributors (Saskatchewan) Inc. |
| 3,467,827 | 326,019 | |||||||||
Regional Tire Distributors (Victoria) Inc. |
| 554,592 | 277,842 | |||||||||
TCBC Holdings Inc. |
| 235,357 | | |||||||||
Regional Tire Distributors (Edmonton) Inc. |
| 711,308 | 2,365,960 | |||||||||
Ward Tires, Inc. |
| 1,565,774 | 40,965 | |||||||||
KDW Enterprises Ltd. |
| 149,324 | 40,860 | |||||||||
Kirks Tire (Edmonton) Ltd. |
| | 50,000 | |||||||||
Treads West Retreading Inc. |
| | 1,340,501 | |||||||||
Tirecraft Canada Ltd. |
| | 21,000 | |||||||||
Elrich Calgary Corp. |
| | 314,671 | |||||||||
L&K Tire Inc. |
| | 1,530,169 | |||||||||
Regional Tire Distributors (Calgary) Inc. |
| | 1,848,046 | |||||||||
1494974 Alberta Ltd. |
| | 180,000 | |||||||||
VLK Properties Ltd. |
| | 34,535 | |||||||||
|
|
|
|
|
|
|||||||
$ | 3,811,861 | $ | 12,509,058 | $ | 10,778,106 | |||||||
|
|
|
|
|
|
Loans receivable from the companies noted above are unsecured, non-interest bearing and have no stated terms of repayment. As the loans receivable have no stated terms of repayment and are not expected to be repaid within the next year, they have been classified as long term assets.
F-121
KIRKS TIRE LTD.
Notes to the Financial Statements
January 31, 2014, January 31, 2013 and January 31, 2012
(In Canadian Dollars)
Loans payable to related parties are as follows:
January 31, |
January 31, |
January 31, |
||||||||||
Regional Tire Distributors (Saskatchewan) Inc. |
$ | 107,560 | $ | | $ | | ||||||
Regional Tire Distributors (Edmonton) Inc. |
3,750,000 | | 400,000 | |||||||||
Regional Tire Distributors (Calgary) Inc. |
4,593 | 286,353 | | |||||||||
Kirks Tire (Red Deer) Ltd. |
5,080 | 17,840 | 7,233 | |||||||||
Kirks Mid-Way Tire Ltd. |
9,347 | 20,151 | 125,236 | |||||||||
Kirks Tire (Cardston) Ltd. |
1,066 | 2,160 | | |||||||||
Kirks Taber Ltd. |
116 | 39 | 800,015 | |||||||||
Elrich Calgary Corp. |
| 927,007 | | |||||||||
Son Tirecraft Burnaby Inc. |
| 91,237 | | |||||||||
Ward Tires, Inc. |
| 34,304 | 34,304 | |||||||||
Kirks Tire (Edmonton) Ltd. |
| 309 | | |||||||||
590545 Alberta Ltd. |
| 500,000 | 500,000 | |||||||||
Kirks Tire (Brooks) Ltd. |
| 1,843 | 4,277 | |||||||||
TCBC Holdings Inc. |
| | 31,736 | |||||||||
Regional Tire Distributors (Langley) Inc. |
| | 478,544 | |||||||||
767021 Alberta Ltd. |
| | 1,300,000 | |||||||||
|
|
|
|
|
|
|||||||
$ | 3,877,762 | $ | 1,881,243 | $ | 3,681,345 | |||||||
|
|
|
|
|
|
Loans payable to the companies noted above are unsecured, non-interest bearing and have no stated terms of repayment. As the related parties have agreed in writing not to demand repayment of any portion of the loan balances prior to February 1, 2015, the loans have been classified as long term liabilities.
F-122
KIRKS TIRE LTD.
Notes to the Financial Statements
January 31, 2014, January 31, 2013 and January 31, 2012
(In Canadian Dollars)
Related party accounts receivable are as follows:
January 31, |
January 31, |
January 31, |
||||||||||
Ward Tires, Inc. |
$ | 262,051 | $ | 84,157 | $ | 1,663 | ||||||
Ranger Tire Inc. |
8,393 | 183,089 | 2,152,394 | |||||||||
Trail Tire Distributors Ltd. |
860,172 | | 449,910 | |||||||||
Elrich Calgary Corp. |
69,403 | 273 | | |||||||||
Integra Tire & Auto Centres Canada Ltd. |
209,159 | | | |||||||||
Pask Technology Group Inc. |
41 | | | |||||||||
Pasta Fresco |
1,170 | | | |||||||||
TCBC Holdings Inc. |
474,032 | | | |||||||||
B&K Vehicles Inc. |
296 | | | |||||||||
Commercial Tire Inc. |
2,240 | 11,988 | 356 | |||||||||
Oasis Sales & Service Ltd. |
1,105 | | | |||||||||
1299068 Alberta Ltd. |
28,828 | | 232,481 | |||||||||
KDW Enterprises Ltd. |
173,560 | 118,928 | 53,280 | |||||||||
CAJM Holdings Ltd. |
10,659 | 4,224 | 655 | |||||||||
Treads West Retreading Inc. |
3,224 | 462 | | |||||||||
Tirecraft Lloydminster Truck Centre Inc. |
3,032 | 1,425 | 754 | |||||||||
Kirks AdminCo Ltd. |
960 | 6,000 | | |||||||||
Kirks Tire (Cardston) Ltd. |
139,428 | 98,452 | 116,950 | |||||||||
Kirks Tire (Red Deer) Ltd. |
33,035 | 117,219 | 87,394 | |||||||||
Kirks Tire (Brooks) Ltd. |
58,017 | 191,556 | 96,868 | |||||||||
Kirks Taber Ltd. |
247,468 | 204,682 | 200,671 | |||||||||
Kirks Tire (Edmonton) Ltd. |
35,981 | 64,383 | 9,325 | |||||||||
Kirks Mid-Way Tire Ltd. |
520,009 | 432,240 | 643,536 | |||||||||
Regional Tire Distributors (Edmonton) Inc. |
48,891 | | 169,817 | |||||||||
Regional Tire Distributors (Vernon) Inc. |
532,480 | 121,723 | 38,956 | |||||||||
Regional Tire Distributors (Calgary) Inc. |
97,974 | 95,353 | 238,722 | |||||||||
Regional Tire Distributors (Langley) Inc. |
47,608 | 88,169 | 90,654 | |||||||||
Regional Tire Distributors (Victoria) Inc. |
451,817 | | 59,317 | |||||||||
L&K Tire Inc. |
| 64,765 | | |||||||||
Kirk Tire Distributors Ltd. |
| 7,234 | | |||||||||
Regional Tire Distributors (Saskatchewan) Inc. |
| 63,898 | 195,227 | |||||||||
Kirks Tire (Calgary) Ltd. |
| | 174 | |||||||||
Tirecraft Aldergrove |
| | 1,394 | |||||||||
Extreme Wheel Distributors Ltd. |
| | 5 | |||||||||
590545 Alberta Ltd. |
| | 311 | |||||||||
|
|
|
|
|
|
|||||||
$ | 4,321,033 | $ | 1,960,220 | $ | 4,840,814 | |||||||
|
|
|
|
|
|
F-123
KIRKS TIRE LTD.
Notes to the Financial Statements
January 31, 2014, January 31, 2013 and January 31, 2012
(In Canadian Dollars)
Related party accounts payable are as follows:
January 31, |
January 31, |
January 31, |
||||||||||
Ward Tires, Inc. |
$ | 1,475 | $ | 41,715 | $ | 340,350 | ||||||
Ranger Tire Inc. |
111,959 | 37,698 | 81,876 | |||||||||
Extreme Wheel Distributors Ltd. |
5,737 | 495 | 4,860 | |||||||||
Trail Tire Distributors Ltd. |
16,996 | 16,914 | 18,998 | |||||||||
Elrich Calgary Corp. |
9,743 | 410,635 | 410,710 | |||||||||
Pask Technology Group Inc. |
474 | 386 | 224 | |||||||||
590545 Alberta Ltd. |
7,875 | 56,868 | | |||||||||
L&K Tire Inc. |
73,368 | 3,482 | | |||||||||
B&K Vehicles Inc. |
9,560 | | | |||||||||
KDW Enterprises Ltd. |
26,904 | 46,768 | 182,576 | |||||||||
Son Tirecraft Burnaby Inc. |
4,779 | | | |||||||||
Tirecraft Edmonton Truck Centre Ltd. |
403,536 | 9,794 | 39,581 | |||||||||
Kirk Tire Distributors Ltd. |
269 | | | |||||||||
Kirks AdminCo Ltd. |
138 | 223 | 351 | |||||||||
Kirks Tire (Cardston) Ltd. |
34 | 1,497 | 76 | |||||||||
Kirks Tire (Red Deer) Ltd. |
68,651 | 60,165 | 43,812 | |||||||||
Kirks Tire (Brooks) Ltd. |
24,044 | 11,826 | 93,838 | |||||||||
Kirks Taber Ltd. |
22,236 | 39,395 | 58,539 | |||||||||
Kirks Tire (Edmonton) Ltd. |
11,167 | 4,453 | 8,801 | |||||||||
Tirecraft of Calgary |
11,624 | 54,453 | 38,238 | |||||||||
TCBC Holdings Inc. |
17,893 | | 7,179 | |||||||||
Tirecraft Western Canada Ltd. |
14,678 | 10,584 | 85,516 | |||||||||
Kirks Mid-Way Tire Ltd. |
49,516 | 24,738 | 140,064 | |||||||||
BJK Holdings Ltd. |
570,900 | 268,138 | 795,601 | |||||||||
Regional Tire Distributors (Edmonton) Inc. |
8,462 | 840,739 | 24,588 | |||||||||
Regional Tire Distributors (Vernon) Inc. |
25,756 | | | |||||||||
Regional Tire Distributors (Saskatchewan) Inc. |
72,196 | | | |||||||||
Regional Tire Distributors (Calgary) Inc. |
110,146 | 476,564 | 39,371 | |||||||||
Regional Tire Distributors (Langley) Inc. |
35,780 | 888,248 | 3,592 | |||||||||
Treads West Retreading Inc. |
| 921 | 4,125 | |||||||||
Commercial Tire Inc. |
| | 53,090 | |||||||||
Kirks Tire (Calgary) Ltd. |
| 320 | 9,159 | |||||||||
Regional Tire Distributors (Victoria) Inc. |
| 16,171 | | |||||||||
Tirecraft Canada Ltd. |
| | 29,536 | |||||||||
|
|
|
|
|
|
|||||||
$ | 1,715,896 | $ | 3,323,190 | $ | 2,514,651 | |||||||
|
|
|
|
|
|
F-124
KIRKS TIRE LTD.
Notes to the Financial Statements
January 31, 2014, January 31, 2013 and January 31, 2012
(In Canadian Dollars)
The following summarizes the Companys related party sales:
January 31, |
January 31, |
January 31, |
||||||||||
1299068 Alberta Ltd |
$ | 6,324,015 | $ | 8,815,582 | $ | 8,118,225 | ||||||
Commercial Tire Inc. |
157,087 | 145,642 | 195,884 | |||||||||
Integra Tire & Auto Centres Canada Ltd. |
144,679 | | | |||||||||
KDW Enterprises Ltd. |
1,200,006 | 684,485 | 328,218 | |||||||||
Kirks Tire (Brooks) Ltd. |
2,377,544 | 2,126,831 | 1,910,220 | |||||||||
Kirks Tire (Cardston) Ltd. |
1,298,124 | 1,215,298 | 1,172,879 | |||||||||
Kirks Tire (Edmonton) Ltd. |
1,049,189 | 637,086 | 776,834 | |||||||||
Kirks Mid-Way Tire Ltd. |
5,607,725 | 5,730,464 | 5,471,719 | |||||||||
Kirks Tire (Red Deer) Ltd. |
1,750,172 | 1,906,419 | 1,896,594 | |||||||||
Kirks Taber Ltd. |
2,713,119 | 2,914,555 | 2,261,559 | |||||||||
L&K Tire Inc. |
500 | | | |||||||||
Oasis Sales & Service Ltd. |
785 | | | |||||||||
Regional Tire Distributors (Calgary) Inc. |
4,104,982 | 2,642,510 | 2,259,935 | |||||||||
Regional Tire Distributors (Edmonton) Inc. |
648,512 | 770,468 | 1,195,376 | |||||||||
Regional Tire Distributors (Langley) Inc. |
1,374,047 | 834,921 | 999,544 | |||||||||
Regional Tire Distributors (Manitoba) Inc. |
263,195 | | | |||||||||
Regional Tire Distributors (Saskatchewan) Inc. |
770,928 | 937,043 | 322,559 | |||||||||
Regional Tire Distributors (Vernon) Inc. |
1,799,215 | 1,763,106 | 1,790,672 | |||||||||
Regional Tire Distributors (Victoria) Inc. |
328,150 | 279,913 | 90,879 | |||||||||
TCBC Holdings Inc. |
1,645,316 | | 1,632,830 | |||||||||
Tirecraft Lloydminster Truck Centre Inc. |
575,076 | 465,064 | 346,711 | |||||||||
Tirecraft Nisku Inc. |
26,972 | 6,546 | 7,387 | |||||||||
Trail Tire Distributors Ltd. |
8,193,227 | 7,023,218 | 5,452,383 | |||||||||
Tirecraft Aldergrove |
| 1,838,785 | 1,244 | |||||||||
590545 Alberta Ltd. |
| 1,088 | | |||||||||
Tirecraft Richmond |
| 2,584 | | |||||||||
|
|
|
|
|
|
|||||||
$ | 42,352,565 | $ | 40,741,608 | $ | 36,231,652 | |||||||
|
|
|
|
|
|
The following summarizes the Companys related party cost of sales and expenses:
January 31, |
January 31, |
January 31, |
||||||||||
Pask Technology Group Inc. |
$ | 5,483 | $ | 5,391 | $ | 5,705 | ||||||
Kirks Adminco Ltd. |
3,057 | 3,212 | 7,262 | |||||||||
BJK Holdings Ltd. |
880,585 | | | |||||||||
W.R. Kirk Holdings Ltd. |
115,800 | 115,800 | 115,800 | |||||||||
590545 Alberta Ltd. |
94,500 | 306,256 | 398,921 | |||||||||
Commercial Tire Inc. |
| 142,328 | | |||||||||
|
|
|
|
|
|
|||||||
$ | 1,099,425 | $ | 572,987 | $ | 527,688 | |||||||
|
|
|
|
|
|
Related party expenses to Pask Technology Inc. and Kirks Adminco Ltd. have been included in office expense. Related party expenses to 590545 Alberta Ltd., Commercial Tire Inc. and BJK Holdings Ltd. have been included in related party cost of sales. Related party expenses to W.R. Kirk Holdings Ltd. have been included in related party rent expense.
F-125
KIRKS TIRE LTD.
Notes to the Financial Statements
January 31, 2014, January 31, 2013 and January 31, 2012
(In Canadian Dollars)
The following summarizes all the Companys volume bonuses received and rebilled to related and unrelated parties:
January 31, |
January 31, |
January 31, |
||||||||||
Volume bonuses received |
$ | 9,737,286 | $ | 7,776,280 | $ | 6,492,767 | ||||||
Volume bonuses rebilled: |
||||||||||||
Integra Tire & Auto Centres Canada Ltd. |
285,339 | | | |||||||||
KDW Enterprises Ltd. |
152,840 | | 151,800 | |||||||||
Kirks Tire (Edmonton) Ltd. |
3,561 | | | |||||||||
Regional Tire Distributors (Calgary) Inc. |
1,119,087 | 828,223 | 187,075 | |||||||||
Regional Tire Distributors (Edmonton) Inc. |
2,308,423 | 1,403,495 | 698,113 | |||||||||
Regional Tire Distributors (Langley) Inc. |
905,479 | 594,365 | 918,436 | |||||||||
Regional Tire Distributors (Manitoba) Inc. |
399,332 | | | |||||||||
Regional Tire Distributors (Saskatchewan) Inc. |
387,357 | 578,995 | | |||||||||
Regional Tire Distributors (Vernon) Inc. |
348,608 | 265,248 | 123,304 | |||||||||
Regional Tire Distributors (Victoria) Inc. |
206,559 | 146,091 | 330 | |||||||||
TCBC Holdings Inc. |
4,835 | | | |||||||||
Tirecraft Edmonton Truck Centre Ltd. |
101,363 | 277,568 | 98,347 | |||||||||
Tirecraft of Calgary |
1,350 | 342,950 | | |||||||||
Ranger Tire Inc. |
16,646 | | | |||||||||
Kamloops Tire Ltd. |
885 | | | |||||||||
Tiresmith Inc. |
55,254 | 60,622 | 64,589 | |||||||||
Ward Tires, Inc. |
5,370 | 127,334 | 318,447 | |||||||||
BJK Holdings Ltd. |
| 3,708,798 | 1,318,201 | |||||||||
Commercial Tire Inc. |
| 51,342 | 100,785 | |||||||||
Elrich Calgary Corp. |
| | 182,645 | |||||||||
L&K Tire Inc. |
| | 1,731,416 | |||||||||
Trail Tire Distributors Ltd. |
| | 6,467 | |||||||||
OK Tire 99 Street |
| | 136,000 | |||||||||
Tirecraft Canada Ltd. |
| (145,976 | ) | 83,396 | ||||||||
Tirecraft Western Canada Ltd. |
| (110,517 | ) | 254,976 | ||||||||
|
|
|
|
|
|
|||||||
6,302,288 | 8,128,538 | 6,374,327 | ||||||||||
|
|
|
|
|
|
|||||||
Volume bonuses recognized as income (expense) |
$ | 3,434,998 | $ | (352,258 | ) | $ | 118,440 | |||||
|
|
|
|
|
|
Companies not directly related to Kirks Tire Ltd. that received volume bonuses are Ranger Tire Inc., Kamloops Tire Ltd., Tiresmith Inc., Ward Tires, Inc., Trail Tire Distributors Ltd. and OK Tire 99 Street.
The relationship between Kirks Tire Ltd. and each of the companies above is as follows:
The following companies are jointly controlled by a director of Kirks Tire Ltd.: KDW Enterprises Ltd., Kirks Tire (Edmonton) Ltd., L&K Tire Inc., Kirks Tire (Brooks) Ltd., Regional Tire Distributors (Langley) Inc., Commercial Tire Inc., Kirks AdminCo Ltd., Tirecraft Western Canada Ltd., Tirecraft Nisku Inc., BJK Holdings Ltd., W.R. Kirk Holdings Ltd., Tirecraft Edmonton Truck Centre Ltd., TCBC Holdings Inc., Regional Tire Distributors (Edmonton) Inc., Elrich Calgary Corp., Regional Tire Distributors (Calgary) Inc., 1494974 Alberta Ltd., VLK Properties Ltd., Kirks Tire (Red Deer) Ltd., 590545 Alberta Ltd., 767021 Alberta Ltd., B&K Vehicles Inc., 1299068 Alberta Ltd., Tirecraft Lloydminster Truck Centre Inc., Tirecraft Aldergrove, and Tirecraft Richmond.
F-126
KIRKS TIRE LTD.
Notes to the Financial Statements
January 31, 2014, January 31, 2013 and January 31, 2012
(In Canadian Dollars)
The following companies are significantly influenced by a director of Kirks Tire Ltd.: Integra Tire & Auto Centres Canada Ltd., Regional Tire Distributors (Manitoba) Inc., Regional Tire Distributors (Saskatchewan) Inc., Regional Tire Distributors (Victoria) Inc., Regional Tire Distributors (Vernon) Inc., Tirecraft Canada Ltd., Kirks Mid-Way Tire Ltd., Kirks Tire (Cardston) Ltd., Kirks Taber Ltd., and Son Tirecraft Burnaby Inc.
The following companies are indirectly owned by a director of Kirks Tire Ltd.: Pask Technology Group Inc., Pasta Fresco, Oasis Sales & Service Ltd., CAJM Holdings Ltd., and BJK Holdings Ltd.
Kirk Tire Distributors Ltd. is owned by a close family member of a director of Kirks Tire Ltd.
The following companies are related to Kirks Tire Ltd. as the directors of the companies share joint ownership with Kirks Tire Ltd. companies listed above: Ranger Tire Inc., Ward Tires, Inc., Treads West Retreading Inc., Trail Tire Distributors Ltd., Extreme Wheel Distributors Ltd., OK Tire 99th Street, Kirks Tire (Calgary) Ltd., Tirecraft of Calgary, Kamloops Tire Ltd. and Tiresmith Inc.
These transactions are in the normal course of operations and have been reported in these financial statements at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
6. Shareholders Loans
Shareholders loans at January 31, 2014 which includes amounts outstanding at January 31, 2013 and January 31, 2012 are unsecured, non-interest bearing, and are due February 1, 2015.
7. Equipment
January 31, 2014 |
||||||||||||
Cost |
Accumulated Amortization |
Net |
||||||||||
Automotive |
$ | 484,048 | $ | 258,778 | $ | 225,270 | ||||||
Computer equipment |
60,170 | 51,929 | 8,241 | |||||||||
Manufacturing equipment |
435,923 | 431,628 | 4,295 | |||||||||
Shop equipment |
394,031 | 295,458 | 98,573 | |||||||||
|
|
|
|
|
|
|||||||
$ | 1,374,172 | $ | 1,037,793 | $ | 336,379 | |||||||
|
|
|
|
|
|
January 31, 2013 |
||||||||||||
Cost |
Accumulated Amortization |
Net |
||||||||||
Automotive |
$ | 474,436 | $ | 292,152 | $ | 182,284 | ||||||
Computer equipment |
60,170 | 41,857 | 18,313 | |||||||||
Manufacturing equipment |
435,923 | 429,787 | 6,136 | |||||||||
Shop equipment |
388,536 | 271,501 | 117,035 | |||||||||
|
|
|
|
|
|
|||||||
$ | 1,359,065 | $ | 1,035,297 | $ | 323,768 | |||||||
|
|
|
|
|
|
F-127
KIRKS TIRE LTD.
Notes to the Financial Statements
January 31, 2014, January 31, 2013 and January 31, 2012
(In Canadian Dollars)
January 31, 2012 |
||||||||||||
Cost |
Accumulated Amortization |
Net |
||||||||||
Automotive |
$ | 488,610 | $ | 314,904 | $ | 173,706 | ||||||
Computer equipment |
66,600 | 19,474 | 47,126 | |||||||||
Manufacturing equipment |
435,923 | 427,158 | 8,765 | |||||||||
Shop equipment |
332,581 | 249,237 | 83,344 | |||||||||
|
|
|
|
|
|
|||||||
$ | 1,323,714 | $ | 1,010,773 | $ | 312,941 | |||||||
|
|
|
|
|
|
8. Share Capital
Authorized: |
Unlimited number of Class A, B, C and D common voting shares |
Unlimited number of Class E, F, G and H common non-voting shares |
Unlimited number of Class I Preferred voting shares redeemable or retractable at $6,534.47 per share, entitled to non-cumulative annual dividends in an amount not to exceed 15% of redemption amount of the shares |
Unlimited number of Class J Preferred non-voting shares redeemable or retractable at $1,000.00 per share, entitled to non-cumulative annual dividends in an amount not to exceed 15% of redemption amount of the shares |
January 31, |
January 31, |
January 31, |
||||||||||
Issued: |
||||||||||||
1,500 Class A common shares |
$ | 150 | $ | 150 | $ | 150 | ||||||
|
|
|
|
|
|
|||||||
380 Class I preferred shares |
588,308 | 588,308 | 588,308 | |||||||||
5,900 Class J preferred shares |
300 | 300 | 300 | |||||||||
|
|
|
|
|
|
|||||||
588,608 | 588,608 | 588,608 | ||||||||||
|
|
|
|
|
|
|||||||
$ | 588,758 | $ | 588,758 | $ | 588,758 | |||||||
|
|
|
|
|
|
9. Non-cash Working Capital Items
Non-cash working capital items related to operations are as follows:
January 31, |
January 31, |
January 31, |
||||||||||
Accounts receivable and related party accounts receivable |
$ | (2,796,314 | ) | $ | 436,073 | $ | (3,958,562 | ) | ||||
Goods and Services Tax receivable |
161,932 | (6,826 | ) | 3,296 | ||||||||
Inventories |
3,223,992 | (1,119,788 | ) | (730,348 | ) | |||||||
Prepaid expenses |
7,874 | 1,952 | (22,958 | ) | ||||||||
Accounts payable and accrued liabilities and related party accounts payable |
(4,572,378 | ) | 1,241,983 | 4,275,113 | ||||||||
Income taxes payable/receivable |
(333,029 | ) | 1,535,189 | (223,181 | ) | |||||||
Management remuneration payable |
(1,735,000 | ) | (3,564,650 | ) | 799,650 | |||||||
|
|
|
|
|
|
|||||||
$ | (6,042,923 | ) | $ | (1,476,067 | ) | $ | 143,010 | |||||
|
|
|
|
|
|
F-128
KIRKS TIRE LTD.
Notes to the Financial Statements
January 31, 2014, January 31, 2013 and January 31, 2012
(In Canadian Dollars)
10. Commitments and Contingency
The Company has provided a continuing guarantee limited to $600,000 to 1707588 Alberta Ltd., a company indirectly owned by a director of Kirks Tire Ltd., along with two other companies to assist in the purchase of 134 acres of residential development land.
The Company provides continuing guarantees without limit for the purchase of inventory from Michelin and Cooper Tire made by its related parties.
11. Financial Instruments
Credit Risk
The Company is susceptible to credit risk on its accounts receivable and mitigates this risk through an extensive credit evaluation process.
The Company is susceptible to concentration of credit risk as its accounts receivable consists of 51% from related parties (January 31, 201335%, January 31, 201279%) and revenue consists of 64% from related parties (January 31, 201366%, January 31, 201269%).
Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The Company is exposed to this risk mainly in respect to its accounts payable and accrued liabilities and its management remunerations payable. At January 31, 2014 the company had a working capital balance of $14,043,510 (January 31, 2013$7,668,895, January 31, 2012$6,246,293).
Foreign Currency Risk
Currency risk is the risk to the Companys earnings that arises from fluctuations of foreign exchange rates and the degree of volatility of these rates. The Company is susceptible to foreign currency risk on its US dollar cash balance in the amount of $418,984 as at January 31, 2014 (January 31, 2013$405,552, January 31, 2012$618,371). The Company mitigates this risk through the use of foreign currency futures contracts.
12. Canadian Accounting Standards for Private Enterprises and US GAAP Reconciliation
The financial statements of the Company have been prepared in accordance with Canadian Accounting Standards for Private Enterprises. The material differences between the accounting policies used by the Company under Canadian Accounting Standards for Private Enterprises and US GAAP are disclosed below.
a) Income Taxes
Under US GAAP, the Company recognizes a tax benefit if it is more likely than not that a tax position taken or expected to be taken in a tax return will be sustained upon examination by taxing authorities based on the merits of the position. The tax benefit recognized in the financial statements is measured based on the largest amount of benefit that is greater than 50 per cent likely of being realized upon settlement. The difference between a tax position taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to this guidance represents an unrecognized tax benefit. An unrecognized tax benefit is disclosed as a long-term liability unless the Corporation anticipates a payment or receipt within one year in respect of the position. As a result of implementing these provisions there was no material impact on the Companys financial statements.
F-129
KIRKS TIRE LTD.
Notes to the Financial Statements
January 31, 2014, January 31, 2013 and January 31, 2012
(In Canadian Dollars)
Under US GAAP the Company is required to calculate and record corporate income taxes based on enacted corporate income tax rates. Under the Canadian Accounting Standards for Private Enterprises, the Company had calculated and recognized corporate income taxes using substantively enacted corporate income tax rates. For the Company, enacted and substantively enacted corporate tax rates are the same; as a result no differences to calculated and recognized corporate income taxes arise. There are no material differences between the Companys statutory income tax rate and the effective tax rate.
b) Variable interest entities
The Company has performed a review of the entities with which it conducts business and has concluded that there are no entities that are required to be consolidated or variable interests that are required to be disclosed under the requirements of ASC Topic 810, Consolidation of Variable Interest Entities.
c) Preferred shares
Under US GAAP, the Company recognizes preferred shares at stated capital value as part of equity if there is not an unconditional obligation for the Company to redeem the shares by transferring an asset on a specified or determinable date or upon an event that is certain to occur. For the Company, there is no unconditional obligation for the preferred shares to be redeemed at the option of the holder at January 31, 2012, January 31, 2013 and January 31, 2014, therefore the stated value of the preferred shares has been reported as an equity component.
d) Comprehensive Income
US GAAP requires the presentation of a Statement of Comprehensive Income. The Company has no items that would cause such presentation to differ from the amounts presented as Net Income in the accompanying financial statements.
13. Presentation of Related Party Balances
Subsequent to release of the financial statements on June 25, 2014, the Company has expanded its disclosure of related party balances for each of the years presented on the balance sheets and statements of operations resulting in the separate presentation of related party accounts receivable, which were previously included in accounts receivable, related party accounts payable, which were previously included in accounts payable and accrued liabilities, related party sales, which were previously included in sales, and related party cost of sales, which were previously included in cost of sales.
F-130
Regional Tire Distributors (Edmonton) Inc.
Index
February 28, 2014 and 2013 and February 29, 2012
Page | ||||
F-132 | ||||
Financial Statements |
||||
F-133 | ||||
F-134 | ||||
F-135 | ||||
F-136 | ||||
F-137 |
F-131
Collins Barrow Edmonton LLP | ||||
2380 Commerce Place | ||||
10155102 Street N.W. | ||||
Edmonton, Alberta | ||||
T5J 4G8 Canada | ||||
T. 780.428.1522 | ||||
To the Shareholders of Regional Tire Distributors (Edmonton) Inc. | F. 780.425.8189 | |||
www.collinsbarrow.com |
We have audited the accompanying financial statements of Regional Tire Distributors (Edmonton) Inc., which comprise the balance sheets as of February 28, 2014, February 28, 2013 and February 29, 2012, and the related statements of operations, retained earnings and cash flows for the years then ended, and the related notes to the financial statements.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian Accounting Standards for Private Enterprises; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entitys preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Regional Tire Distributors (Edmonton) Inc. as of February 28, 2014, February 28, 2013 and February 29, 2012, and the results of their operations and their cash flows for the years then ended in accordance with Canadian Accounting Standards for Private Enterprises.
Basis of Accounting
As more fully described in Note 2 to the financial statements, the Companys policy is to prepare its financial statements on the basis of Canadian Accounting Standards for Private Enterprises which differ from accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to that matter. Information relating to the nature and effect of such differences is presented in note 11 to the financial statements.
Edmonton, Alberta |
/s/ Collins Barrow Edmonton LLP | |
June 25, 2014 except for Note 11 (footnotes (b), (c) | ||
and (d)) which are as of July 25, 2014 and Notes 11 (footnotes (a) and (e)) and 12 which are as of August 18, 2014 |
Chartered Accountants |
This office is independently owned and operated by Collins Barrow Edmonton LLP | ||
The Collins Barrow trademarks are used under License. |
F-132
REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.
As at February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
February 28, 2014 |
February 28, 2013 |
February 29, 2012 |
||||||||||
ASSETS |
||||||||||||
Current Assets |
||||||||||||
Cash |
$ | 616,007 | $ | 190,917 | $ | 769,834 | ||||||
Accounts receivable (Note 3) |
1,156,243 | 907,255 | 1,559,453 | |||||||||
Goods and Services Tax receivable |
| 149,806 | 190 | |||||||||
Income taxes receivable |
40,047 | | | |||||||||
Dividend receivable |
109,081 | | | |||||||||
Inventories (Note 4) |
2,178,797 | 3,448,221 | 2,227,471 | |||||||||
Prepaid expenses |
5,513 | 6,403 | 5,260 | |||||||||
|
|
|
|
|
|
|||||||
4,105,688 | 4,702,602 | 4,562,208 | ||||||||||
Loans receivable from related parties (Note 5) |
11,728,951 | 3,012,874 | 1,099,391 | |||||||||
Equipment (Note 6) |
5,953 | 7,463 | 9,359 | |||||||||
Investments |
625 | 175 | 175 | |||||||||
|
|
|
|
|
|
|||||||
$ | 15,841,217 | $ | 7,723,114 | $ | 5,671,133 | |||||||
|
|
|
|
|
|
|||||||
LIABILITIES |
||||||||||||
Current Liabilities |
||||||||||||
Accounts payable and accrued liabilities |
$ | 1,108,673 | $ | 843,924 | $ | 1,623,197 | ||||||
Income taxes payable |
| 380,473 | 5,955 | |||||||||
Goods and Services Tax payable |
46,289 | | | |||||||||
Management remuneration payable |
| 30,000 | 600,000 | |||||||||
|
|
|
|
|
|
|||||||
1,154,962 | 1,254,397 | 2,229,152 | ||||||||||
Loans payable to related parties (Note 5) |
3,584,288 | 2,633,845 | 922,428 | |||||||||
Shareholders loan (Note 7) |
6,232,700 | 500,000 | 600,000 | |||||||||
|
|
|
|
|
|
|||||||
10,971,950 | 4,388,242 | 3,751,580 | ||||||||||
|
|
|
|
|
|
|||||||
SHAREHOLDERS EQUITY |
||||||||||||
Share capital (Note 8) |
100 | 100 | 100 | |||||||||
Retained earnings |
4,869,167 | 3,334,772 | 1,919,453 | |||||||||
|
|
|
|
|
|
|||||||
4,869,267 | 3,334,872 | 1,919,553 | ||||||||||
|
|
|
|
|
|
|||||||
$ | 15,841,217 | $ | 7,723,114 | $ | 5,671,133 | |||||||
|
|
|
|
|
|
See accompanying notes
F-133
REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.
For the Years Ended February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
February 28, 2014 |
February 28, 2013 |
February 29, 2012 |
||||||||||
Sales (Note 5) |
$ | 19,504,654 | $ | 18,455,516 | $ | 18,315,246 | ||||||
Cost of sales (Note 5) |
14,371,030 | 15,547,112 | 15,991,709 | |||||||||
|
|
|
|
|
|
|||||||
Gross profit |
5,133,624 | 2,908,404 | 2,323,537 | |||||||||
|
|
|
|
|
|
|||||||
Expenses |
||||||||||||
Wages and benefits |
532,308 | 498,127 | 347,259 | |||||||||
Office |
389,063 | 145,229 | 282,178 | |||||||||
Rent (Note 5) |
228,401 | 219,750 | 159,500 | |||||||||
Professional fees |
137,722 | 954 | 2,740 | |||||||||
Management salaries |
55,250 | 10,000 | 610,000 | |||||||||
Automotive |
43,138 | 38,460 | 24,275 | |||||||||
Interest and bank charges |
41,303 | 45,540 | 33,607 | |||||||||
Advertising and promotion |
38,458 | 44,003 | 66,261 | |||||||||
Insurance |
18,054 | 15,969 | 12,473 | |||||||||
Travel |
15,303 | 18,022 | 2,829 | |||||||||
Bad debt expense |
11,504 | 33,342 | 697 | |||||||||
Property taxes |
7,625 | 208 | 441 | |||||||||
Telephone and utilities |
2,791 | 2,738 | 2,540 | |||||||||
Repairs and maintenance |
2,204 | 1,320 | 2,776 | |||||||||
Amortization |
1,510 | 1,896 | 3,274 | |||||||||
Shop supplies |
1,458 | 609 | 85 | |||||||||
Dues and memberships |
| 100 | 100 | |||||||||
|
|
|
|
|
|
|||||||
1,526,092 | 1,076,267 | 1,551,035 | ||||||||||
|
|
|
|
|
|
|||||||
Income before other revenue (expenses) and income taxes |
3,607,532 | 1,832,137 | 772,502 | |||||||||
Other revenue (expenses) |
||||||||||||
Dividend income |
109,081 | | | |||||||||
Interest income |
22,735 | 27,700 | 18,118 | |||||||||
Impairment of advances to related party |
(1,800,000 | ) | | | ||||||||
|
|
|
|
|
|
|||||||
Income before income taxes |
1,939,348 | 1,859,837 | 790,620 | |||||||||
Income taxes expense |
404,953 | 444,518 | 69,387 | |||||||||
|
|
|
|
|
|
|||||||
Net income |
$ | 1,534,395 | $ | 1,415,319 | $ | 721,233 | ||||||
|
|
|
|
|
|
See accompanying notes
F-134
REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.
Statements of Retained Earnings
For the Years Ended February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
February 28, 2014 |
February 28, 2013 |
February 29, 2012 |
||||||||||
Balance, beginning of year |
$ | 3,334,772 | $ | 1,919,453 | $ | 1,198,220 | ||||||
Net income |
1,534,395 | 1,415,319 | 721,233 | |||||||||
|
|
|
|
|
|
|||||||
Balance, end of year |
$ | 4,869,167 | $ | 3,334,772 | $ | 1,919,453 | ||||||
|
|
|
|
|
|
See accompanying notes
F-135
REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.
For the Years Ended February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
February 28, 2014 |
February 28, 2013 |
February 29, 2012 |
||||||||||
Cash provided by (used in): |
||||||||||||
Operating Activities |
||||||||||||
Net income |
$ | 1,534,395 | $ | 1,415,319 | $ | 721,233 | ||||||
Items not affecting cash |
||||||||||||
Amortization |
1,510 | 1,896 | 3,274 | |||||||||
Impairment of advances to related party |
1,800,000 | | | |||||||||
Change in non-cash working capital items (Note 9) |
922,569 | (1,694,065 | ) | (478,452 | ) | |||||||
|
|
|
|
|
|
|||||||
4,258,474 | (276,850 | ) | 246,055 | |||||||||
|
|
|
|
|
|
|||||||
Investing Activities |
||||||||||||
Investment in other companies |
(450 | ) | | (75 | ) | |||||||
Purchase of equipment |
| | (633 | ) | ||||||||
Advances to related parties |
(10,516,178 | ) | (2,085,895 | ) | (1,000,392 | ) | ||||||
Repayments from related parties |
100 | 1,099,000 | 311,659 | |||||||||
|
|
|
|
|
|
|||||||
(10,516,528 | ) | (986,895 | ) | (689,441 | ) | |||||||
|
|
|
|
|
|
|||||||
Financing Activities |
||||||||||||
Advances from related parties |
2,108,692 | 784,828 | 690,769 | |||||||||
Repayments to related parties |
(1,158,248 | ) | | (72,100 | ) | |||||||
Advances from shareholder |
5,732,700 | | 500,000 | |||||||||
Repayment to shareholder |
| (100,000 | ) | | ||||||||
|
|
|
|
|
|
|||||||
6,683,144 | 684,828 | 1,118,669 | ||||||||||
|
|
|
|
|
|
|||||||
Increase (decrease) in cash |
425,090 | (578,917 | ) | 675,283 | ||||||||
Cash, beginning of year |
190,917 | 769,834 | 94,551 | |||||||||
|
|
|
|
|
|
|||||||
Cash, end of year |
$ | 616,007 | $ | 190,917 | $ | 769,834 | ||||||
|
|
|
|
|
|
See accompanying notes
F-136
REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.
Notes to the Financial Statements
February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
1. Nature of operations
The Company was incorporated under the Alberta Business Corporations Act on December 3, 2004 and operates a wholesale tire distribution business, which fully commenced operations in the fiscal year ended February 28, 2009 as North Alta Tire Limited and subsequently changed its name to Regional Tire Distributors (Edmonton) Inc.
2. Summary of significant accounting policies
Basis of presentation
These financial statements are prepared in accordance with Canadian accounting standards for private enterprises.
Revenue recognition
Revenue is recognized when the goods have been delivered, the services have been completed, the transaction has been accepted by the customer and collection is reasonably assured. The Company reports its revenue net of returns, sales discounts and volume rebates to customers.
Interest revenue is recognized on an annual basis as it is earned.
Vendor rebates and allowances
The Company participates in various purchase rebate programs with its major tire vendors including early payment incentives and volume purchase rebates based on defined levels of purchase volume. These arrangements enable the Company to earn rebates that reduce the cost of merchandise purchased. Vendor rebates and allowances are accrued as earned. Vendor rebates and allowances earned are initially recorded as a reduction in the cost of merchandise inventories and are included in operations (as a reduction of cost of goods sold) in the period the related product is sold. Accordingly, the amount of vendor rebates included in operations in any year could include rebates earned in a prior year.
Allowance for doubtful accounts
The allowance for doubtful accounts reflects managements best estimate of losses on the accounts receivable balances. The company maintains an allowance for doubtful accounts that is estimated based on a variety of factors including accounts receivable aging, historical experience and other currently available information, including events such as customer bankruptcy and current economic conditions. Interest is charged on overdue account receivable balances. A provision is recorded in the period in which the receivable is deemed uncollectible.
Inventories
Inventories are valued at the lower of cost or net realizable value. The cost of inventories comprises all costs of purchase and other costs incurred in bringing the inventories to their present location and condition including volume rebates and allowances from vendors. The cost of inventories is determined using the first-in, first-out (FIFO) method. Net realizable value is the estimated selling price in the ordinary course of business, less costs necessary to complete the sale. Inventory is reduced for the estimated losses due to obsolescence. This reduction is determined for groups of products based on purchases in the recent past and/or expected future demand.
F-137
REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.
Notes to the Financial Statements
February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
Equipment
Equipment is recorded at cost less accumulated amortization.
Amortization is calculated at the following annual rates:
Office equipment |
- 20% declining balance basis | |
Computer equipment |
- 30% declining balance basis | |
Shop equipment |
- 20% declining balance basis |
Equipment is tested for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. The carrying amount of a long-lived asset is not recoverable when it exceeds the sum of the undiscounted cash flows expected from its use and eventual disposal. In such a case, an impaired loss must be recognized and is equivalent to the excess of the carrying amount of a long-lived asset over its fair value.
Investments
The company accounts for its investments using the cost method. The carrying value of each investment is reviewed annually and written down below cost if there is a loss of value.
Income taxes
The Company uses the future income taxes method to account for income taxes. Under this method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Future income tax assets are recognized only to the extent it is more likely than not that the asset will be realized.
Use of estimates
The preparation of financial statements in conformity with Accounting Standards for Private Enterprises requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The more subjective estimates included in these financial statements are the determination of allowance for doubtful accounts receivable, valuation of inventory and the recognition of vendor rebates and allowance. Actual results could differ from those estimates.
Financial Instruments
Measurement of financial instruments
The company initially measures its financial assets and liabilities at fair value, except for certain non-arms length transactions.
The Company subsequently measures all its financial assets and financial liabilities at amortized cost, except for equity instruments that are quoted in an active market, which are measured at fair value. Changes in fair value are recognized in net income.
F-138
REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.
Notes to the Financial Statements
February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
Financial assets measured at amortized cost include cash, accounts receivable, dividend receivable and loans receivable from related parties.
Financial liabilities measured at amortized cost include accounts payable and accrued liabilities, management remuneration payable, loans payable to related parties and shareholders loan.
Impairment
Financial assets measured at cost are tested for impairment when there are indicators of impairment. The amount of the write-down is recognized in net income. The previously recognized impairment loss may be reversed to the extent of the improvement, directly or by adjusting the allowance account, provided it is no greater than the amount that would have been reported at the date of the reversal had the impairment not been recognized previously. The amount of the reversal is recognized in net income.
Transaction costs
Transaction costs relating to financial instruments that are measured subsequently at fair value are recognized in operations in the year in which they are incurred. For instruments that are subsequently measured at amortized cost, the amount initially recognized is adjusted for transaction costs directly attributable to the origination, acquisition, issuance or assumption.
3. Accounts Receivable
Accounts Receivable consists of the following:
February 28, |
February 28, |
February 29, |
||||||||||
Accounts receivableTrade |
$ | 1,221,786 | $ | 964,752 | $ | 1,319,446 | ||||||
Warranty receivable |
49,739 | 47,385 | 314,820 | |||||||||
Allowance for Doubtful Accounts |
(115,282 | ) | (104,882 | ) | (74,813 | ) | ||||||
|
|
|
|
|
|
|||||||
$ | 1,156,243 | $ | 907,255 | $ | 1,559,453 | |||||||
|
|
|
|
|
|
4. Inventories
Inventories consist of the following:
February 28, |
February 28, |
February 29, |
||||||||||
Tires |
$ | 2,177,365 | $ | 3,447,166 | $ | 2,227,471 | ||||||
Parts |
1,432 | 1,055 | | |||||||||
|
|
|
|
|
|
|||||||
$ | 2,178,797 | $ | 3,448,221 | $ | 2,227,471 | |||||||
|
|
|
|
|
|
Cost of sales reported on the statement of operations include $14,371,030 (February 28, 2013$15,547,112; February 29, 2012$15,991,709) of inventories recognized as an expense during the year.
Inventories are net of volume rebates in the amount of $56,179 (February 28, 2013$197,268; February 29, 2012$29,087)
F-139
REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.
Notes to the Financial Statements
February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
5. Loans Receivable from/Payable to Related Parties and Related Party Transactions
Loans receivable from related parties are as follows:
February 28, |
February 28, |
February 29, |
||||||||||
Kirks Tire Ltd. |
$ | 3,750,000 | $ | | $ | | ||||||
Tirecraft Western Canada Ltd. |
139,949 | | | |||||||||
Extreme Wheel Distributors Ltd. |
17,367 | 12,924 | 441 | |||||||||
1773503 Alberta Ltd. |
2,499,900 | | | |||||||||
Tirecraft Canada Ltd. |
| | 99,000 | |||||||||
Regional Tire Distributors (Saskatchewan) Inc. |
4,676,167 | 2,499,950 | 999,950 | |||||||||
Regional Tire Distributors (Manitoba) Inc. |
499,900 | 500,000 | | |||||||||
Tire Storage Direct (Edmonton) Ltd. |
30,818 | | | |||||||||
Integra Tire & Auto Centres Canada Ltd. |
114,850 | | | |||||||||
|
|
|
|
|
|
|||||||
$ | 11,728,951 | $ | 3,012,874 | $ | 1,099,391 | |||||||
|
|
|
|
|
|
Loans receivable from the companies noted above are unsecured, non-interest bearing and have no stated terms of repayment. The relationship between Regional Tire Distributors (Edmonton) Inc. and each of these companies is as follows:
Kirks Tire Ltd. is indirectly owned by a director of Regional Tire Distributors (Edmonton) Inc.
Tirecraft Western Canada Ltd., Tire Storage Direct (Edmonton) Ltd. and 1773503 Alberta Ltd. are wholly owned by Regional Tire Distributors (Edmonton) Inc.
Extreme Wheel Distributors Ltd. is controlled by a close family member of a director of Regional Tire Distributors (Edmonton) Inc.
Regional Tire Distributors (Manitoba) Inc. and Integra Tire & Auto Centres Canada Ltd. are companies in which Regional Tire Distributors (Edmonton) Inc. has significant influence.
Tirecraft Canada Ltd. is indirectly owned by a director of Regional Tire Distributors (Edmonton) Inc.
Regional Tire Distributors (Saskatchewan) Inc. is owned by the directors of Regional Tire Distributors (Edmonton) Inc.
As the loans receivable have no stated terms of repayment and are not expected to be repaid within the next year, and accordingly have been classified as long term assets.
Loans payable to related parties are as follows:
February 28, |
February 28, |
February 29, |
||||||||||
Tirecraft Western Canada Ltd. |
$ | | $ | 158,248 | $ | 231,659 | ||||||
Kirks Tire Ltd. |
| 1,000,000 | | |||||||||
Trail Tire Distributors Ltd. |
3,584,288 | 1,475,597 | 690,769 | |||||||||
|
|
|
|
|
|
|||||||
$ | 3,584,288 | $ | 2,633,845 | $ | 922,428 | |||||||
|
|
|
|
|
|
F-140
REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.
Notes to the Financial Statements
February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
Loans payable to the companies noted above are unsecured, non-interest bearing and have no stated terms of repayment. The relationship between Regional Tire Distributors (Edmonton) Inc. and each of these companies is as follows:
Tirecraft Western Canada Ltd. is wholly owned by Regional Tire Distributors (Edmonton) Inc.
Kirks Tire Ltd. is indirectly owned by a director of Regional Tire Distributors (Edmonton) Inc.
Trail Tire Distributors Ltd. is jointly controlled by a director of Regional Tire Distributors (Edmonton) Inc.
As the related parties have agreed in writing not to demand repayment of any portion of the loan balances prior to March 1, 2015, the loans have been classified as long term liabilities.
Sales to related parties are as follows:
February 28, |
February 28, |
February 29, |
||||||||||
Regional Tire Distributors (Calgary) Inc. |
$ | 743,230 | $ | 123,978 | $ | 142,204 | ||||||
Kirks Tire (Lethbridge) Ltd. |
11,741 | 3,771 | | |||||||||
Kirks Tire (Edmonton) Ltd. |
59,442 | 62,786 | 88,523 | |||||||||
Kirks Tire (Red Deer) Ltd. |
86,029 | 61,090 | 79,087 | |||||||||
Regional Tire Distributors (Langley) Inc. |
38,021 | 4,571 | 2,596 | |||||||||
Regional Tire Distributors (Vernon) Inc. |
59,804 | 16,666 | 1,352 | |||||||||
Regional Tire Distributors (Victoria) Inc. |
6,724 | 23,592 | | |||||||||
Regional Tire Distributors (Winnipeg) Inc. |
112,164 | 1,803 | | |||||||||
Tirecraft Edmonton Truck Centre Inc. |
336,054 | 285,546 | 519,443 | |||||||||
Tirecraft Lloydminster Truck Centre Inc. |
429,157 | 416,794 | 370,678 | |||||||||
Trail Tire Distributors Ltd. |
223,912 | 2,585,228 | 72,677 | |||||||||
Extreme Wheel Distributors Ltd. |
9,164 | 329 | | |||||||||
Trail Tire (Kingsway) Ltd. |
64,690 | 23,205 | | |||||||||
|
|
|
|
|
|
|||||||
$ | 2,180,132 | $ | 3,609,359 | $ | 1,276,560 | |||||||
|
|
|
|
|
|
Included in accounts receivable are the following balances receivable from related parties as at the fiscal year-end:
February 28, |
February 28, |
February 29, |
||||||||||
Regional Tire Distributors (Calgary) Inc. |
$ | 6,990 | $ | 5,907 | $ | 3,205 | ||||||
Kirks Tire (Lethbridge) Ltd. |
4,135 | 10,558 | 7,093 | |||||||||
Kirks Tire (Edmonton) Ltd. |
2,321 | 1,976 | 2,523 | |||||||||
Kirks Tire (Red Deer) Ltd. |
2,321 | 1,160 | 6,714 | |||||||||
Regional Tire Distributors (Vernon) Inc. |
5,911 | 2,856 | | |||||||||
Regional Tire Distributors (Victoria) Inc. |
2,635 | 1,562 | | |||||||||
Regional Tire Distributors (Winnipeg) Inc. |
11,686 | 1,893 | | |||||||||
Tirecraft Edmonton Truck Centre Inc. |
20,877 | 14,315 | 51,881 | |||||||||
Tirecraft Lloydminster Truck Centre Inc. |
11,224 | 38,867 | 43,133 | |||||||||
Trail Tire Distributors Ltd. |
294,547 | 256,070 | 28,102 | |||||||||
Extreme Wheel Distributors Ltd. |
2,731 | 72 | | |||||||||
Trail Tire (Kingsway) Ltd. |
2,497 | 1,386 | | |||||||||
|
|
|
|
|
|
|||||||
$ | 367,875 | $ | 336,622 | $ | 142,651 | |||||||
|
|
|
|
|
|
F-141
REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.
Notes to the Financial Statements
February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
Regional Tire Distributors (Calgary) Inc. is a company in which Regional Tire Distributors (Edmonton) Inc. has significant, non-controlling interests.
A director of Regional Tire Distributors (Edmonton) Inc. has indirect interests in KDW Enterprises Ltd., Kirks Tire (Lethbridge) Ltd., Kirks Tire (Edmonton) Ltd., Kirks Tire (Red Deer) Ltd., Regional Tire Distributors (Vernon) Inc., Regional Tire Distributors (Victoria) Inc., Regional Tire Distributors (Langley) Inc., Regional Tire Distributors (Winnipeg) Inc., Tirecraft Lloydminster Truck Centre Inc. and Tirecraft Edmonton Truck Centre Inc.
Trail Tire (Kingsway) Ltd. is controlled by a director of Regional Tire Distributors (Edmonton) Inc.
Purchases from related parties are as follows:
February 28, |
February 28, |
February 29, |
||||||||||
Kirks Tire Ltd. |
$ | 1,103,450 | $ | 1,040,771 | $ | 1,778,657 | ||||||
KDW Enterprises Ltd. |
534,721 | 994,156 | 1,099,098 | |||||||||
Regional Tire Distributors (Calgary) Inc. |
75,372 | 181,406 | 151,258 | |||||||||
Trail Tire Distributors Ltd. |
88,701 | 265,241 | 252,697 | |||||||||
Extreme Wheel Distributors Ltd. |
1,973 | 3,812 | 4,190 | |||||||||
|
|
|
|
|
|
|||||||
$ | 1,804,217 | $ | 2,485,386 | $ | 3,285,900 | |||||||
|
|
|
|
|
|
Included in the rent expense are lease payments to 1470242 Alberta Ltd., a company controlled by a director of the Company, which amounted to $174,000 for the 2014 fiscal year (February 28, 2013$219,750; February 29, 2012$159,500).
Included in accounts payable and accrued liabilities are the following balances payable to the related parties as at the fiscal year-end:
February 28, |
February 28, |
February 29, |
||||||||||
Trail Tire Distributors Ltd. |
$ | 242,157 | $ | 381,745 | $ | 1,130,048 | ||||||
Kirks Tire Ltd. |
209,092 | 188,472 | 8,158 | |||||||||
KDW Enterprises Ltd. |
534,465 | 598,227 | 729,999 | |||||||||
Regional Tire Distributors (Calgary) Inc. |
13,135 | 7,537 | 11,371 | |||||||||
Extreme Wheel Distributors Ltd. |
| 855 | 151 | |||||||||
|
|
|
|
|
|
|||||||
$ | 998,849 | $ | 1,176,836 | $ | 1,879,727 | |||||||
|
|
|
|
|
|
These transactions are in the normal course of operations and have been reported in these financial statements at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
6. Equipment
February 28, 2014 |
||||||||||||
Cost |
Accumulated Amortization |
Net |
||||||||||
Office equipment |
$ | 5,947 | $ | 3,872 | $ | 2,075 | ||||||
Computer equipment |
789 | 670 | 119 | |||||||||
Shop equipment |
11,985 | 8,226 | 3,759 | |||||||||
|
|
|
|
|
|
|||||||
$ | 18,721 | $ | 12,768 | $ | 5,953 | |||||||
|
|
|
|
|
|
F-142
REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.
Notes to the Financial Statements
February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
February 28, 2013 |
||||||||||||
Cost |
Accumulated Amortization |
Net |
||||||||||
Office equipment |
$ | 5,947 | $ | 3,353 | $ | 2,594 | ||||||
Computer equipment |
789 | 618 | 171 | |||||||||
Shop equipment |
11,985 | 7,287 | 4,698 | |||||||||
|
|
|
|
|
|
|||||||
$ | 18,721 | $ | 11,258 | $ | 7,463 | |||||||
|
|
|
|
|
|
February 29, 2012 |
||||||||||||
Cost |
Accumulated |
Net |
||||||||||
Office equipment |
$ | 5,947 | $ | 2,704 | $ | 3,243 | ||||||
Computer equipment |
789 | 546 | 243 | |||||||||
Shop equipment |
11,985 | 6,112 | 5,873 | |||||||||
|
|
|
|
|
|
|||||||
$ | 18,721 | $ | 9,362 | $ | 9,359 | |||||||
|
|
|
|
|
|
7. Shareholders Loan
Shareholders loan at February 28, 2014 includes amounts outstanding at February 28, 2013 and February 29, 2012 are unsecured, non-interest bearing, and are due March 1, 2015.
8. Share Capital
Authorized: |
Unlimited number of Class A common voting shares |
Unlimited number of Class B and C common non-voting shares |
1,000,000 Class D Preferred redeemable voting shares |
February 28, |
February 28, |
February 29, |
||||||||||
Issued: |
||||||||||||
100 Class A common shares |
$ | 100 | $ | 100 | $ | 100 | ||||||
|
|
|
|
|
|
9. Non-cash Working Capital Items
Non-cash working capital items related to operations are as follows:
February 28, |
February 28, |
February 29, |
||||||||||
Accounts receivable |
$ | (248,988 | ) | $ | 652,198 | $ | (734,470 | ) | ||||
Goods and Services Tax receivable |
149,806 | (149,616 | ) | (190 | ) | |||||||
Income taxes receivable |
(40,047 | ) | | | ||||||||
Dividend receivable |
(109,081 | ) | | | ||||||||
Inventories |
1,269,424 | (1,220,750 | ) | (673,551 | ) | |||||||
Prepaid expenses and deposits |
890 | (1,143 | ) | (2,322 | ) | |||||||
Accounts payable and accrued liabilities |
264,749 | (779,272 | ) | 344,490 | ||||||||
Income taxes payable |
(380,473 | ) | 374,518 | 4,521 | ||||||||
Goods and Services Tax payable |
46,289 | | (16,930 | ) | ||||||||
Management remuneration payable |
(30,000 | ) | (570,000 | ) | 600,000 | |||||||
|
|
|
|
|
|
|||||||
$ | 922,569 | $ | (1,694,065 | ) | $ | (478,452 | ) | |||||
|
|
|
|
|
|
F-143
REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.
Notes to the Financial Statements
February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
10. Financial Instruments
Credit Risk
The Company is susceptible to credit risk on its accounts receivable and mitigates this risk through an extensive credit evaluation process.
Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The Company is exposed to this risk mainly in respect to its accounts payable and accrued liabilities and its management remunerations payable. At February 28, 2014 the company had a working capital balance of $2,950,726 (February 28, 2013$3,448,205; February 29, 2012$2,333,056).
Interest Rate Risk
Interest rate risk refers to adverse consequences of interest rate changes on the Companys cash flows and financial position. Management does not believe the Company is exposed to significant interest rate risk.
11. Canadian Accounting Standards for Private Enterprises and US GAAP Reconciliation
The financial statements of the Company have been prepared in accordance with Canadian Accounting Standards for Private Enterprises (ASPE). The material differences between the accounting policies used by the Company under ASPE and US GAAP are disclosed below.
a) Income Taxes
The difference between a tax position taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to this guidance represents an unrecognized tax benefit. An unrecognized tax benefit is disclosed as a long-term liability unless the Corporation anticipates a payment or receipt within one year in respect of the position. As a result of implementing these provisions there was no material impact on the Companys financial statements.
Under US GAAP the Company is required to calculate and record corporate income taxes based on enacted corporate income tax rates. Under the Canadian Accounting Standards for Private Enterprises, the Company had calculated and recognized corporate income taxes using substantively enacted corporate income tax rates. For the company, enacted and substantively enacted corporate tax rates are the same; as a result no differences to calculated and recognized corporate income taxes arise. There are no material differences between the Companys statutory income tax rate and the effective tax rate.
b) Variable interest entities
The Company has performed a review of the entities with which it conducts business and has concluded that there are no entities that are required to be consolidated or variable interest that are required to be disclosed under the requirements of ASC Topic 810, Consolidation of Variable Interest Entities.
c) Wholly owned subsidiaries and investments subject to significant influence
US GAAP requires the consolidation of subsidiaries, whereas under ASPE the Company elected to record the investment in subsidiaries on the cost method. The Companys wholly owned subsidiaries include Tirecraft Western Canada Ltd., 1773503 Alberta Ltd., and Tire Storage Direct (Edmonton) Ltd.
F-144
REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.
Notes to the Financial Statements
February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
The Company also has significantly influence investments in Regional Tire Distributors (Calgary) Inc., Regional Tire Distributors Manitoba (6631208 Manitoba Ltd.), Integra Tire and Auto Centres Canada, and Regional Tire Distributors (Saskatchewan) Inc. Under US GAAP, significantly influenced investments are required to be accounted for using the equity method, whereby the investment is initially recorded at cost, and adjusted to recognize the Companys share of after tax earnings or losses, and reduced by dividends received, however under ASPE the Company elected to record the significantly influenced investments on the cost method. The accompanying financial information includes consolidated financial statements which reflect the equity method of accounting for these investments and condensed financial statements for each investee company.
The following financial information presents the financial statement as at February 28, 2014, February 28, 2013 and February 29, 2012 on a consolidated basis.
F-145
REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.
Notes to the Financial Statements
February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
2014 Consolidated Balance Sheet
Regional Tire Inc. |
Tirecraft |
1773503 Alberta Ltd. |
Tire Storage Ltd. |
Adjustments Eliminations |
Consolidated |
|||||||||||||||||||
(i) | ||||||||||||||||||||||||
ASSETS |
||||||||||||||||||||||||
Current Assets |
||||||||||||||||||||||||
Cash |
$ | 616,007 | $ | 464,293 | $ | | $ | 88,845 | $ | | $ | 1,169,145 | ||||||||||||
Accounts receivable |
1,156,243 | 600,238 | 196,875 | 8,624 | | 1,961,980 | ||||||||||||||||||
Goods and Services Tax receivable |
| | | 46 | | 46 | ||||||||||||||||||
Income taxes receivable |
40,047 | | | | | 40,047 | ||||||||||||||||||
Dividend receivable |
109,081 | | | | | 109,081 | ||||||||||||||||||
Inventories |
2,178,797 | 34,757 | | | | 2,213,554 | ||||||||||||||||||
Prepaid expenses |
5,513 | | | | 5,513 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
4,105,688 | 1,099,288 | 196,875 | 97,515 | | 5,499,366 | |||||||||||||||||||
Loans receivable from related parties |
11,090,841 | 3,581 | | | (2,670,667 | ) | 8,423,755 | |||||||||||||||||
Equipment |
5,953 | 3,985 | 2,403,425 | 7,051 | | 2,420,414 | ||||||||||||||||||
Investments |
1,157,017 | | | (300 | ) | 1,156,717 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 16,359,499 | $ | 1,106,854 | $ | 2,600,300 | $ | 104,566 | $ | (2,670,967 | ) | $ | 17,500,252 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
LIABILITIES |
||||||||||||||||||||||||
Current Liabilities |
||||||||||||||||||||||||
Accounts payable and accrued liabilities |
$ | 1,108,673 | $ | 40,784 | $ | | $ | 2,099 | $ | | $ | 1,151,556 | ||||||||||||
Income taxes payable |
| 95,924 | 22,731 | 11,299 | | 129,954 | ||||||||||||||||||
Goods and Services Tax payable |
46,289 | 18 | 9,375 | | | 55,682 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
1,154,962 | 136,726 | 32,106 | 13,398 | 1,337,192 | ||||||||||||||||||||
Loans payable to related parties |
3,584,288 | 568,306 | | 26,355 | | 4,178,949 | ||||||||||||||||||
Shareholder loan |
6,232,700 | 139,949 | 2,499,900 | 30,818 | (2,670,667 | ) | 6,232,700 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
10,971,950 | 844,981 | 2,532,006 | 70,571 | (2,670,667 | ) | 11,748,841 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
SHAREHOLDERS EQUITY |
||||||||||||||||||||||||
Share capital |
100 | 100 | 100 | 100 | (300 | ) | 100 | |||||||||||||||||
Retained earnings |
5,387,449 | 261,773 | 68,194 | 33,895 | | 5,751,311 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
5,387,549 | 261,873 | 68,294 | 33,995 | (300 | ) | 5,751,411 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 16,359,499 | $ | 1,106,854 | $ | 2,600,300 | $ | 104,566 | $ | (2,670,967 | ) | $ | 17,500,252 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(i) | Represents the balance sheet as prepared under Canadian Accounting Standards for Private Enterprises adjusted for the Companys accumulated share of earnings and losses in significantly influenced investments of $518,282 as required by the equity method of accounting for investments. |
F-146
REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.
Notes to the Financial Statements
February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
2014 Consolidated Statement of Operations
Regional Tire Inc. |
Tirecraft |
1773503 Alberta |
Tire Storage Ltd. |
Adjustments Eliminations |
Consolidated |
|||||||||||||||||||
(i) | ||||||||||||||||||||||||
Sales |
$ | 19,504,654 | $ | 1,917,645 | $ | 187,500 | $ | 87,820 | $ | (72,989 | ) | $ | 21,624,630 | |||||||||||
Cost of sales |
14,371,030 | 761,025 | | 3,900 | (72,989 | ) | 15,062,966 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gross profit |
5,133,624 | 1,156,620 | 187,500 | 83,920 | | 6,561,664 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Expenses |
||||||||||||||||||||||||
Wages and benefits |
532,308 | 292,634 | | | | 824,942 | ||||||||||||||||||
Management salaries |
55,250 | 27,500 | | | | 82,750 | ||||||||||||||||||
Rent |
228,401 | | | 20,717 | | 249,118 | ||||||||||||||||||
Automotive |
43,138 | 49,191 | | | | 92,329 | ||||||||||||||||||
Interest and bank charges |
41,303 | | | 74 | | 41,377 | ||||||||||||||||||
Amortization |
1,510 | 443 | 96,575 | 1,244 | | 99,772 | ||||||||||||||||||
Telephone and utilities |
2,791 | 2,564 | | | | 5,355 | ||||||||||||||||||
Office |
389,063 | 120,828 | | 7,925 | | 517,816 | ||||||||||||||||||
Repairs and maintenance |
2,204 | | | | | 2,204 | ||||||||||||||||||
Insurance |
18,054 | 1,966 | | 1,219 | | 21,239 | ||||||||||||||||||
Advertising and promotion |
38,458 | 98,411 | | 2,274 | | 139,143 | ||||||||||||||||||
Shop supplies |
1,458 | | | 1,050 | | 2,508 | ||||||||||||||||||
Travel |
15,303 | 39,076 | | 10 | | 54,389 | ||||||||||||||||||
Professional fees |
137,722 | 81,016 | | 761 | | 219,499 | ||||||||||||||||||
Property taxes |
7,625 | 214 | | 3,497 | | 11,336 | ||||||||||||||||||
Bad debt expense |
11,504 | 46,352 | | | | 57,856 | ||||||||||||||||||
Dues and memberships |
| 7,499 | | | | 7,499 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
1,526,092 | 767,694 | 96,575 | 38,771 | | 2,429,132 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income before other revenue (expenses) and income taxes |
3,607,532 | 388,926 | 90,925 | 45,149 | | 4,132,532 | ||||||||||||||||||
Other revenue |
||||||||||||||||||||||||
Dividend income |
109,081 | | | | | 109,081 | ||||||||||||||||||
Interest income |
22,735 | 1,727 | | 45 | | 24,507 | ||||||||||||||||||
Share of investee income |
159,164 | | | | | 159,164 | ||||||||||||||||||
Impairment of advances to related party |
(1,800,000 | ) | | | | | (1,800,000 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income before income taxes |
2,098,512 | 390,653 | 90,925 | 45,194 | | 2,625,284 | ||||||||||||||||||
Income taxes expense |
404,953 | 95,924 | 22,731 | 11,299 | | 534,907 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net income |
$ | 1,693,559 | $ | 294,729 | $ | 68,194 | $ | 33,895 | $ | | $ | 2,090,377 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(i) | Represents the statement of operations of the Company under Canadian Accounting Standards for Private Enterprises adjusted for the Companys share of the earnings and losses in significantly influenced investments of $159,164. |
F-147
REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.
Notes to the Financial Statements
February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
2014 Consolidated Statement of Retained Earnings
Regional Tire Inc. |
Tirecraft |
1773503 Alberta Ltd. |
Tire Storage Ltd. |
Adjustments Eliminations |
Consolidated |
|||||||||||||||||||
Balance, beginning of year |
$ | 3,693,890 | $ | (32,956 | ) | $ | | $ | | $ | | $ | 3,660,934 | |||||||||||
Net income |
1,693,559 | 294,729 | 68,194 | 33,895 | | 2,090,377 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance, end of year |
$ | 5,387,449 | $ | 261,773 | $ | 68,194 | $ | 33,895 | $ | | $ | 5,751,311 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
2014 Consolidated Statement of Cash Flows
Regional Tire Distributors (Edmonton) Inc. |
Tirecraft Western Canada Ltd. |
1773503 Alberta Ltd. |
Tire Storage Direct (Edmonton) Ltd. |
Adjustments and Eliminations |
Consolidated |
|||||||||||||||||||
Cash provided by (used in): |
||||||||||||||||||||||||
Operating Activities |
||||||||||||||||||||||||
Net income |
$ | 1,693,559 | $ | 294,729 | $ | 68,194 | $ | 33,895 | $ | | $ | 2,090,377 | ||||||||||||
Items not affecting cash Amortization |
1,510 | 443 | 96,575 | 1,244 | | 99,772 | ||||||||||||||||||
Share of investee income |
(159,164 | ) | | | | | (159,164 | ) | ||||||||||||||||
Impairment of advances to related party |
1,800,000 | | | | | 1,800,000 | ||||||||||||||||||
Change in non-cash working capital items |
922,569 | (100,220 | ) | (164,769 | ) | 4,728 | | 662,308 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
4,258,474 | 194,952 | | 39,867 | | 4,493,293 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Investing Activities |
||||||||||||||||||||||||
Investment in other companies |
(450 | ) | | | | 200 | (250 | ) | ||||||||||||||||
Purchase of equipment |
| (4,428 | ) | (2,500,000 | ) | (8,295 | ) | | (2,512,723 | ) | ||||||||||||||
Advances to related parties |
(10,516,178 | ) | (1,352 | ) | | | 2,670,667 | (7,846,863 | ) | |||||||||||||||
Repayments from related parties |
100 | | | | | 100 | ||||||||||||||||||
Repayments from Shareholder |
| 158,248 | | | | 158,248 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
(10,516,528 | ) | 152,468 | (2,500,000 | ) | (8,295 | ) | 2,670,867 | (10,201,488 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Financing Activities |
||||||||||||||||||||||||
Advances from related parties |
2,108,692 | 22,000 | | 26,355 | | 2,157,047 | ||||||||||||||||||
Repayments to related parties |
(1,158,248 | ) | (95,796 | ) | | | | (1,254,044 | ) | |||||||||||||||
Advances from shareholder |
5,732,700 | 139,949 | 2,500,000 | 30,918 | (2,670,867 | ) | 5,732,700 | |||||||||||||||||
Repayment to shareholder |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
6,683,144 | 66,153 | 2,500,000 | 57,273 | (2,670,867 | ) | 6,635,703 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Increase (decrease) in cash |
425,090 | 413,573 | | 88,845 | | 927,508 | ||||||||||||||||||
Cash, beginning of year |
190,917 | 50,720 | | | | 241,637 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Cash, end of year |
$ | 616,007 | $ | 464,293 | $ | | $ | 88,845 | $ | | $ | 1,169,145 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
F-148
REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.
Notes to the Financial Statements
February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
2013 Consolidated Balance Sheet
Regional Tire Distributors (Edmonton) Inc. |
Tirecraft Western Canada Ltd. |
Adjustments and Eliminations |
Consolidated |
|||||||||||||
(i) | ||||||||||||||||
ASSETS |
||||||||||||||||
Current Assets |
||||||||||||||||
Cash |
$ | 190,917 | $ | 50,720 | $ | | $ | 241,637 | ||||||||
Accounts receivable |
907,255 | 478,639 | | 1,385,894 | ||||||||||||
Goods and Services Tax receivable |
149,806 | 2,948 | | 152,754 | ||||||||||||
Inventories |
3,448,221 | 20,826 | | 3,469,047 | ||||||||||||
Prepaid expenses |
6,403 | | | 6,403 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
4,702,602 | 553,133 | | 5,255,735 | |||||||||||||
Loans receivable from related parties |
2,824,549 | 2,229 | | 2,826,778 | ||||||||||||
Equipment |
7,463 | | | 7,463 | ||||||||||||
Shareholder advance |
| 158,248 | (158,248 | ) | | |||||||||||
Investments |
547,618 | | (100 | ) | 547,518 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 8,082,232 | $ | 713,610 | $ | (158,348 | ) | $ | 8,637,494 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
LIABILITIES |
||||||||||||||||
Current Liabilities |
||||||||||||||||
Accounts payable and accrued liabilities |
$ | 843,924 | $ | 94,364 | $ | | $ | 938,288 | ||||||||
Income taxes payable |
380,473 | | | 380,473 | ||||||||||||
Goods and Services Tax payable |
| | | | ||||||||||||
Management remuneration payable |
30,000 | 10,000 | | 40,000 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
1,254,397 | 104,364 | | 1,358,761 | |||||||||||||
Loans payable to related parties |
2,633,845 | 642,102 | (158,248 | ) | 3,117,699 | |||||||||||
Shareholder loan |
500,000 | | | 500,000 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
4,388,242 | 746,466 | (158,248 | ) | 4,976,460 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
SHAREHOLDERS EQUITY |
||||||||||||||||
Share capital |
100 | 100 | (100 | ) | 100 | |||||||||||
Retained earnings |
3,693,890 | (32,956 | ) | | 3,660,934 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
3,693,990 | (32,856 | ) | (100 | ) | 3,661,034 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 8,082,232 | $ | 713,610 | $ | (158,348 | ) | $ | 8,637,494 | ||||||||
|
|
|
|
|
|
|
|
(i) | Represents the balance sheet as prepared under Canadian Accounting Standards for Private Enterprises adjusted for the Companys accumulated share of earnings and losses in significantly influenced investments of $359,118 as required by the equity method of accounting for investments. |
F-149
REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.
Notes to the Financial Statements
February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
2013 Consolidated Statement of Operations
Regional Tire Distributors (Edmonton) Inc. |
Tirecraft Western Canada Ltd. |
Adjustments and Eliminations |
Consolidated |
|||||||||||||
(i) | ||||||||||||||||
Sales |
$ | 18,455,516 | $ | 793,126 | $ | (74,124 | ) | $ | 19,174,518 | |||||||
Cost of sales |
15,547,112 | 261,427 | (74,124 | ) | 15,734,415 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross profit |
2,908,404 | 531,699 | | 3,440,103 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Expenses |
||||||||||||||||
Wages and benefits |
498,127 | 165,243 | | 663,370 | ||||||||||||
Management salaries |
10,000 | 20,000 | | 30,000 | ||||||||||||
Rent |
219,750 | | | 219,750 | ||||||||||||
Automotive |
38,460 | 33,504 | | 71,964 | ||||||||||||
Interest and bank charges |
45,540 | | | 45,540 | ||||||||||||
Amortization |
1,896 | | | 1,896 | ||||||||||||
Telephone and utilities |
2,738 | 1,392 | | 4,130 | ||||||||||||
Office |
145,229 | 297,283 | (70,000 | ) | 372,512 | |||||||||||
Repairs and maintenance |
1,320 | | | 1,320 | ||||||||||||
Insurance |
15,969 | 1,928 | | 17,897 | ||||||||||||
Advertising and promotion |
44,003 | 21,280 | | 65,283 | ||||||||||||
Shop supplies |
609 | 109 | | 718 | ||||||||||||
Travel |
18,022 | 39,213 | | 57,235 | ||||||||||||
Professional fees |
954 | 24,843 | | 25,797 | ||||||||||||
Property taxes |
208 | 208 | | 416 | ||||||||||||
Bad debt expense |
33,342 | | | 33,342 | ||||||||||||
Dues and memberships |
100 | 7,399 | | 7,499 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
1,076,267 | 612,402 | (70,000 | ) | 1,618,669 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) before other revenue and income taxes |
1,832,137 | (80,703 | ) | 70,000 | 1,821,434 | |||||||||||
Other revenue |
||||||||||||||||
Interest income |
27,700 | 695 | | 28,395 | ||||||||||||
Share of investee income |
174,036 | | | 174,036 | ||||||||||||
Administrative service revenue |
| 70,000 | (70,000 | ) | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income before income taxes |
2,033,873 | (10,008 | ) | | 2,023,865 | |||||||||||
Income taxes expense |
444,518 | | | 444,518 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
$ | 1,589,355 | $ | (10,008 | ) | $ | | $ | 1,579,347 | |||||||
|
|
|
|
|
|
|
|
(i) | Represents the statement of operations of the Company under Canadian Accounting Standards for Private Enterprises adjusted for the Companys share of earnings and losses in significantly influenced investments of $174,036. |
F-150
REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.
Notes to the Financial Statements
February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
2013 Consolidated Statement of Retained Earnings
Regional Tire |
Tirecraft |
Adjustments |
Consolidated |
|||||||||||||
Balance, beginning of year |
$ | 2,104,535 | $ | (22,948 | ) | $ | | $ | 2,081,587 | |||||||
Net income |
1,589,355 | (10,008 | ) | | 1,579,347 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, end of year |
$ | 3,693,890 | $ | (32,956 | ) | $ | | $ | 3,660,934 | |||||||
|
|
|
|
|
|
|
|
2013 Consolidated Statement of Cash Flows
Regional Tire |
Tirecraft |
Adjustments |
Consolidated |
|||||||||||||
Cash provided by (used in): |
||||||||||||||||
Operating Activities |
||||||||||||||||
Net income |
$ | 1,589,355 | $ | (10,008 | ) | $ | | $ | 1,579,347 | |||||||
Items not affecting cash |
||||||||||||||||
Amortization |
1,896 | | | 1,896 | ||||||||||||
Share of Investee income |
(174,036 | ) | | | (174,036 | ) | ||||||||||
Change in non-cash working capital items |
(1,694,065 | ) | (270,841 | ) | | (1,964,906 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
(276,850 | ) | (280,849 | ) | | (557,699 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Investing Activities |
||||||||||||||||
Investment in other companies |
| | | | ||||||||||||
Purchase of equipment |
| | | | ||||||||||||
Advances to related parties |
(2,085,895 | ) | (1,144 | ) | 73,411 | (2,013,628 | ) | |||||||||
Repayments from related parties |
1,099,000 | | | 1,099,000 | ||||||||||||
Repayment from Shareholder |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
(986,895 | ) | (1,144 | ) | 73,411 | (914,628 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Financing Activities |
||||||||||||||||
Advances from related parties |
784,828 | 242,991 | | 1,027,819 | ||||||||||||
Repayment to related parties |
| (5,000 | ) | | (5,000 | ) | ||||||||||
Advances from shareholder |
| 73,411 | (73,411 | ) | | |||||||||||
Repayment to shareholder |
(100,000 | ) | | | (100,000 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
684,828 | 311,402 | (73,411 | ) | 922,819 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Increase (decrease) in cash |
(578,917 | ) | 29,409 | | (549,508 | ) | ||||||||||
Cash, beginning of year |
769,834 | 21,311 | | 791,145 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash, end of year |
$ | 190,917 | $ | 50,720 | $ | | $ | 241,637 | ||||||||
|
|
|
|
|
|
|
|
F-151
REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.
Notes to the Financial Statements
February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
2012 Consolidated Balance Sheet
Regional Tire |
Tirecraft |
Adjustments |
Consolidated |
|||||||||||||
(i) | ||||||||||||||||
ASSETS |
||||||||||||||||
Current Assets |
||||||||||||||||
Cash |
$ | 769,834 | $ | 21,311 | $ | | $ | 791,145 | ||||||||
Accounts receivable |
1,559,453 | 134,423 | | 1,693,876 | ||||||||||||
Goods and Services Tax receivable |
190 | 4,348 | | 4,538 | ||||||||||||
Inventories |
2,227,471 | 3,676 | | 2,231,147 | ||||||||||||
Prepaid expenses |
5,260 | 176 | | 5,436 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
4,562,208 | 163,934 | | 4,726,142 | |||||||||||||
Loans receivable from related parties |
1,099,391 | 1,085 | | 1,100,476 | ||||||||||||
Equipment |
9,359 | | | 9,359 | ||||||||||||
Shareholder advance |
| 231,659 | (231,659 | ) | | |||||||||||
Investments |
185,257 | | (100 | ) | 185,157 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 5,856,215 | $ | 396,678 | $ | (231,759 | ) | $ | 6,021,134 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
LIABILITIES |
||||||||||||||||
Current Liabilities |
||||||||||||||||
Accounts payable and accrued liabilities |
$ | 1,623,197 | $ | 15,415 | $ | | $ | 1,638,612 | ||||||||
Income taxes payable |
5,955 | | | 5,955 | ||||||||||||
Goods and Services Tax payable |
| | | | ||||||||||||
Management remuneration payable |
600,000 | | | 600,000 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
2,229,152 | 15,415 | | 2,244,567 | |||||||||||||
Loans payable to related parties |
922,428 | 404,111 | (231,659 | ) | 1,094,880 | |||||||||||
Shareholder loan |
600,000 | | | 600,000 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
3,751,580 | 419,526 | (231,659 | ) | 3,939,447 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
SHAREHOLDERS EQUITY |
||||||||||||||||
Share capital |
100 | 100 | (100 | ) | 100 | |||||||||||
Retained earnings (losses) |
2,104,535 | (22,948 | ) | | 2,081,587 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
2,104,635 | (22,848 | ) | (100 | ) | 2,081,687 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
$ | 5,856,215 | $ | 396,678 | $ | (231,759 | ) | $ | 6,021,134 | ||||||||
|
|
|
|
|
|
|
|
(i) | Represents the balance sheet as prepared under Canadian Accounting Standards for Private Enterprises adjusted for the Companys accumulated share of earnings and losses in significantly influenced investments of $185,082 required by the equity method of accounting for investments. |
F-152
REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.
Notes to the Financial Statements
February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
2012 Consolidated Statement of Operations
Regional Tire |
Tirecraft |
Adjustments |
Consolidated |
|||||||||||||
(i) | ||||||||||||||||
Sales |
$ | 18,315,246 | $ | 399,118 | $ | (55,948 | ) | $ | 18,658,416 | |||||||
Cost of sales |
15,991,709 | 16,026 | (55,948 | ) | 15,951,787 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross profit |
2,323,537 | 383,092 | | 2,706,629 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Expenses |
||||||||||||||||
Wages and benefits |
347,259 | 351,038 | | 698,297 | ||||||||||||
Management salaries |
610,000 | | | 610,000 | ||||||||||||
Rent |
159,500 | | | 159,500 | ||||||||||||
Automotive |
24,275 | 36,443 | | 60,718 | ||||||||||||
Interest and bank charges |
33,607 | 99 | | 33,706 | ||||||||||||
Amortization |
3,274 | | | 3,274 | ||||||||||||
Telephone and utilities |
2,540 | 1,834 | | 4,374 | ||||||||||||
Office |
282,178 | 13,975 | (240,000 | ) | 56,153 | |||||||||||
Repairs and maintenance |
2,776 | | | 2,776 | ||||||||||||
Insurance |
12,473 | 1,267 | | 13,740 | ||||||||||||
Advertising and promotion |
66,261 | 170,072 | | 236,333 | ||||||||||||
Shop supplies |
85 | 358 | | 443 | ||||||||||||
Travel |
2,829 | 27,031 | | 29,860 | ||||||||||||
Professional fees |
2,740 | 26,824 | | 29,564 | ||||||||||||
Property taxes |
441 | 441 | | 882 | ||||||||||||
Bad debt expense |
697 | 3,617 | | 4,314 | ||||||||||||
Dues and memberships |
100 | 6,208 | | 6,308 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
1,551,035 | 639,207 | (240,000 | ) | 1,950,242 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) before other revenue and income taxes |
772,502 | (256,115 | ) | 240,000 | 756,387 | |||||||||||
Other revenue |
||||||||||||||||
Interest income |
18,118 | 1,076 | | 19,194 | ||||||||||||
Share of investee income |
185,082 | | | 185,082 | ||||||||||||
Administrative service revenue |
| 240,000 | (240,000 | ) | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Income (loss) before income taxes |
975,702 | (15,039 | ) | | 960,663 | |||||||||||
Income taxes expense |
69,387 | | | 69,387 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
$ | 906,315 | $ | (15,039 | ) | $ | | $ | 891,276 | |||||||
|
|
|
|
|
|
|
|
(i) | Represents the statement of operations of the Company under Canadian Accounting Standards for Private Enterprises adjusted for the Companys share of the earnings in significantly influenced investments of $185,082. |
F-153
REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.
Notes to the Financial Statements
February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
2012 Consolidated Statement of Retained Earnings
Regional Tire |
Tirecraft |
Adjustments |
Consolidated |
|||||||||||||
Balance, beginning of year |
$ | 1,198,220 | $ | (7,909 | ) | $ | | $ | 1,190,311 | |||||||
Net income |
906,315 | (15,039 | ) | | 891,276 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, end of year |
$ | 2,104,535 | $ | (22,948 | ) | $ | | $ | 2,081,587 | |||||||
|
|
|
|
|
|
|
|
2012 Consolidated Statement of Cash Flows
Regional Tire |
Tirecraft |
Adjustments |
Consolidated |
|||||||||||||
Cash provided by (used in): |
||||||||||||||||
Operating Activities |
||||||||||||||||
Net income |
$ | 906,315 | $ | (15,039 | ) | $ | | $ | 891,276 | |||||||
Items not affecting cash |
||||||||||||||||
Amortization |
3,274 | | | 3,274 | ||||||||||||
Share of Investee income |
(185,082 | ) | | | (185,082 | ) | ||||||||||
Change in non-cash working capital items |
(478,452 | ) | 105,269 | | (373,183 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
246,055 | 90,230 | | 336,285 | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Investing Activities |
||||||||||||||||
Investment in other companies |
(75 | ) | | | (75 | ) | ||||||||||
Purchase of equipment |
(633 | ) | | | (633 | ) | ||||||||||
Advances to related parties |
(1,000,392 | ) | (499 | ) | | (1,000,891 | ) | |||||||||
Repayments from related parties |
311,659 | | | 311,659 | ||||||||||||
Advances to shareholder |
| (231,659 | ) | 231,659 | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
(689,441 | ) | (232,158 | ) | 231,659 | (689,940 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Financing Activities |
||||||||||||||||
Advances from related parties |
690,769 | 157,912 | (231,659 | ) | 617,022 | |||||||||||
Repayment to related parties |
(72,100 | ) | (10,000 | ) | | (82,100 | ) | |||||||||
Advances from shareholder |
500,000 | | | 500,000 | ||||||||||||
Repayment to shareholder |
| (8,000 | ) | | (8,000 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
1,118,669 | 139,912 | (231,659 | ) | 1,026,922 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Increase (decrease) in cash |
675,283 | (2,016 | ) | | 673,267 | |||||||||||
Cash, beginning of year |
94,551 | 23,327 | | 117,878 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash, end of year |
$ | 769,834 | $ | 21,311 | $ | | $ | 791,145 | ||||||||
|
|
|
|
|
|
|
|
F-154
REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.
Notes to the Financial Statements
February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
The Company holds a 25% interest in Regional Tire Distributors (Calgary) Inc. The Condensed Financial Statements of Regional Tire Distributors (Calgary) Inc. is as follows:
Balance Sheets |
February 28, |
February 28, |
February 29, |
|||||||||
Current Assets |
$ | 8,986,008 | $ | 7,307,723 | $ | 7,327,776 | ||||||
Long Term Assets |
2,320,654 | 686,852 | 697,596 | |||||||||
|
|
|
|
|
|
|||||||
11,306,662 | 7,994,575 | 8,025,372 | ||||||||||
|
|
|
|
|
|
|||||||
Current Liabilities |
1,646,195 | 1,046,550 | 1,338,278 | |||||||||
Long Term Liabilities |
3,671,703 | 2,182,086 | 3,370,599 | |||||||||
Shareholders Equity |
5,988,764 | 4,765,939 | 3,316,495 | |||||||||
|
|
|
|
|
|
|||||||
$ | 11,306,662 | $ | 7,994,575 | $ | 8,025,372 | |||||||
|
|
|
|
|
|
Statements of Operations |
February 28, |
February 28, |
February 29, |
|||||||||
Sales |
$ | 25,592,573 | $ | 19,961,625 | $ | 16,589,405 | ||||||
Cost of sales |
20,463,834 | 15,726,623 | 12,987,392 | |||||||||
|
|
|
|
|
|
|||||||
Gross profit |
5,128,739 | 4,235,002 | 3,602,013 | |||||||||
Operating expenses |
3,558,310 | 2,435,191 | 3,149,754 | |||||||||
|
|
|
|
|
|
|||||||
Income before other revenue and income taxes |
1,570,429 | 1,799,811 | 452,259 | |||||||||
Other revenue |
183,674 | 174,550 | 144,079 | |||||||||
|
|
|
|
|
|
|||||||
Income before income taxes |
1,754,103 | 1,974,361 | 596,338 | |||||||||
Income taxes |
462,218 | 524,917 | 69,931 | |||||||||
|
|
|
|
|
|
|||||||
Net income |
$ | 1,291,885 | $ | 1,449,444 | $ | 526,407 | ||||||
|
|
|
|
|
|
The Company holds a 50% interest in Regional Tire Distributors (Saskatchewan) Inc. The Condensed Financial Statements of Regional Tire Distributors (Saskatchewan) Inc. is as follows:
Balance Sheets |
February 28, 2014 |
February 28, 2013 |
February 29, 2012 |
|||||||||
Current Assets |
$ | 5,226,861 | $ | 6,047,177 | $ | 3,871,475 | ||||||
Long Term Assets |
229,942 | 272,472 | 331,016 | |||||||||
|
|
|
|
|
|
|||||||
5,456,803 | 6,319,649 | 4,202,491 | ||||||||||
|
|
|
|
|
|
|||||||
Current Liabilities |
3,626,064 | 3,589,339 | 2,595,531 | |||||||||
Long Term Liabilities |
2,999,900 | 2,999,900 | 1,499,900 | |||||||||
Shareholders Equity |
(1,169,161 | ) | (269,590 | ) | 107,060 | |||||||
|
|
|
|
|
|
|||||||
$ | 5,456,803 | $ | 6,319,649 | $ | 4,202,491 | |||||||
|
|
|
|
|
|
F-155
REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.
Notes to the Financial Statements
February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
Statements of Operations |
February 28, 2014 |
February 28, 2013 |
February 29, 2012 |
|||||||||
Sales |
$ | 12,854,683 | $ | 11,999,083 | $ | 4,571,939 | ||||||
Cost of sales |
11,144,551 | 9,310,716 | 3,381,476 | |||||||||
|
|
|
|
|
|
|||||||
Gross profit |
1,710,132 | 2,688,367 | 1,190,463 | |||||||||
Operating expenses |
2,609,703 | 3,065,017 | 1,083,503 | |||||||||
|
|
|
|
|
|
|||||||
(Loss) income before income taxes |
(899,571 | ) | (376,650 | ) | 106,960 | |||||||
Income taxes |
| | | |||||||||
|
|
|
|
|
|
|||||||
Net (loss) income |
$ | (899,571 | ) | $ | (376,650 | ) | $ | 106,960 | ||||
|
|
|
|
|
|
The Company holds a 50% interest in Regional Tire Distributors Manitoba (6631208 Manitoba Ltd.). The Condensed Financial Statements of Regional Tire Distributors Manitoba (6631208 Manitoba Ltd.) is as follows:
Balance Sheet |
February 28, |
|||
Current Assets |
$ | 5,962,347 | ||
Long Term Assets |
290,041 | |||
|
|
|||
6,252,388 | ||||
|
|
|||
Current Liabilities |
597,291 | |||
Long Term Liabilities |
5,517,124 | |||
Shareholders Equity |
137,973 | |||
|
|
|||
$6,252,388 | ||||
|
|
Statement of Operations |
February 28, |
|||
Sales |
$ | 15,171,112 | ||
Cost of sales |
12,079,184 | |||
|
|
|||
Gross profit |
3,091,928 | |||
Operating expenses |
2,613,663 | |||
|
|
|||
Income before other revenue and income taxes |
478,265 | |||
Other revenue |
3,306 | |||
|
|
|||
Income before income taxes |
481,571 | |||
Income taxes |
45,246 | |||
|
|
|||
Net income |
$ | 436,325 | ||
|
|
F-156
REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.
Notes to the Financial Statements
February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
The Company holds a 50% interest in Integra Tire and Auto Centres Canada Ltd. The Condensed Financial Integra Tire and Auto Centres Canada Ltd. is as follows:
Balance Sheet |
February 28, |
|||
Current Assets |
$ | 1,141,492 | ||
Long Term Assets |
| |||
|
|
|||
1,141,492 | ||||
|
|
|||
Current Liabilities |
674,453 | |||
Long Term Liabilities |
331,208 | |||
Shareholders Equity |
135,831 | |||
|
|
|||
$1,141,492 | ||||
|
|
Statement of Operations |
February 28, |
|||
Sales |
$ | 3,382,315 | ||
Cost of sales |
2,895,607 | |||
|
|
|||
Gross profit |
486,708 | |||
Operating expenses |
312,260 | |||
|
|
|||
Income before other revenue and income taxes |
174,448 | |||
Other revenue |
6,393 | |||
|
|
|||
Income before income taxes |
180,841 | |||
Income taxes |
45,210 | |||
|
|
|||
Net income |
$ | 135,631 | ||
|
|
d) Reconciliation of net income per ASPE and US GAAP
February 28, |
February 28, |
February 29, |
||||||||||
Net income, as reported in statement of operations under ASPE |
$ | 1,534,395 | $ | 1,415,319 | $ | 721,233 | ||||||
Adjustments |
||||||||||||
Income from entities consolidated under |
||||||||||||
US GAAP: |
||||||||||||
Tirecraft Western Canada Ltd. |
294,729 | (10,008 | ) | (15,039 | ) | |||||||
1773503 Alberta Ltd. |
68,194 | | | |||||||||
Tire Storage Direct (Edmonton) Ltd. |
33,895 | | | |||||||||
Share of income from significantly influenced investees |
159,164 | 174,036 | 185,082 | |||||||||
|
|
|
|
|
|
|||||||
Net income per US GAAP |
$ | 2,090,377 | $ | 1,579,347 | $ | 891,276 | ||||||
|
|
|
|
|
|
e) Comprehensive Income
US GAAP requires the presentation of a Statement of Comprehensive Income. The Company has no items that would cause such presentation to differ from the amounts presented as Net Income in the accompanying financial statements.
F-157
REGIONAL TIRE DISTRIBUTORS (EDMONTON) INC.
Notes to the Financial Statements
February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
12. Correction of an Error
Subsequent to the release of the financial statements on June 25, 2014 management changed its assessment of the probability of realizing the future tax asset resulting from the impairment of the loan receivable and has determined that it does not meet the requirements for recognition of the deferred income tax asset and has made some adjustments to the tax provision. As a result of the change in the assessment by management the following changes have been made to the financial statements for the fiscal year ended February 28, 2014.
Previously |
Adjustment |
Restated |
||||||||||
Income taxes receivable |
$ | | $ | 40,047 | $ | 40,047 | ||||||
Future income tax asset |
807,660 | (807,660 | ) | | ||||||||
Income taxes payable |
409,953 | (409,953 | ) | | ||||||||
Current income tax expense |
854,953 | (450,000 | ) | 404,953 | ||||||||
Future income tax recovery |
327,600 | (327,600 | ) | | ||||||||
Net income |
1,411,995 | 122,400 | 1,534,395 | |||||||||
Retained earnings |
5,226,827 | (357,660 | ) | 4,869,167 |
F-158
Regional Tire Distributors (Calgary) Inc.
Index
February 28, 2014 and 2013 and February 29, 2012
Page | ||||
F-160 | ||||
Financial Statements |
||||
F-161 | ||||
F-162 | ||||
F-163 | ||||
F-164 | ||||
F-165 |
F-159
Collins Barrow Edmonton LLP | ||||
2380 Commerce Place | ||||
10155102 Street N.W. | ||||
Edmonton, Alberta | ||||
T5J 4G8 Canada | ||||
T. 780.428.1522 | ||||
F. 780.425.8189 | ||||
To the Shareholders of Regional Tire Distributors (Calgary) Inc. |
www.collinsbarrow.com | |||
Report on the Financial Statements
We have audited the accompanying financial statements of Regional Tire Distributors (Calgary) Inc., which comprise the balance sheets as of February 28, 2014, February 28, 2013 and February 29, 2012, and the related statements of operations, retained earnings and cash flows for the years then ended, and the related notes to the financial statements.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with Accounting Standards for Private Enterprises; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entitys preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Regional Tire Distributors (Calgary) Inc. as of February 28, 2014, February 28, 2013 and February 29, 2012, and the results of their operations and their cash flows for the years then ended in accordance with Canadian Accounting Standards for Private Enterprises.
Basis of Accounting
As more fully described in Note 2 to the financial statements, the Companys policy is to prepare its financial statements on the basis of Canadian Accounting Standards for Private Enterprises which differ from accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to that matter. Information relating to the nature and effect of such differences is presented in note 14 to the financial statements.
Edmonton, Alberta |
/s/ Collins Barrow Edmonton LLP | |
June 25, 2014 except for Note 14 (footnotes (a) and (d)) which are as of August 18, 2014 | Chartered Accountants |
This office is independently owned and operated by Collins Barrow Edmonton LLP | ||
The Collins Barrow trademarks are used under License. |
F-160
REGIONAL TIRE DISTRIBUTORS (CALGARY) INC.
As at February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
February 28, |
February 28, |
February 29, |
||||||||||
ASSETS |
||||||||||||
Current Assets |
||||||||||||
Cash |
$ | 521,350 | $ | 162,529 | $ | 374,494 | ||||||
Accounts receivable (Note 3) |
2,003,962 | 1,838,295 | 2,044,799 | |||||||||
Goods and Services Tax receivable |
115,753 | 44,931 | 116,969 | |||||||||
Inventories (Note 4) |
6,223,543 | 5,250,280 | 4,776,357 | |||||||||
Prepaid expenses |
57,618 | 11,688 | 15,157 | |||||||||
Income taxes receivable |
63,782 | | | |||||||||
|
|
|
|
|
|
|||||||
8,986,008 | 7,307,723 | 7,327,776 | ||||||||||
Due from corporate shareholder (Note 5) |
13,135 | 7,537 | 11,371 | |||||||||
Loans receivable from related parties (Note 6) |
107,236 | 62,034 | 39,557 | |||||||||
Property and equipment (Note 7) |
627,322 | 617,281 | 646,668 | |||||||||
Goodwill (Note 13) |
1,572,961 | | | |||||||||
|
|
|
|
|
|
|||||||
$ | 11,306,662 | $ | 7,994,575 | $ | 8,025,372 | |||||||
|
|
|
|
|
|
|||||||
LIABILITIES |
||||||||||||
Current Liabilities |
||||||||||||
Accounts payable and accrued liabilities |
$ | 555,251 | $ | 522,633 | $ | 349,163 | ||||||
Income taxes payable |
| 469,917 | 14,115 | |||||||||
Management remuneration payable |
770,000 | 54,000 | 975,000 | |||||||||
Current portion of contingent liabilities (Note 13) |
320,944 | | | |||||||||
|
|
|
|
|
|
|||||||
1,646,195 | 1,046,550 | 1,338,278 | ||||||||||
Due to corporate shareholders (Note 5) |
76,050 | 113,181 | 73,205 | |||||||||
Shareholders loan (Note 8) |
1,152,568 | 1,075,000 | | |||||||||
Loans payable to related parties (Note 6) |
1,691,068 | 993,905 | 3,297,394 | |||||||||
Contingent liabilities (Note 13) |
752,017 | | | |||||||||
|
|
|
|
|
|
|||||||
5,317,898 | 3,228,636 | 4,708,877 | ||||||||||
|
|
|
|
|
|
|||||||
SHAREHOLDERS EQUITY |
||||||||||||
Common shares (Note 9) |
100 | 100 | 100 | |||||||||
Preferred shares (Note 9) |
197 | 200 | 200 | |||||||||
Retained earnings |
5,988,467 | 4,765,639 | 3,316,195 | |||||||||
|
|
|
|
|
|
|||||||
5,988,764 | 4,765,939 | 3,316,495 | ||||||||||
|
|
|
|
|
|
|||||||
$ | 11,306,662 | $ | 7,994,575 | $ | 8,025,372 | |||||||
|
|
|
|
|
|
|||||||
Commitment and Contingency (Note 11) |
See accompanying notes
F-161
REGIONAL TIRE DISTRIBUTORS (CALGARY) INC.
For the Years Ended February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
February 28, |
February 28, |
February 29, |
||||||||||
Sales (Note 6) |
$ | 25,592,573 | $ | 19,961,625 | $ | 16,589,405 | ||||||
Cost of sales (Note 6) |
20,463,834 | 15,726,623 | 12,987,392 | |||||||||
|
|
|
|
|
|
|||||||
Gross profit |
5,128,739 | 4,235,002 | 3,602,013 | |||||||||
|
|
|
|
|
|
|||||||
Expenses |
||||||||||||
Wages and benefits |
1,157,144 | 924,909 | 768,228 | |||||||||
Management bonus |
700,000 | | 975,000 | |||||||||
Rent (Note 6) |
558,657 | 526,980 | 457,250 | |||||||||
Amortization |
203,659 | 162,146 | 91,897 | |||||||||
Automotive |
185,929 | 152,488 | 125,964 | |||||||||
Management fees (Note 6) |
180,000 | 180,000 | 180,000 | |||||||||
Interest and bank charges |
113,893 | 72,078 | 63,703 | |||||||||
Property taxes |
101,761 | 106,471 | 112,937 | |||||||||
Professional fees (Note 6) |
67,835 | 7,681 | 12,608 | |||||||||
Utilities |
66,868 | 41,618 | 63,411 | |||||||||
Computer expenses (Note 6) |
56,107 | 37,571 | 26,912 | |||||||||
Repairs and maintenance |
39,579 | 34,082 | 28,847 | |||||||||
Bad debt expense |
32,260 | 77,546 | 160,772 | |||||||||
Telephone |
25,235 | 18,299 | 14,867 | |||||||||
Insurance |
23,767 | 23,189 | 26,681 | |||||||||
Office |
20,008 | 16,642 | 22,438 | |||||||||
Advertising and promotion |
17,186 | 44,185 | 15,007 | |||||||||
Meals and entertainment |
8,254 | 9,181 | 2,834 | |||||||||
Dues and memberships |
168 | 125 | 398 | |||||||||
|
|
|
|
|
|
|||||||
3,558,310 | 2,435,191 | 3,149,754 | ||||||||||
|
|
|
|
|
|
|||||||
Income before other revenue and income taxes |
1,570,429 | 1,799,811 | 452,259 | |||||||||
Other revenue |
||||||||||||
Rental income |
152,340 | 152,340 | 126,950 | |||||||||
Interest income |
31,334 | 22,210 | 17,129 | |||||||||
|
|
|
|
|
|
|||||||
Income before income taxes |
1,754,103 | 1,974,361 | 596,338 | |||||||||
Income taxes expense |
462,218 | 524,917 | 69,931 | |||||||||
|
|
|
|
|
|
|||||||
Net income |
$ | 1,291,885 | $ | 1,449,444 | $ | 526,407 | ||||||
|
|
|
|
|
|
See accompanying notes
F-162
REGIONAL TIRE DISTRIBUTORS (CALGARY) INC.
Statements of Retained Earnings
For the Years Ended February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
February 28, |
February 28, |
February 29, |
||||||||||
Balance, beginning of year |
$ | 4,765,639 | $ | 3,316,195 | $ | 3,036,598 | ||||||
Net income |
1,291,885 | 1,449,444 | 526,407 | |||||||||
Redemption of preferred shares (Note 9) |
(69,057 | ) | | (246,810 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance, end of year |
$ | 5,988,467 | $ | 4,765,639 | $ | 3,316,195 | ||||||
|
|
|
|
|
|
See accompanying notes
F-163
REGIONAL TIRE DISTRIBUTORS (CALGARY) INC.
For the Years Ended February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
February 28, |
February 28, |
February 29, |
||||||||||
Cash provided by (used in): |
||||||||||||
Operating Activities |
||||||||||||
Net income |
$ | 1,291,885 | $ | 1,449,444 | $ | 526,407 | ||||||
Items not affecting cash |
||||||||||||
Amortization |
203,659 | 162,146 | 91,897 | |||||||||
|
|
|
|
|
|
|||||||
1,495,544 | 1,611,590 | 618,304 | ||||||||||
Change in non-cash working capital items (Note 10) |
(280,072 | ) | 437,360 | (5,417,523 | ) | |||||||
|
|
|
|
|
|
|||||||
1,215,472 | 2,048,950 | (4,799,219 | ) | |||||||||
|
|
|
|
|
|
|||||||
Investing Activities |
||||||||||||
Purchase of equipment |
(138,700 | ) | (132,759 | ) | (493,938 | ) | ||||||
Advances to corporate shareholder |
(5,598 | ) | | (11,371 | ) | |||||||
Repayments from corporate shareholder |
| 3,834 | | |||||||||
Advances to related parties |
(64,965 | ) | (27,656 | ) | (39,557 | ) | ||||||
Repayments from related parties |
19,763 | 5,179 | | |||||||||
Assets purchased (Note 13) |
(1,335,691 | ) | | | ||||||||
|
|
|
|
|
|
|||||||
(1,525,191 | ) | (151,402 | ) | (544,866 | ) | |||||||
|
|
|
|
|
|
|||||||
Financing Activities |
||||||||||||
Advances from corporate shareholders |
70,143 | 109,976 | 3,205 | |||||||||
Repayments to corporate shareholders |
(107,274 | ) | (70,000 | ) | | |||||||
Advances from shareholder |
77,568 | 1,075,000 | | |||||||||
Advances from related parties |
1,305,003 | 605,888 | 2,518,813 | |||||||||
Repayments to related parties |
(607,840 | ) | (3,830,377 | ) | | |||||||
Redemption of preferred shares |
(69,060 | ) | | (246,870 | ) | |||||||
Issuance of shares |
| | 100 | |||||||||
|
|
|
|
|
|
|||||||
668,540 | (2,109,513 | ) | 2,275,248 | |||||||||
|
|
|
|
|
|
|||||||
(Decrease) increase in cash |
358,821 | (211,965 | ) | (3,068,837 | ) | |||||||
Cash, beginning of year |
162,529 | 374,494 | 3,443,331 | |||||||||
|
|
|
|
|
|
|||||||
Cash, end of year |
$ | 521,350 | $ | 162,529 | $ | 374,494 | ||||||
|
|
|
|
|
|
See accompanying notes
F-164
REGIONAL TIRE DISTRIBUTORS (CALGARY) INC.
Notes to the Financial Statements
February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
1. Nature of operations
The Company was incorporated under the Alberta Business Corporations Act on October 26, 1987 and operated a wholesale tire distribution business under its original name as South Alta Tire Distributors Ltd. The company changed its name to Regional Tire Distributors (Calgary) Inc. on October 5, 2010.
2. Summary of significant accounting policies
Basis of presentation
These financial statements are prepared in accordance with Canadian accounting standards for private enterprises.
Revenue recognition
Revenue is recognized when the goods have been delivered, the services have been completed, the transaction has been accepted by the customer and collection is reasonably assured. The Company reports its revenue net of returns, sales discounts and rebates to customers.
Interest revenue is recognized on an annual basis as it is earned.
Rental revenue earned under a lease agreement is recognized as revenue over the term of the underlying lease. All rent increases based on escalation clauses in lease agreements are accounted for on a straight-line basis over the term of the respective leases. Property taxes, other operating cost recoveries, and other incidental income are recognized on an accrual basis.
Vendor Rebates and Allowances
The Company participates in various purchase rebate programs with its major tire vendors including early payment incentives and volume purchase rebates based on defined levels of purchase volume. These arrangements enable the Company to earn rebates that reduce the cost of merchandise purchased. Vendor rebates and allowances are accrued as earned. Vendor rebates and allowances earned are initially recorded as a reduction in the cost of merchandise inventories and are included in operations (as a reduction of cost of goods sold) in the period the related product is sold. Accordingly, the amount of vendor rebates included in operations in any year could include rebates earned in a prior year.
Allowance for doubtful accounts
The allowance for doubtful accounts reflects managements best estimate of losses on the accounts receivable balances. The company maintains an allowance for doubtful accounts that is estimated based on a variety of factors including accounts receivable aging, historical experience and other currently available information, including events such as customer bankruptcy and current economic conditions. Interest is charged on overdue account receivable balances. A provision is recorded in the period in which the receivable is deemed uncollectible.
Inventories
Inventories are valued at the lower of cost or net realizable value. The cost of inventories comprises all costs of purchase and other costs incurred in bringing the inventories to their present location and condition
F-165
REGIONAL TIRE DISTRIBUTORS (CALGARY) INC.
Notes to the Financial Statements
February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
including volume rebates and allowances from vendors. The cost of inventories is determined using the first-in, first-out (FIFO) method. Net realizable value is the estimated selling price in the ordinary course of business, less costs necessary to complete the sale. Inventory is reduced for the estimated losses due to obsolescence. This reduction is determined for groups of products based on purchases in the recent past and/or expected future demand.
Property and equipment
Property and equipment are recorded at cost less accumulated amortization.
Amortization is calculated at the following annual rates:
Office equipment |
- 20% declining balance basis | |
Computer equipment |
- 30%-100% declining balance basis | |
Shop equipment |
- 20% declining balance basis | |
Automotive equipment |
- 30% declining balance basis | |
Leasehold improvement |
- 5 year straight line basis | |
Fencing |
- 10% declining balance basis |
Property and equipment are tested for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. The carrying amount of a long-lived asset is not recoverable when it exceeds the sum of the undiscounted cash flows expected from its use and eventual disposal. In such a case, an impaired loss must be recognized and is equivalent to the excess of the carrying amount of a long-lived asset over its fair value.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of net assets acquired. Goodwill is allocated as of the date of the business combination to the Companys reporting units that are expected to benefit from the synergies of the business combination.
Goodwill is tested for impairment whenever events or changes in circumstances indicate that it might be impaired. The impairment test consists of a comparison of the fair value of the reporting unit to which goodwill is assigned with its carrying amount. Any impairment loss in the carrying amount compared with the fair value is charged to income in the year in which the loss is recognized.
Income taxes
The Company uses the future income taxes method to account for income taxes. Under this method, future tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax assets and liabilities are measured using substantively enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
Contingent liabilities
A contingent liability is recognized when the Company has a present obligation as a result of a past event, when it is probable that an outflow of resources embodying economic benefits will be required to settle the
F-166
REGIONAL TIRE DISTRIBUTORS (CALGARY) INC.
Notes to the Financial Statements
February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
obligation, and when a reliable estimate can be made of the amount of the obligation. A contingent liability is discounted using a current pre-tax rate that reflects the risks specific to the liability and is re-measured at fair value at each reporting date.
Use of estimates
The preparation of financial statements in conformity with Accounting Standards for Private Enterprises requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The more subjective estimates included in these financial statements are the determination of allowance for doubtful accounts receivable, valuation of inventory, estimated useful lives of property and equipment for purposes of calculating amortization and valuation of contingent liabilities. Actual results could differ from those estimates.
Financial Instruments
Measurement of financial instruments
The company initially measures its financial assets and liabilities at fair value, except for certain non-arms length transactions. The Company subsequently measures all its financial assets and financial liabilities at amortized cost. Changes in fair value are recognized in net income.
Financial assets measured at amortized cost include cash, accounts receivable, due from corporate shareholder and loans receivable from related parties.
Financial liabilities measured at amortized cost include accounts payable and accrued liabilities, management remuneration payable, due to corporate shareholders, shareholders loan and loans payable to related parties.
Impairment
Financial assets measured at cost are tested for impairment when there are indicators of impairment. The amount of the write-down is recognized in net income. The previously recognized impairment loss may be reversed to the extent of the improvement, directly or by adjusting the allowance account, provided it is no greater than the amount that would have been reported at the date of the reversal had the impairment not been recognized previously. The amount of the reversal is recognized in net income.
Transaction costs
Transaction costs relating to financial instruments that are measured subsequently at fair value are recognized in operations in the year in which they are incurred. For instruments that are subsequently measured at amortized cost, the amount initially recognized is adjusted for transaction costs directly attributable to the origination, acquisition, issuance or assumption.
F-167
REGIONAL TIRE DISTRIBUTORS (CALGARY) INC.
Notes to the Financial Statements
February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
3. Accounts Receivable
Accounts receivable consists of the following:
February 28, |
February 28, |
February 29, |
||||||||||
Trade receivable |
$ | 2,325,091 | $ | 2,138,210 | $ | 2,289,971 | ||||||
Allowance for doubtful accounts |
(321,129 | ) | (299,915 | ) | (245,172 | ) | ||||||
|
|
|
|
|
|
|||||||
$ | 2,003,962 | $ | 1,838,295 | $ | 2,044,799 | |||||||
|
|
|
|
|
|
4. Inventories
Inventories consist of the following:
February 28, |
February 28, |
February 29, |
||||||||||
Tires |
$ | 6,149,119 | $ | 5,183,560 | $ | 4,719,657 | ||||||
Wheel |
74,424 | 66,720 | 56,700 | |||||||||
|
|
|
|
|
|
|||||||
$ | 6,223,543 | $ | 5,250,280 | $ | 4,776,357 | |||||||
|
|
|
|
|
|
As at February 28, 2014 year end, inventory included volume rebates and allowances in the amount of $168,422 (February 28, 2013$352,660; February 29, 2012$390,461).
Cost of sales reported on the statement of operations include $20,463,834 (February 28, 2013$15,726,623 February 29, 2012$12,987,392) of inventories recognized as an expense during the year.
5. Due from/Due to Corporate Shareholders
Due from corporate shareholder are as follows:
February 28, |
February 28, |
February 29, |
||||||||||
Regional Tire Distributors (Edmonton) Inc. (ownership 25%) |
$ | 13,135 | 7,537 | 11,371 | ||||||||
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|
|
|
|||||||
$ | 13,135 | $ | 7,537 | $ | 11,371 | |||||||
|
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|
|
|
Due from corporate shareholder is unsecured, non-interest bearing and has no stated terms of repayment.
As the loan to corporate shareholder has no stated terms of repayment and is not expected to be repaid within the next year, it has been classified as a long term asset.
Due to corporate shareholders are as follows:
February 28, |
February 28, |
February 29, |
||||||||||
673889 Alberta Ltd. (ownership 25%) |
$ | 69,060 | $ | | $ | 70,000 | ||||||
Regional Tire Distributors (Edmonton) Inc. (ownership 25%) |
6,990 | 5,907 | 3,205 | |||||||||
L & K Tire Inc. (ownership 25%) |
| 107,274 | | |||||||||
|
|
|
|
|
|
|||||||
$ | 76,050 | $ | 113,181 | $ | 73,205 | |||||||
|
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|
|
|
F-168
REGIONAL TIRE DISTRIBUTORS (CALGARY) INC.
Notes to the Financial Statements
February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
Due to corporate shareholders are unsecured, non-interest bearing and have no stated terms of repayment.
As the corporate shareholders have agreed in writing not to demand repayment of any portion of the loan balances prior to March 1, 2015, the loans have been classified as long term liabilities.
6. Loans Receivable from/Payable to Related Parties and Related Party Transactions
Loans receivable from related parties are as follows:
February 28, |
February 28, |
February 29, |
||||||||||
Kirks Tire (Brooks) Ltd. |
$ | 26,229 | $ | 17,552 | $ | 9,389 | ||||||
Kirks Tire (Calgary) Ltd. |
| | 5,179 | |||||||||
Kirks Tire (Red Deer) Ltd. |
3,798 | 9,513 | 6,136 | |||||||||
Kirks Tire Ltd. |
18,185 | 21,517 | 17,163 | |||||||||
Regional Tire Distributors (Langley) Inc. |
265 | 10,981 | 1,690 | |||||||||
Regional Tire Distributors (Victoria) Inc. |
2,958 | 2,286 | | |||||||||
Regional Tire Distributors (Vernon) Inc. |
3,073 | 185 | | |||||||||
Regional Tire Distributors (Manitoba) Inc. |
9,912 | | | |||||||||
Tirecraft Lloydminster Truck Centre Inc. |
2,816 | | | |||||||||
Darren Vasseur |
40,000 | | | |||||||||
|
|
|
|
|
|
|||||||
$ | 107,236 | $ | 62,034 | $ | 39,557 | |||||||
|
|
|
|
|
|
Loans receivable from the parties noted above are unsecured, non-interest bearing and have no stated terms of repayment. The relationship between Regional Tire Distributors (Calgary) Inc. and each of these parties is as follows:
Kirks Tire (Brooks) Ltd., Kirks Tire (Red Deer) Ltd., Regional Tire Distributors (Langley) Inc., Regional Tire Distributors (Victoria) Inc., Regional Tire Distributors (Vernon) Inc., Regional Tire Distributors (Manitoba) Inc. and Tirecraft Lloydminster Truck Centre Inc. are significantly influenced by a director of Regional Tire Distributors (Calgary) Inc.
Kirks Tire Ltd. is a company controlled by a director of Regional Tire Distributors (Calgary) Inc.
Kirks Tire (Calgary) Ltd. is controlled by an immediate family member of a director of Regional Tire Distributors (Calgary) Inc.
Darren Vasseur is a director of Regional Tire Distributors (Calgary) Inc.
As the loans receivable have no stated terms of repayment and are not expected to be repaid within the next year, they have been classified as long term assets.
F-169
REGIONAL TIRE DISTRIBUTORS (CALGARY) INC.
Notes to the Financial Statements
February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
Loans payable to related parties are as follows:
February 28, |
February 28, |
February 29, |
||||||||||
VLK Properties Inc. |
$ | 48,616 | $ | 51,871 | $ | 175,818 | ||||||
KDW Enterprises Ltd. |
128,288 | 24,863 | 69,061 | |||||||||
Kirks Adminco Ltd. |
16,275 | 18,803 | 18,165 | |||||||||
Kirks Tire (Calgary) Ltd. |
| | 55 | |||||||||
Kirks Tire Ltd. |
1,328,429 | 895,457 | 1,696,738 | |||||||||
Pask Technology Group Inc. |
1,037 | 781 | 684 | |||||||||
Regional Tire Distributors (Langley) Inc. |
5,984 | 1,247 | | |||||||||
Regional Tire Distributors (Vernon) Inc. |
5,606 | 883 | | |||||||||
Tirecraft Western Canada Ltd. |
156,833 | | | |||||||||
Ward Tire |
| | 300,000 | |||||||||
Doug Vasseur |
| | 410,936 | |||||||||
Karen Vasseur |
| | 436,684 | |||||||||
Darren Vasseur |
| | 189,253 | |||||||||
|
|
|
|
|
|
|||||||
$ | 1,691,068 | $ | 993,905 | $ | 3,297,394 | |||||||
|
|
|
|
|
|
Loans payable to the parties noted above are unsecured, non-interest bearing and have no stated terms of repayment, except Kirks Tire Ltd. which is secured by inventory. The relationship between Regional Tire Distributors (Calgary) Inc. and each of these parties is as follows:
KDW Enterprise Ltd., Kirks Adminco Ltd., Pask Technology Group Inc., Regional Tire Distributors (Langley) Ltd. and Regional Tire Distributors (Vernon) Ltd. are significantly influenced by a director of Regional Tire Distributors (Calgary) Inc.
Kirks Tire Ltd. is a company controlled by a director of Regional Tire Distributors (Calgary) Inc.
VLK Properties Inc. is under common control.
Tirecraft Western Canada Ltd. is a company wholly owned by one of the shareholders of Regional Tire Distributors (Calgary) Inc.
Kirks Tire (Calgary) Ltd. is indirectly controlled by an immediate family member of a director of Regional Tire Distributors (Calgary) Inc.
Ward Tire is under common ownership of Regional Tire Distributors (Calgary).
Darren Vasseur is a director of Regional Tire Distributors (Calgary) Inc. Doug Vasseur and Karen Vasseur are immediate family members of the director.
As the related parties have agreed in writing not to demand repayment of any portion of the loan balances prior to March 1, 2015, the loans have been classified as long term liabilities.
F-170
REGIONAL TIRE DISTRIBUTORS (CALGARY) INC.
Notes to the Financial Statements
February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
Sales to related parties are as follows:
February 28, |
February 28, |
February 29, |
||||||||||
Kirks Tire (Brooks) Ltd. |
$ | 287,835 | $ | 261,323 | $ | 195,857 | ||||||
Kirks Tire (Calgary) Ltd. |
| | 139,154 | |||||||||
Kirks Tire (Red Deer) Ltd. |
166,990 | 132,304 | 171,813 | |||||||||
KDW Enterprises Ltd. |
793 | 335 | | |||||||||
Regional Tire Distributors (Edmonton) Inc. |
75,372 | 181,406 | 151,258 | |||||||||
Regional Tire Distributors (Langley) Inc. |
32,717 | 10,056 | | |||||||||
Regional Tire Distributors (Victoria) Inc. |
41,933 | 17,830 | | |||||||||
Regional Tire Distributors (Vernon) Inc. |
34,240 | 24,688 | 1,543 | |||||||||
Regional Tire Distributors (Manitoba) Inc. |
193,240 | | | |||||||||
Tirecraft Lloydminster Truck Centre Inc. |
22,070 | 1,678 | 1,364 | |||||||||
|
|
|
|
|
|
|||||||
$ | 855,190 | $ | 629,620 | $ | 660,989 | |||||||
|
|
|
|
|
|
Inventory purchases from related parties are as follows:
February 28, |
February 28, |
February 29, |
||||||||||
Kirks Tire (Brooks) Ltd. |
$ | | $ | | $ | 551 | ||||||
Kirks Tire (Red Deer) Ltd. |
604 | | 380 | |||||||||
Kirks Tire Ltd. |
3,516,716 | 2,727,411 | 2,837,377 | |||||||||
KDW Enterprises Ltd. |
707,495 | 842,185 | 861,060 | |||||||||
L&K Tire Inc. |
101 | 126,999 | 24,881 | |||||||||
Regional Tire Distributors (Edmonton) Inc. |
743,230 | 123,978 | 142,204 | |||||||||
Regional Tire Distributors (Langley) Inc. |
201,431 | 24,207 | 1,968 | |||||||||
Regional Tire Distributors (Vernon) Inc. |
85,109 | 5,131 | 487 | |||||||||
Regional Tire Distributors (Manitoba) Inc. |
5,769 | | | |||||||||
|
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|
|
|||||||
$ | 5,260,455 | $ | 3,849,911 | $ | 3,868,908 | |||||||
|
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|
Included in the rent expense are lease payments to VLK Properties Inc., a company under common control, which amounted to $526,980 for the 2014 fiscal year (February 28, 2013$526,980; February 29, 2012$457,250)
Included in the management fees expense are administrative services fee paid to Kirks Adminco Ltd., a company under common control, which amounted to $180,000 for the 2014 fiscal year (February 28, 2013$180,000; February 29, 2012$180,000).
Included in computer expenses are information technology services payments to Pask Technology Group Inc., a company related through a common director of Regional Tire Distributors (Calgary) Inc., which amounted to $15,300 for the 2014 fiscal year (February 28, 2013$9,944; February 29, 2012$5,922)
Included in cost of sales are advertising expense payments to Tirecraft Western Canada Ltd., a company related through a common director of Regional Tire Distributors (Calgary) Inc., which amounted to $156,833 for the 2014 fiscal year (February 28, 2013$nil; February 29, 2012$nil).
Included in the professional fees expense is an amount of $30,000 paid to BJK Holdings Ltd., a 25% shareholder of Regional Tire Distributors (Calgary) Inc., related to negotiation services provided to the Company regarding the purchase of assets from Harpers Tire (1931) Ltd.
F-171
REGIONAL TIRE DISTRIBUTORS (CALGARY) INC.
Notes to the Financial Statements
February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
These transactions are in the normal course of operations and have been reported in these financial statements at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
7. Property and Equipment
February 28, 2014 |
||||||||||||
Cost |
Accumulated |
Net |
||||||||||
Office equipment |
$ | 18,171 | $ | 11,662 | $ | 6,509 | ||||||
Computer equipment |
36,057 | 17,646 | 18,411 | |||||||||
Shop equipment |
140,375 | 49,745 | 90,630 | |||||||||
Automotive equipment |
524,771 | 323,056 | 201,715 | |||||||||
Leasehold improvements |
598,367 | 293,753 | 304,614 | |||||||||
Fencing |
7,859 | 2,416 | 5,443 | |||||||||
|
|
|
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|
|
|||||||
$ | 1,325,600 | $ | 698,278 | $ | 627,322 | |||||||
|
|
|
|
|
|
February 28, 2013 |
||||||||||||
Cost |
Accumulated |
Net |
||||||||||
Office equipment |
$ | 13,071 | $ | 10,672 | $ | 2,399 | ||||||
Computer equipment |
10,662 | 10,662 | | |||||||||
Shop equipment |
78,125 | 34,869 | 43,256 | |||||||||
Automotive equipment |
403,816 | 262,525 | 141,291 | |||||||||
Leasehold improvements |
598,367 | 174,080 | 424,287 | |||||||||
Fencing |
7,859 | 1,811 | 6,048 | |||||||||
|
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|
|||||||
$ | 1,111,900 | $ | 494,619 | $ | 617,281 | |||||||
|
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|
|
February 29, 2012 |
||||||||||||
Cost |
Accumulated |
Net |
||||||||||
Office equipment |
$ | 13,071 | $ | 10,072 | $ | 2,999 | ||||||
Computer equipment |
10,662 | 10,407 | 255 | |||||||||
Shop equipment |
74,175 | 24,549 | 49,626 | |||||||||
Automotive equipment |
302,157 | 229,184 | 72,973 | |||||||||
Leasehold improvements |
571,217 | 57,121 | 514,096 | |||||||||
Fencing |
7,859 | 1,140 | 6,719 | |||||||||
|
|
|
|
|
|
|||||||
$ | 979,141 | $ | 332,473 | $ | 646,668 | |||||||
|
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|
|
8. Shareholders loan
Shareholders loan at February 28, 2014 which includes amounts outstanding at February 28, 2013 are unsecured, non-interest bearing, and are due March 1, 2015.
9. Share Capital
Authorized: | ||
Unlimited number of Class A through D common voting shares | ||
Unlimited number of Class E through H common non-voting shares | ||
Unlimited number of Class I through L preferred redeemable non-voting shares | ||
Unlimited number of Class M through P preferred redeemable voting shares |
F-172
REGIONAL TIRE DISTRIBUTORS (CALGARY) INC.
Notes to the Financial Statements
February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
February 28, |
February 28, |
February 29, |
||||||||||
Issued: |
||||||||||||
25 Class A common shares |
$ | 25 | $ | 25 | $ | 25 | ||||||
25 Class B common shares |
25 | 25 | 25 | |||||||||
25 Class C common shares |
25 | 25 | 25 | |||||||||
25 Class D common shares |
25 | 25 | 25 | |||||||||
|
|
|
|
|
|
|||||||
100 | 100 | 100 | ||||||||||
|
|
|
|
|
|
|||||||
2,000 Class I preferred shares |
| 200 | 200 | |||||||||
1,973 Class I preferred shares |
197 | | | |||||||||
|
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|
|
|
|
|||||||
197 | 200 | 200 | ||||||||||
|
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|
|
|
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$ | 297 | $ | 300 | $ | 300 | |||||||
|
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|
Class I preferred shares issued have redemption value of $2,557.76 per share.
On December 31, 2013, the Company redeemed 27 Class I preferred shares with a paid up capital of $0.10 and a redemption amount of $69,060. The excess of the redemption value over the paid up capital amount of $69,057 is recorded as a reduction of retained earnings.
On November 29, 2011, the Company redeemed 60 Class E preferred shares with a paid up capital of $1.00 and a redemption amount of $246,870. The excess of the redemption value over the paid up capital amount of $246,810 was recorded as a reduction of retained earnings. The existing share certificate was cancelled.
10. Non-cash Working Capital Items
Non-cash working capital items related to operations are as follows:
February 28, |
February 28, |
February 29, |
||||||||||
Accounts receivable |
$ | (165,667 | ) | $ | 206,504 | $ | (1,351,839 | ) | ||||
Goods and Services Tax receivable |
(70,822 | ) | 72,038 | (117,099 | ) | |||||||
Inventories |
(240,572 | ) | (473,923 | ) | (3,721,491 | ) | ||||||
Prepaid expenses |
(17,930 | ) | 3,469 | (7,014 | ) | |||||||
Income taxes receivable |
(63,782 | ) | | | ||||||||
Accounts payable and accrued liabilities |
32,618 | 173,470 | (220,027 | ) | ||||||||
Income taxes payable |
(469,917 | ) | 455,802 | (53 | ) | |||||||
Management remuneration payable |
716,000 | | | |||||||||
|
|
|
|
|
|
|||||||
$ | (280,072 | ) | $ | 437,360 | $ | (5,417,523 | ) | |||||
|
|
|
|
|
|
11. Commitment and Contingency
Commitment
The Company has entered into an operating lease for its premises expiring March 30, 2016.
F-173
REGIONAL TIRE DISTRIBUTORS (CALGARY) INC.
Notes to the Financial Statements
February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
The required payments in future fiscal periods are as follows:
2015 |
$ | 113,944 | ||
2016 |
113,944 | |||
2017 |
9,495 | |||
|
|
|||
$ | 237,383 | |||
|
|
Contingency
On January 1, 2014, the Company entered into a consultation agreement with the former owners of Harpers Tire (1931) Ltd. (Harper) (Note 13). Pursuant to the agreement, Harper has agreed to provide certain consulting and marketing services in favour of the Company for a period of five years in exchange for fees equal to 50% of the Companys pre-tax profits generated from products sold by the Company to Harpers previous customers. The amount of the fee is to be determined by the end of each calendar year.
12. Financial Instruments
Credit Risk
The Company is susceptible to credit risk on its accounts receivable and mitigates this risk through an extensive credit evaluation process.
Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. The Company is exposed to this risk mainly in respect to its accounts payable and accrued liabilities and its management remunerations payable. As at February 28, 2014, the Company has a working capital balance of $7,339,813 (February 28, 2013$6,261,173; February 29, 2012$5,989,498)
Interest Rate Risk
Interest rate risk refers to adverse consequences of interest rate changes on the Companys cash flows and financial position. Management does not believe the Company is exposed to significant interest rate risk.
13. Asset Purchase
On January 1, 2014, the Company acquired assets from Harpers Tire (1931) Ltd. The aggregate adjusted purchase price was $2,408,652 and was allocated to the assets acquired based on their fair market value as follows:
Inventories |
$ | 732,691 | ||
Lease deposits |
28,000 | |||
Property and equipment |
75,000 | |||
Goodwill |
1,572,961 | |||
|
|
|||
Total assets acquired |
$ | 2,408,652 | ||
|
|
|||
Total consideration for the acquisition consists of the following: |
||||
Cash payment |
$ | 1,335,691 | ||
Contingent consideration |
1,072,961 | |||
|
|
|||
$ | 2,408,652 | |||
|
|
F-174
REGIONAL TIRE DISTRIBUTORS (CALGARY) INC.
Notes to the Financial Statements
February 28, 2014, February 28, 2013 and February 29, 2012
(In Canadian Dollars)
14. Canadian Accounting Standards for Private Enterprises and US GAAP Reconciliation
The financial statements of the Company have been prepared in accordance with Canadian Accounting Standards for Private Enterprises. The material differences between the accounting policies used by the Company under Canadian Accounting Standards for Private Enterprises and US GAAP are disclosed below.
a) Income Taxes
Under US GAAP, the Company recognizes a tax benefit if it is more likely than not that a tax position taken or expected to be taken in a tax return will be sustained upon examination by taxing authorities based on the merits of the position. The tax benefit recognized in the financial statements is measured based on the largest amount of benefit that is greater than 50 per cent likely of being realized upon settlement. The difference between a tax position taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to this guidance represents an unrecognized tax benefit. An unrecognized tax benefit is disclosed as a long-term liability unless the Company anticipates a payment or receipt within one year in respect of the position. As a result of implementing these provisions there was no material impact on the Companys financial statements.
Under US GAAP the Company is required to calculate and record corporate income taxes based on enacted corporate income tax rates. Under ASPE, the Company had calculated and recognized corporate income taxes using substantively enacted corporate income tax rates. For the Company, enacted and substantively enacted corporate tax rates are the same; as a result no differences to calculated and recognized corporate income taxes arise. There are no material differences between the Companys statutory income tax rate and the effective tax rate.
b) Variable Interest Entities
The Company has performed a review of the entities with which it conducts business and has concluded that there are no entities that are required to be consolidated or variable interests that are required to be disclosed under the requirements of ASC Topic 810, Consolidation of Variable Interest Entities.
c) Preferred shares
Under US GAAP, the Company recognizes preferred shares at stated capital value as part of equity if there is not an unconditional obligation for the Company to redeem the shares by transferring an asset on a specified or determinable date or upon an event that is certain to occur. For the Company, there is no unconditional obligation for the preferred shares to be redeemed at the option of the holder at February 29, 2012, February 28, 2013 and February 28, 2014, therefore the stated value of the preferred shares has been reported as an equity component.
d) Comprehensive Income
US GAAP requires the presentation of a Statement of Comprehensive Income. The Company has no items that would cause such presentation to differ from the amounts presented as Net Income in the accompanying financial statements.
F-175
TTT Holdings, Inc. and Subsidiaries
December 31, 2013 and 2012
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F-177 | ||||
Consolidated Financial Statements |
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F-178 | ||||
F-179 | ||||
F-180 | ||||
F-181 | ||||
F-182 F-196 |
F-176
To the Board of Directors of
TTT Holdings, Inc. and Subsidiaries
We have audited the accompanying consolidated financial statements of TTT Holdings, Inc. and its subsidiaries, which comprise the consolidated balance sheets as of December 31, 2013 and 2012, and the related consolidated statements of operations, of stockholders equity and mezzanine equity and of cash flows for the years then ended.
Managements Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Companys preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of TTT Holdings, Inc. and its subsidiaries at December 31, 2013 and 2012, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
/s/ PricewaterhouseCoopers, LLP
Columbus, Ohio
February 28, 2014, except for Note 15, as to which the date is June 16, 2014
F-177
TTT Holdings, Inc. and Subsidiaries
Balance Sheets
December 31, 2013 and 2012
2013 |
2012 |
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Assets |
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Current assets |
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Cash and cash equivalents |
$ | 4,390,410 | $ | 2,704,505 | ||||
Accounts receivable |
49,574,217 | 65,949,428 | ||||||
Other receivables |
15,320,631 | 19,021,928 | ||||||
Inventories |
92,525,287 | 105,494,221 | ||||||
Prepaid expenses and other |
2,273,479 | 2,355,902 | ||||||
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Total current assets |
164,084,024 | 195,525,984 | ||||||
Notes receivable, net of allowance for doubtful accounts of $116,139 and $269,420, respectively |
250,675 | 130,795 | ||||||
Property and equipment, net |
8,217,527 | 7,074,576 | ||||||
Intangible assets, net |
86,935,863 | 97,087,731 | ||||||
Goodwill |
44,395,930 | 44,395,930 | ||||||
Other noncurrent assets |
894,789 | 1,291,987 | ||||||
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Total assets |
$ | 304,778,808 | $ | 345,507,003 | ||||
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Liabilities and Stockholders Equity |
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Current liabilities |
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Accounts payable |
$ | 115,810,618 | $ | 159,766,404 | ||||
Accrued liabilities |
8,796,813 | 5,827,556 | ||||||
Fair value of interest rate swap |
779,412 | 1,341,780 | ||||||
Short-term note payable |
1,406,762 | | ||||||
Current maturities of long-term debt and capital lease obligations |
7,005,747 | 7,676,809 | ||||||
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Total current liabilities |
133,799,352 | 174,612,549 | ||||||
Long-term debt and capital lease obligations |
91,479,118 | 83,192,672 | ||||||
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Total liabilities |
225,278,470 | 257,805,221 | ||||||
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Commitments and contingencies |
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Mezzanine equity |
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Redeemable common stock; $.001 par value: 8,326 shares issued and outstanding |
8,875,516 | 14,212,482 | ||||||
Stockholders equity |
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Common stock, $.001 par value per share; 150,000 voting and 15,000 nonvoting shares authorized, 76,569 and 71,569 voting shares issued and outstanding at December 31, 2013 and 2012, respectively |
77 | 72 | ||||||
Additional paid-in capital |
83,627,822 | 74,651,789 | ||||||
Note receivable from stockholder |
(787,091 | ) | (775,166 | ) | ||||
Accumulated deficit |
(12,215,986 | ) | (387,395 | ) | ||||
Noncontrolling interest |
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Total stockholders equity |
70,624,822 | 73,489,300 | ||||||
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Total liabilities and stockholders equity |
$ | 304,778,808 | $ | 345,507,003 | ||||
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The accompanying notes are an integral part of these consolidated financial statements
F-178
TTT Holdings, Inc. and Subsidiaries
Statements of Operations
Years Ended December 31, 2013 and 2012
2013 |
2012 |
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Net sales |
$ | 502,193,896 | $ | 570,042,650 | ||||
Cost of goods sold |
420,952,410 | 481,747,063 | ||||||
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Gross profit |
81,241,486 | 88,295,587 | ||||||
Operating expenses |
83,232,641 | 79,195,149 | ||||||
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Operating (loss) income |
(1,991,155 | ) | 9,100,438 | |||||
Interest expense, net |
9,852,960 | 9,202,654 | ||||||
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Loss before income taxes |
(11,844,115 | ) | (102,216 | ) | ||||
Income tax (benefit) expense |
(15,524 | ) | 182,357 | |||||
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Net loss |
(11,828,591 | ) | (284,573 | ) | ||||
Net income attributable to the noncontrolling interest |
| 102,822 | ||||||
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Net loss attributable to TTT Holdings, Inc. stockholders |
$ | (11,828,591 | ) | $ | (387,395 | ) | ||
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The accompanying notes are an integral part of these consolidated financial statements
F-179
TTT Holdings, Inc. and Subsidiaries
Statements of Stockholders Equity and Mezzanine Equity
Years Ended December 31, 2013 and 2012
Stockholders Equity |
Mezzanine Equity |
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Additional Paid-In Capital |
Note from Stockholder |
Accumulated Earnings (Deficit) |
Noncontrolling Interest |
Total Stockholders Equity |
Redeemable Common Stock |
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Common Stock |
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Shares |
Amount |
Shares |
Amount |
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Balances at December 31, 2011 |
71,569 | $ | 72 | $ | 79,591,310 | $ | (763,199 | ) | $ | | $ | 397,409 | $ | 79,225,592 | 8,326 | $ | 11,406,620 | |||||||||||||||||||
Net income (loss) |
| | | | (387,395 | ) | 102,822 | (284,573 | ) | |||||||||||||||||||||||||||
Interest earned on note receivable from stockholder |
| | | (11,967 | ) | | | (11,967 | ) | |||||||||||||||||||||||||||
Stock based compensation |
| | 418,006 | | | | 418,006 | |||||||||||||||||||||||||||||
Dividends |
| | (2,551,665 | ) | | | (500,231 | ) | (3,051,896 | ) | ||||||||||||||||||||||||||
Adjustments to redeemable common stock fair value measurement |
| | (2,805,862 | ) | | | | (2,805,862 | ) | | 2,805,862 | |||||||||||||||||||||||||
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Balances at December 31, 2012 |
71,569 | 72 | 74,651,789 | (775,166 | ) | (387,395 | ) | | 73,489,300 | 8,326 | 14,212,482 | |||||||||||||||||||||||||
Net loss |
| | | | (11,828,591 | ) | | (11,828,591 | ) | |||||||||||||||||||||||||||
Interest earned on note receivable from stockholder |
| | | (11,925 | ) | | | (11,925 | ) | |||||||||||||||||||||||||||
Stock based compensation |
| | 538,010 | | | | 538,010 | |||||||||||||||||||||||||||||
Settlement of stock options |
| | (150,000 | ) | | | | (150,000 | ) | |||||||||||||||||||||||||||
Distributions |
| | (1,748,938 | ) | | | | (1,748,938 | ) | |||||||||||||||||||||||||||
Issuance of common stock |
5,000 | 5 | 4,999,995 | | | 5,000,000 | ||||||||||||||||||||||||||||||
Adjustments to redeemable common stock fair value measurement |
| | 5,336,966 | | | | 5,336,966 | | (5,336,966) | |||||||||||||||||||||||||||
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Balances at December 31, 2013 |
76,569 | $ | 77 | $ | 83,627,822 | $ | (787,091 | ) | $ | (12,215,986 | ) | $ | | $ | 70,624,822 | 8,326 | $ | 8,875,516 | ||||||||||||||||||
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The accompanying notes are an integral part of these consolidated financial statements
F-180
TTT Holdings, Inc. and Subsidiaries
Statements of Cash Flows
Years Ended December 31, 2013 and 2012
2013 |
2012 |
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Cash flows from operating activities |
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Net loss |
$ | (11,828,591 | ) | $ | (284,573 | ) | ||
Adjustments to reconcile net loss to net cash (used in) provided by operating activities |
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Depreciation and amortization |
11,979,180 | 11,510,415 | ||||||
Noncash stock compensation |
538,010 | 418,006 | ||||||
Amortization of deferred financing costs |
238,435 | 238,710 | ||||||
Amortization of discount on subordinated loan |
140,306 | 165,816 | ||||||
Amortization of deferred rent expense |
439,485 | 611,078 | ||||||
Unrealized loss on interest rate swap |
(562,368 | ) | (224,525 | ) | ||||
Interest paid-in-kind |
746,325 | 739,349 | ||||||
Interest earned on note receivable from stockholder |
(11,925 | ) | (11,967 | ) | ||||
Loss on sale of assets |
85,557 | | ||||||
Changes in assets and liabilities, net of acquisitions |
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Accounts receivable |
16,375,211 | 1,631,166 | ||||||
Other receivables |
3,701,297 | (269,864 | ) | |||||
Inventories |
12,968,934 | (6,938,498 | ) | |||||
Notes receivable |
(119,880 | ) | 93,695 | |||||
Prepaid expenses and other assets |
106,448 | (1,247,222 | ) | |||||
Accounts payable |
(44,080,064 | ) | 6,937,441 | |||||
Accrued liabilities |
2,529,772 | (81,165 | ) | |||||
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Net cash (used in) provided by operating activities |
(6,753,868 | ) | 13,287,862 | |||||
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Cash flows from investing activities |
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Purchase of property and equipment |
(1,133,333 | ) | (3,204,868 | ) | ||||
Proceeds from settlement from prior acquisition |
| 4,075,010 | ||||||
Acquisition of business, net of cash acquired |
| (2,267,338 | ) | |||||
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Net cash used in investing activities |
(1,133,333 | ) | (1,397,196 | ) | ||||
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Cash flows from financing activities |
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Proceeds from issuance of common stock |
5,000,000 | | ||||||
Payment of financing costs |
(154,525 | ) | | |||||
Distributions to stockholders |
(1,748,938 | ) | (3,051,896 | ) | ||||
Settlement of stock options |
(150,000 | ) | | |||||
Borrowings from revolving loan |
213,462,463 | 234,276,642 | ||||||
Repayments on revolving loan |
(200,242,465 | ) | (241,497,733 | ) | ||||
Proceeds from short-term and long-term debt |
2,106,464 | | ||||||
Payments on short-term and long-term debt and capital lease obligations |
(8,699,893 | ) | (6,448,989 | ) | ||||
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Net cash provided by (used in) financing activities |
9,573,106 | (16,721,976 | ) | |||||
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Net increase (decrease) in cash and cash equivalents |
1,685,905 | (4,831,310 | ) | |||||
Cash and cash equivalents at beginning of year |
2,704,505 | 7,535,815 | ||||||
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Cash and cash equivalents at end of year |
$ | 4,390,410 | $ | 2,704,505 | ||||
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Supplemental disclosure of cash flow information |
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Cash paid for interest |
$ | 6,085,236 | $ | 8,316,273 | ||||
Noncash investing and financing activities |
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Purchase of software with vendor financing |
$ | 1,478,255 | $ | | ||||
Capital lease obligations |
319,954 | | ||||||
Purchase of property and equipment in accounts payable |
124,278 | |
The accompanying notes are an integral part of these consolidated financial statements
F-181
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
1. Description of Business
TTT Holdings, Inc. (Holdings) is incorporated in Delaware as an S-Corporation. Terrys Tire Town Holdings, Inc. (TTT), its wholly owned subsidiary, is incorporated in Ohio as an S-corporation. Through its operating subsidiaries, TTTs primary operations are as a wholesale distributor of tires and accessories throughout the eastern half of the United States. During 2011, TTT formed Summit Tire Northeast, LLC (Summit) to acquire the assets of Summit Tire of Massachusetts, Inc., a wholesale tire distributor with operations focused in the New England area and TTT directly acquired the stock of Englewood Tire Wholesale, Inc. (Englewood), a wholesale tire distributor with operations focused primarily in the Greater New York, New Jersey and Connecticut area. Holdings has no significant assets or operations other than its ownership of TTT. The operations of TTT constitutes the operations of Holdings.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Holdings, TTT and each of TTTs wholly owned subsidiaries and entities controlled by TTT but not wholly-owned (collectively the Company). All significant intercompany balances and transactions have been eliminated in consolidation.
Noncontrolling interests represent the portion of equity the Company does not own in the controlled entities included in the financial statements. The Company identifies its noncontrolling interests separately within the equity section on the consolidated balance sheet. The amounts of consolidated net earnings attributable to the Company and to the noncontrolling interests are presented separately on the Companys consolidated statement of operations. The Company dissolved its noncontrolling interests in 2012.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The most significant estimates include the Companys valuation of doubtful accounts receivable, valuation of inventory reserves, valuation of goodwill, share-based compensation, the fair value of derivative instruments, the fair value of purchased assets and liabilities, including intangible assets and related useful lives assigned to such assets. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid financial instruments purchased with an original maturity of three months or less which are not subject to withdrawal restrictions or penalties to be cash and cash equivalents. Such investments are carried at their cost, which approximates their estimated fair market value.
Concentration of Credit Risk
Financial instruments that potentially expose the Company to concentration of credit risk consist primarily of cash and cash equivalents. The majority of cash and cash equivalents at December 31, 2013 and 2012 were deposited with large banking institutions. The Company maintains cash deposits in banks which, from time to time, exceed the amount of deposit insurance available. Management periodically assesses the financial condition of the institutions and believes that any potential credit loss is minimal.
F-182
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
Accounts Receivable
Trade receivables represent amounts due from product sales in the ordinary course of business. Accounts receivable are recorded at the invoiced amount and do not bear interest. Credit is extended based on an evaluation of customers financial condition, and trade receivables are generally not collateralized.
Allowance for Doubtful Accounts
The allowance for doubtful accounts is the Companys best estimate of the amount of probable losses for uncollected receivables. The Company determines the allowance based on customer risk, the length of time accounts are past due, and historical write-off experience. Account balances are charged to the allowance when it is probable the receivable will not be recovered. The total adjustment to reduce accounts receivable to the recoverable amount was $2,042,500 and $2,885,703 at December 31, 2013 and 2012, respectively.
Inventories
Inventories consist of products held for resale and are valued at the lower of cost or market, with cost determined by the last-in, first-out method (LIFO) for tire inventory and at moving average cost for non-tire inventory. The LIFO reserve was $202,520 and $4,576,974 at December 31, 2013 and 2012, respectively. The composition of inventory valued at LIFO and FIFO is as follows:
2013 |
2012 |
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Inventory at LIFO (primarily tire inventory) |
$ | 88,076,680 | $ | 101,192,482 | ||||
Inventory at FIFO (primarily nontire inventory) |
4,448,607 | 4,301,739 | ||||||
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$ | 92,525,287 | $ | 105,494,221 | |||||
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During 2013, the combination of deflation and reduction in inventory quantities resulted in a liquidation of LIFO inventory carried at lower costs prevailing in prior years as compared with the cost of 2012 purchases, the effect of which decreased cost of goods sold and increased net income by approximately $4,374,000. The portion related to the change in cost in inventory compared to 2012 was approximately $537,000.
The above balances are presented net for slow-moving and obsolete inventory of $1,217,681 and $1,101,894 at December 31, 2013 and 2012, respectively.
Derivative Instruments
The Companys interest rate risk management strategy uses derivative instruments to minimize cash flow risks caused by interest rate volatility associated with the Companys variable rate debt. At December 31, 2013 and 2012, the derivative instruments used to meet the Companys risk management objectives were interest rate swaps. The Company chose not to apply hedge accounting for its interest rate swap agreements. Accordingly, the interest rate swaps are carried at their fair value on the consolidated balance sheet, with changes in their fair value recognized in current earnings (see Note 12).
Deferred Financing Costs
Deferred financing costs are included in other noncurrent assets and represent the direct costs of establishing the Companys term and revolving debt. Deferred financing costs are amortized to interest expense over the term of the related debt using the effective interest method for term commitments and the straight-line method for revolving commitments.
F-183
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
Property and Equipment
Property and equipment are stated at cost. Expenditures for maintenance, repairs and minor renewals are charged to expense as incurred. Major renewals and improvements are capitalized. The cost and accumulated depreciation of disposed assets are eliminated from the accounts and resulting gain or loss is reflected in earnings. Leasehold improvements are amortized over the shorter of the lease term or useful life of the asset. Capital leases are amortized over the lease term. Depreciation and amortization is computed using the straight-line method over the following estimated useful lives:
Leasehold improvements |
5 25 years | |
Machinery and equipment |
7 years | |
Furniture and fixtures |
5 years | |
Vehicles |
5 years | |
Computer software and equipment |
3 years |
Intangible Assets
Intangible assets consist of customer relationships and trade names. The intangible assets were determined to have finite lives. Amortization of finite-lived intangible assets is recorded to reflect the pattern of economic benefits based on projected revenues over their respective estimated useful lives. Intangible assets are amortized by the straight-line method over the estimated useful lives (customer relationships11 to 13 years and trade names3 to 18 years).
Impairment of Long-Lived Assets
The Company assesses the recoverability of property and equipment and amortizable intangible assets whenever events and circumstances indicate that the carrying value of the asset may not be recoverable from its future undiscounted cash flows. If it is determined an impairment has occurred, an impairment loss is recognized for the amount by which the carrying amount of the asset exceeds its estimated fair value. No impairments were recorded for the years ended December 31, 2013 and 2012.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of net assets acquired. Goodwill is assessed at least annually for impairment and between annual tests, if events or changes in circumstances indicate potential impairment exists, using a fair value-based approach. Any such impairment is recognized in the period identified. In evaluating goodwill for impairment, the Company identifies goodwill related to each of its reporting units. The Company has determined it operates in two reporting units: wholesale and commercial. For purposes of evaluating goodwill for impairment, assets and liabilities, including goodwill, were allocated to each reporting unit on the basis of relative fair value of each unit. No impairment of goodwill was recorded in the years ended December 31, 2013 and 2012.
Revenue Recognition
Sales are recognized when products are shipped or when title transfers to customers, if later, net of estimated returns and customer discounts.
F-184
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
Supplier Incentives
The Company receives monthly, quarterly and annual performance rebates from suppliers based on attaining certain purchase and/or sales goals. The Company receives other rebates from suppliers which are negotiated with suppliers and are not dependent on the Company meeting minimum purchase and/or sales goals. Suppliers rebates are recognized ratably based on the terms of the contracts or programs with each supplier and are recorded as a reduction of cost of goods sold. Supplier rebates are classified as a reduction of inventory when the incentive is part of a buying arrangement. Receivables from suppliers for rebates and incentives are included in other receivables in the consolidated balance sheet.
Shipping and Handling Costs
The Company includes in cost of goods sold the cost of tire and non-tire inventory sold. Warehousing and distribution costs, including costs associated with delivering product to customers are included in operating expenses. Total warehousing and distribution costs for the years ended December 31, 2013 and 2012 were approximately $39,148,000 and $37,992,000 respectively including approximately $14,619,000 and $14,842,000, respectively, related to shipping and handling.
Advertising Costs
Advertising costs are expensed when incurred as part of operating expenses. The Company receives reimbursements from vendors for advertising costs. Reimbursements for advertising expenditures are reported on a net basis within operating expenses. Reimbursements received in excess of the cost of advertising are reported within cost of goods sold. Net advertising costs were $127,301 and $180,924 for the years ended December 31, 2013 and 2012, respectively.
Stock-Based Compensation
The Company recognizes compensation expense for equity awards provided to employees in return for employee service. The Company issued both time vesting and performance-based stock options to certain employees. Time vesting options are measured at the fair value of the award at the grant date and are expensed on a straight-line basis over the service period. The performance-based options vest in tranches based on the Company meeting annual earnings targets and also contain a service requirement. Compensation expense for performance-based options is recorded over the relevant service period when it becomes probable that the contingent performance measures are expected to be met. Fair value is measured at the grant date and amortized on a graded vesting basis over the requisite service periods of the awards, which is generally the vesting period.
Income Taxes
There is no provision for federal and certain state income taxes in the consolidated financial statements of the Company, as an S-corporation is generally not subject to these taxes. Stockholders are individually subject to the income taxes on the Companys results of operations and, accordingly, the Company pays distributions to the members to the extent needed to fund the stockholders tax obligations. Certain state and local jurisdictions do not recognize the flow-through status of an S-corporation and require minimum income tax expense. Accordingly, the Company has recognized a state and local income tax in the accompanying statement of operations for these jurisdictions.
F-185
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
3. Business Acquisitions
Kramer Tire
On May 13, 2012, the Company acquired substantially all of the assets associated with the wholesale distribution operations of two facilities located in Norfolk and Richmond, Virginia, from Monro Muffler Brake, Inc. The intent of the acquisition was to increase operations in the Mid-Atlantic market and reinforce relationships with Monro Muffler Brake, Inc.
The purchase price was $2,267,338 paid in cash. The purchase was accounted for on the acquisition method and the assets acquired and liabilities assumed have been recorded based on their respective fair values at the acquisition date. Goodwill of $255,285 was recorded for the excess of the purchase price over the fair value of net assets acquired. Transaction costs of $114,000 were expensed in the consolidated statement of operations for the year ended December 31, 2012.
The purchase price was allocated as follows:
Assets |
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Inventories |
$ | 1,433,277 | ||
Intangible assets |
656,088 | |||
Goodwill |
255,285 | |||
Other assets |
12,480 | |||
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Total assets acquired |
2,357,130 | |||
Total liabilities assumed |
(89,792 | ) | ||
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Fair value of net assets acquired |
$ | 2,267,338 | ||
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The estimated fair value of net assets acquired, including the allocation of the fair value to identifiable assets and liabilities, was determined using Level 3 inputs in the fair value hierarchy (see Fair Value Measurements in Note 13). The most significant assumptions include estimated remaining useful life, expected revenue, survivor curve, and earnings before interest and tax margins. These assumptions may vary based on future events, perceptions of different market participants and other factors outside the control of management, and such variations may be significant to estimated values.
4. Property and Equipment
The components of property and equipment at December 31, 2013 and 2012 are as follows:
2013 |
2012 |
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Leasehold improvements |
$ | 1,742,972 | $ | 1,692,834 | ||||
Machinery and equipment |
4,946,917 | 4,003,548 | ||||||
Furniture and fixtures |
1,116,456 | 927,334 | ||||||
Vehicles |
1,096,924 | 776,635 | ||||||
Computer software and equipment |
2,259,960 | 1,845,803 | ||||||
Construction in progress |
1,673,928 | 638,321 | ||||||
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12,837,157 | 9,884,475 | |||||||
Less: Accumulated depreciation and amortization |
(4,619,630 | ) | (2,809,899 | ) | ||||
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Property and equipment, net |
$ | 8,217,527 | $ | 7,074,576 | ||||
|
|
|
|
F-186
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
There is approximately $320,000 and $0 of capital leases at December 31, 2013 and 2012 for vehicles, respectively. Associated accumulated depreciation was approximately $28,000 and $0 at December 31, 2013 and 2012, respectively.
Depreciation and amortization expense was $1,827,312 and $1,377,447 for the years ended December 31, 2013 and 2012.
5. | Intangible Assets |
Intangible assets consisted of the following as of December 31, 2013:
Cost |
Accumulated |
Net |
||||||||||
Customer relationships |
$ | 79,319,088 | $ | (16,690,500 | ) | $ | 62,628,588 | |||||
Trade names |
33,426,000 | (9,118,725 | ) | 24,307,275 | ||||||||
|
|
|
|
|
|
|||||||
$ | 112,745,088 | $ | (25,809,225 | ) | $ | 86,935,863 | ||||||
|
|
|
|
|
|
Intangible assets consisted of the following as of December 31, 2012:
Cost |
Accumulated |
Net |
||||||||||
Customer relationships |
$ | 79,319,088 | $ | (10,059,300 | ) | $ | 69,259,788 | |||||
Tradenames |
33,426,000 | (5,598,057 | ) | 27,827,943 | ||||||||
|
|
|
|
|
|
|||||||
$ | 112,745,088 | $ | (15,657,357 | ) | $ | 97,087,731 | ||||||
|
|
|
|
|
|
Amortization expense was $10,151,868 and $10,132,968 for the years ended December 31, 2013 and 2012, respectively.
The estimated future amortization of intangible assets is as follows:
2014 |
$ | 9,726,041 | ||
2015 |
8,155,763 | |||
2016 |
8,155,763 | |||
2017 |
8,155,763 | |||
2018 |
8,155,763 | |||
Thereafter |
44,586,770 | |||
|
|
|||
$ | 86,935,863 | |||
|
|
6. Goodwill
Activity related to goodwill for the years ended December 31, 2013 and 2012 was as follows:
Balance at December 31, 2011 |
$ | 44,140,645 | ||
Additions to goodwill from acquisitions during 2012 |
255,285 | |||
|
|
|||
Balance at December 31, 2012 and 2013 |
$ | 44,395,930 | ||
|
|
There is no cumulative impairment to goodwill.
F-187
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
7. | Other Noncurrent Assets |
Other noncurrent assets consisted of the following at December 31, 2013 and 2012:
2013 |
2012 |
|||||||
Deferred financing costs |
$ | 1,197,662 | $ | 1,043,137 | ||||
Investment in American Car Care Centers |
| 285,316 | ||||||
Deposits |
291,723 | 319,695 | ||||||
|
|
|
|
|||||
1,489,385 | 1,648,148 | |||||||
Less: Accumulated amortization of deferred financing costs |
(594,596 | ) | (356,161 | ) | ||||
|
|
|
|
|||||
Total other noncurrent assets |
$ | 894,789 | $ | 1,291,987 | ||||
|
|
|
|
Amortization of deferred financing costs was $238,435 and $238,710 for the years ended December 31, 2013 and 2012, respectively.
The estimated future amortization of deferred financing costs is as follows:
2014 |
$ | 223,208 | ||
2015 |
189,707 | |||
2016 |
147,087 | |||
2017 |
43,064 | |||
|
|
|||
$ | 603,066 | |||
|
|
8. Accrued Liabilities
Accrued liabilities consisted of the following at December 31:
2013 |
2012 |
|||||||
Salaries, wages, commissions, bonuses and related payroll taxes |
$ | 2,926,809 | $ | 4,176,527 | ||||
Accrued interest |
3,391,403 | 179,050 | ||||||
Other accrued liabilities |
2,478,601 | 1,471,979 | ||||||
|
|
|
|
|||||
$ | 8,796,813 | $ | 5,827,556 | |||||
|
|
|
|
9. Short-Term Note Payable
During 2013, the company entered into a financing arrangement with a third party to fund commercial insurance prepayments. The amount financed was approximately $1,927,000 at an annual interest rate of 3.12%. Payments are made in equal monthly installments of $177,899 with final payment due on September 1, 2014. The remaining balance of this arrangement at December 31, 2013 is $1,406,762.
F-188
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
10. Long-Term Debt and Capital Lease Obligations
Long-term debt and capital lease obligations consisted of the following at December 31:
2013 |
2012 |
|||||||
Term loan |
$ | 30,468,047 | $ | 38,035,718 | ||||
Revolving loan |
17,000,000 | 3,780,002 | ||||||
Subordinated loan |
39,001,131 | 38,703,833 | ||||||
Seller note |
11,082,428 | 10,632,877 | ||||||
Capital leases |
301,945 | | ||||||
Other debt |
1,090,498 | 316,541 | ||||||
|
|
|
|
|||||
Total |
98,944,049 | 91,468,971 | ||||||
Less: Original issue discount on the subordinated loan |
(459,184 | ) | (599,490 | ) | ||||
|
|
|
|
|||||
Total |
98,484,865 | 90,869,481 | ||||||
Less: Current maturities |
(7,005,747 | ) | (7,676,809 | ) | ||||
|
|
|
|
|||||
Total long-term debt and capital lease obligations |
$ | 91,479,118 | $ | 83,192,672 | ||||
|
|
|
|
Term and Revolving Debt
On November 30, 2011, the Company entered into a credit agreement (the Agreement) consisting of revolving and term debt with a lender group. The Agreement, which was amended on March 29, 2013, is collateralized by substantially all of the Companys assets, but subordinate to certain vendor senior collateral positions.
The revolving commitment, including outstanding letters of credit, is available up to the lesser of $45,000,000 or an agreed-upon percentage of the Companys accounts receivable and inventory and has a maturity date of November 30, 2016. The Company is required to pay commitment fees up to 0.375% per annum on the unused portion of the revolving commitment.
In connection with one of the Companys leased facilities, an outstanding letter of credit is open for $94,444, and expires on December 20, 2014.
The term debt requires monthly principal payments of $535,714 through November 30, 2016. The remaining outstanding principal is due on November 30, 2016. The Agreement also contains provisions which, under certain circumstances, require the Company to make prepayments of the term loan commitment beginning in 2012, based on excess cash flows as defined in the Agreement.
Interest on the revolving loan and term loan is payable monthly based on 30 day LIBOR plus a margin that fluctuates between 2.25% and 3.50% based on the Companys leverage ratio, as defined in the Agreement. At December 31, 2013, the margin was 3.50% with a total rate of 3.67%. At December 31, 2012, the margin was 2.75% with a total rate of 2.96%.
During 2013, the Company was in default of certain covenants under the agreement and entered into Forbearance Agreements dated October 23, 2013 and December 30, 2013 (the Forbearance Agreements). Subsequent to December 31, 2013 the company entered into the Credit Agreement Amendment (see Note 19) and the Forbearance Agreements have terminated. The new Credit Agreement Amendment refinanced and replaced the revolving and term loans on a long-term basis, revised future covenant requirements, and waived all previous covenant violations. Therefore, the outstanding balance of the revolving and term loans were classified as long-term debt as of December 31, 2013, except for the portion due in 2014.
Subordinated Loan
On November 30, 2011, the Company entered into a subordinated credit agreement (the Subordinated Loan) with a lender. The Subordinated Loan, which was amended on March 29, 2013, consists of term debt which
F-189
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
is due in full on November 30, 2017. This term debt was issued at an original issue discount of $765,306. The Company amortizes the original issue discount over the life of the loan commitment using the effective interest method. The Subordinated Loan also contains provisions which, under certain circumstances, require the Company to make prepayments of the loan commitment beginning in 2013, based on excess cash flows as defined in the Subordinated Loan. The Subordinated Loan is unsecured and bears interest at 13.5%, of which at least 12% shall be payable in cash quarterly, through maturity. The remaining 1.5% may be paid in kind and added to the principal balance, at the Companys option. During a portion of fiscal year 2013, the Company was in default of certain provisions under the Subordinated Loan. During the period of default, the Company was charged an incremental default interest rate of 2.00%. Subsequent to December 31, 2013, the Company entered into the Subordinated Credit Amendment (see Note 19) and is no longer in default under that agreement. The Subordinated Loan allows for optional prepayments at redemption prices ranging from 100% to 103%, based on the date of the redemption.
During a portion of fiscal year 2013, interest payments under the Subordinated Loan were accrued and not paid current. These amounts are included in accrued liabilities (see Note 8). The Credit Agreement Amendment allows for the current payments of interest on the subordinated loan and the repayment of accrued interest during fiscal year 2014.
The Agreement and the Subordinated Loan contain certain restrictive financial covenants, which specify minimum net worth requirements, maximum liabilities to earnings before income taxes, interest, depreciation and amortization (EBITDA) ratio and a minimum ratio of EBITDA to debt service cost, among others. The Company is also required to meet certain non-financial covenants, which include restrictions on indebtedness, liens and dividends.
Seller Note
The Company has a credit agreement with a former shareholder of the predecessor Company (the Seller Note) that matures on May 31, 2018. No principal payments are required to be made until the maturity date. The Seller Note bears interest at an annual rate of 13%, of which at least 10% is payable in cash on a quarterly basis, through maturity. The remaining 3% is considered paid-in-kind interest and is added to the principal balance. The Seller Note is subordinate to the Companys other financing arrangements.
During a portion of 2013, interest payments under the Seller Note were accrued and not paid current. These amounts are included in accrued liabilities (see Note 8). The Credit Agreement Amendment allows for the current payments of interest on the Seller Note and the repayment of accrued interest during fiscal year 2014.
Other Debt
The Companys other debt obligations primarily consist of vendor financing for ERP software. The obligation bears interest at an annual rate of 2% and equal quarterly payments are due until November 2015. At December 31, 2013, the outstanding balance for this obligation was approximately $1,075,000.
Aggregate annual maturities of long-term debt and capital lease obligations are as follows:
2014 |
$ | 7,005,747 | ||
2015 |
7,013,210 | |||
2016 |
34,654,724 | |||
2017 |
39,051,558 | |||
2018 |
11,140,548 | |||
Thereafter |
78,262 | |||
|
|
|||
$ | 98,944,049 | |||
|
|
F-190
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
11. Commitments and Contingencies
Leases
The Company leases certain warehouse facilities, office facilities and vehicles under both capital and operating leases expiring at various dates through November 2020. The leases require the Company to pay taxes, maintenance, insurance and certain other operating expenses applicable to the leased facilities. The terms of certain warehouse and office facility leases call for minimum rents to increase each year. Accordingly, the Company has accounted for the rent expense under the straight-line method.
At December 31, 2013, future minimum lease payments for all leases and the present value of the net minimum lease payments for capital leases were as follows:
Operating Leases |
Capital Leases |
|||||||||||
Total |
Related |
Total |
||||||||||
2014 |
$ | 8,135,719 | $ | 2,113,788 | $ | 73,259 | ||||||
2015 |
6,387,041 | 2,002,124 | 73,259 | |||||||||
2016 |
4,289,523 | 773,820 | 73,259 | |||||||||
2017 |
3,960,236 | 773,820 | 73,259 | |||||||||
2018 |
4,083,657 | 773,820 | 73,259 | |||||||||
Thereafter |
8,678,393 | 1,483,155 | 85,051 | |||||||||
|
|
|
|
|
|
|||||||
Total minimum lease payments |
$ | 35,534,569 | $ | 7,920,527 | 451,346 | |||||||
|
|
|
|
|||||||||
Less: Amounts representing interest |
149,401 | |||||||||||
|
|
|||||||||||
Present value of net minimum lease payments |
301,945 | |||||||||||
Less: Current maturities |
33,205 | |||||||||||
|
|
|||||||||||
Long-term obligations under capital leases |
$ | 268,740 | ||||||||||
|
|
Total rent expense charged to operations, including $2,234,788 and $2,245,788 to related parties, was $10,746,232 and $9,857,191 for the years ended December 31, 2013 and 2012, respectively.
Legal
Contingent liabilities arise in the ordinary course of the Companys activities. Various legal actions, proceedings and claims may be instituted or asserted in the future against the Company. Litigation is subject to many uncertainties and it is possible that some of the legal proceedings and claims could be decided unfavorably to the Company. Based on information presently known, management does not believe any claims will have a material impact on the Companys financial position or results of operation.
Vendor Liens
The Company has agreements with certain inventory suppliers whereby the Companys accounts payable to these suppliers ($64,083,743 and $85,713,000 at December 31, 2013 and 2012, respectively) is collateralized by the Companys inventory and accounts receivable. Their rights are senior to those of the debt holders (see Note 10).
Other
The Company has an unconditional obligation with a supplier for software maintenance services of approximately $416,000 in both 2014 and 2015.
F-191
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
12. Derivative Instruments
The Company has two separate interest rate swap agreements with a lender for the purpose of reducing certain exposures to interest rate fluctuations on the variable rate term debt. The notional amount of each of the swaps is $25,000,000. In accordance with the swap agreements, the Company pays a fixed rate of interest of 2.10% and 2.12% plus the applicable spread, and receives a floating rate of the lenders LIBOR rate plus the applicable spread. One of the swap agreements expires in November 2015 and the other swap agreement expires in January 2016.
At December 31, 2013 and 2012, the fair value of the interest rate swaps was $(779,412) and $(1,341,780). The resulting change in fair value was included as a decrease in interest expense, net and was $562,368 and $224,525 for the years ended December 31, 2013 and 2012, respectively.
13. Fair Value Measurements
The Company measures or monitors certain assets and liabilities on a fair value basis. Fair value is used on a recurring basis for assets and liabilities in which fair value is the primary basis of accounting, mainly derivative instruments. 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. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principle or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability. The Company applies the fair value hierarchy, and when possible looks to active and observable markets to price identical assets and liabilities. If identical assets and liabilities are not traded in active markets, the Company looks to market observable data for similar assets and liabilities. The fair value hierarchy prioritizes the inputs used in measuring fair value into three broad levels as follows:
Level 1 |
Quoted prices in active markets for identical assets or liabilities. | |
Level 2 |
Inputs, other than quoted prices in active markets, that are observable either directly or indirectly. | |
Level 3 |
Unobservable inputs based on the Companys own assumptions. |
The following table summarizes the estimated fair value of the Companys financial instruments as of December 31, 2013:
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
Liabilities |
||||||||||||||||
Derivative instruments |
$ | | $ | 779,412 | $ | | $ | 779,412 | ||||||||
Long-term debt |
| | 98,484,865 | 98,484,865 |
The following table summarizes the estimated fair value of the Companys financial instruments as of December 31, 2012:
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
Liabilities |
||||||||||||||||
Derivative instruments |
$ | | $ | 1,341,780 | $ | | $ | 1,341,780 | ||||||||
Long-term debt |
| | 90,869,481 | 90,869,481 |
F-192
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
The fair value of the Companys interest rate swaps are estimated using discounted cash flows that use market observable inputs of forward interest rate yield curves and a Company-specific risk adjusted discount rate. The fair value of long-term debt reflects the present value of future cash outflows relating to the obligation based on estimated credit market interest premiums and expected future interest rates.
The carrying amounts reported on the consolidated balance sheet for cash, accounts receivable, other receivables, accounts payable and accrued liabilities approximate their fair value due to the short maturity of those instruments.
14. Stockholders Equity
Common shares are entitled to one vote per share on all matters upon which stockholders have the right to vote under law or the Companys Amended and Restated Stockholders Agreement (the Stockholders Agreement), which was amended on November 30, 2011.
On August 13, 2013, the stockholders of the Company entered into a Subscription Agreement (the Subscription) to acquire $20,000,000 of voting common stock at a price of $1,000 per share (a total of 20,000 shares), based on their pro-rata ownership position in the Company. On October 17, 2013, the stockholders purchased 5,000 shares under the Subscription in the amount of $5,000,000. As of December 31, 2013, there are 15,000 remaining shares available for purchase.
The Stockholders Agreement also provides for annual tax distributions on the taxable income allocated to each stockholder.
The Company is authorized to issue 15,000 non-voting shares, none of which are outstanding at December 31, 2013 or 2012.
15. Mezzanine Equity
Two stockholders have the right to require the Company to purchase up to approximately half of their respective common shares at a future date (the Put Options). The Put Options are exercisable at the option of the holder for a 90 day window beginning on November 23, 2015 and November 23, 2018 for one of the stockholders and November 30, 2016 and November 30, 2019 for the second stockholder. If the Put Options are exercised, the Company would purchase the put common shares at a price equal to the fair market value of the shares at the put option exercise date. As the Put Options are a redemption right which is outside the Companys control, under Regulation S-X, the Company should have classified this redeemable common stock in the mezzanine equity section in the accompanying Balance Sheets at its redemption value, which is equal to fair value, and recorded changes in fair value to Additional paid-in capital since the Company has an accumulated deficit. The financial statements previously presented the redeemable common stock within Stockholders Equity. The 2013 and 2012 Balance Sheets and Statement of Stockholders Equity have been revised to correct the misstatement in presentation of the redeemable common stock as Mezzanine Equity. The impact of this revision is as follows and was not material to the current or prior year financial statements.
Total stockholders equity at December 31, 2013, 2012 and 2011 was reduced by $8,875,516, $14,212,482, and $11,406,620, respectively primarily reflecting a reduction in Additional paid-in capital, and Mezzanine Equity was increased at December 31, 2013, 2012, and 2011 by the same amounts. There was no effect on the statements of operations or cash flows for the years ended December 31, 2013 or 2012. The fair value of the common shares subject to the put options was calculated using a discounted cash flow model. The discounted cash flow valuation method uses assumptions, the most significant of which include: future revenue growth, future earnings before interest, taxes, depreciation and amortization, marginal tax rate, terminal value growth rate, weighted average cost of capital and discount rate.
F-193
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
16. Stock Based Compensation
The Company has 8,000 nonvoting common shares authorized for issuance under TTT Holdings Equity Incentive Plan (Equity Incentive Plan). As of December 31, 2013, the Equity Incentive Plan had 3,661 nonvoting common shares available for granting. The Equity Incentive Plan permits the grant of a variety of stock and stock-based awards, including restricted stock or stock options, as determined by the Companys Board of Directors. To date, the Company has stock options which expire no later than ten years from the date of grant and will become exercisable as directed by the Board of Directors. The time vesting stock options generally vest in equal annual installments over a three-year period, while the performance based stock options vest in tranches based on the Company meeting annual earnings targets and also contain a service requirement.
Stock-based compensation expense was $538,010 and $418,006 during the years ended December 31, 2013 and 2012, respectively, which was recorded in operating expenses in the statement of operations. Of the total stock-based compensation expense recognized, $0 was related to performance-based options during both years ending December 31, 2013 and 2012, respectively. Stock-based compensation expense is based on the grant-date fair value. The fair value of stock option grants is estimated using the Black-Scholes option pricing model. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. Expected volatility was calculated based on the historical volatility of comparable public companies for a period equal to the expected term. The risk-free interest rate is based on U.S. Treasury interest rates with a remaining term which approximates the expected life of the options assumed at the date of grant.
The weighted average assumptions used in the Black-Scholes option pricing model for options granted during 2013 are as follows:
Expected volatility |
46.81 | % | ||
Expected term (years) |
6.35 | |||
Risk free interest rate |
3.03 | % | ||
Expected dividend yield |
0.00 | % |
The weighted average grant date fair value of options is as follows:
Shares |
Weighted |
|||||||
Nonvested at December 31, 2011 |
3,301 | $ | 473 | |||||
Granted |
1,600 | 486 | ||||||
Vested |
(791 | ) | 458 | |||||
Forfeited |
(792 | ) | 467 | |||||
|
|
|||||||
Nonvested at December 31, 2012 |
3,318 | 482 | ||||||
Granted |
1,032 | 762 | ||||||
Vested |
(960 | ) | 612 | |||||
Forfeited |
(1,885 | ) | 515 | |||||
|
|
|||||||
Nonvested at December 31, 2013 |
1,505 | 808 | ||||||
|
|
F-194
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
A summary of option activity and changes during the periods is presented below:
Shares |
Weighted |
Weighted |
||||||||||
Outstanding at December 31, 2011 |
4,751 | $ | 1,031 | 9.00 | ||||||||
Granted |
1,600 | 2,000 | ||||||||||
Exercised |
| | ||||||||||
Forfeited |
(792 | ) | 1,030 | |||||||||
|
|
|||||||||||
Outstanding at December 31, 2012 |
5,559 | 1,166 | 8.36 | |||||||||
Granted |
1,032 | 1,500 | ||||||||||
Exercised |
| | ||||||||||
Forfeited |
(1,885 | ) | 1,163 | |||||||||
Cancelled/Expired |
(367 | ) | 1,068 | |||||||||
|
|
|||||||||||
Outstanding at December 31, 2013 |
4,339 | 1,255 | 7.61 | |||||||||
|
|
|||||||||||
Vested and unvested expected to vest at December 31, 2013 |
3,649 | 1,157 | 7.41 | |||||||||
Exercisable at December 31, 2013 |
2,835 | 1,021 | 7.06 |
There was $1,180,904 and $1,599,276 of total unrecognized compensation cost related to unvested stock options granted at December 31, 2013 and 2012, respectively. The cost is expected to be recognized through 2016. During 2013, the company settled outstanding vested stock options by paying fair value less exercise price of $150,000. These shares are included in cancelled/expired categories in the tables above.
17. Employee Benefit Plan
The Company maintains a 401(k) savings plan covering substantially all full-time employees. The Company matches 25% of each participating employees elective deferral amount. The Companys expense related to this matching contribution totaled approximately $223,576 and $247,229 for the years ended December 31, 2013 and 2012, respectively. In addition, the Company has the option of making an annual discretionary profit-sharing contribution. No profit-sharing contribution was declared for the years ended December 31, 2013 and 2012.
18. Related Party Transactions
In accordance with a management services agreement dated November 23, 2010, the Company pays $600,000 annually to Robert D. Walter Company, an affiliate of the Company, for corporate support functions. On August 26, 2013, the agreement was amended to bear interest at 13% for unpaid balances. Management fee expense totaled $600,000 for the years ended December 31, 2013 and 2012, and is included in operating expenses in the consolidated statement of operations. During a portion of 2013, management fees under the management services agreement were accrued and not paid current. These amounts are included in accrued liabilities (see Note 8) and amounted to $154,928 and $0 as of December 31, 2013 and 2012, respectively. The Credit Agreement Amendment (see Note 19) allows for the current payment of these management fees during fiscal year 2014.
The Company has various building leases with two separate related parties. The terms of these lease agreement range from four to ten years from the rent commencement dates with varying renewal options.
F-195
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2013 and 2012
19. Subsequent Events
On January 28, 2014 the Company amended the term and revolving debt credit agreement (the Credit Agreement Amendment). The major amended terms of the Credit Agreement Amendment are as follows:
| A revolving credit commitment including outstanding letters of credit up to the lesser of $60,000,000 or an agreed-upon percentage of the Companys accounts receivable and inventory. A portion of the revolving credit facility was used to repay in full the Companys term loan. |
| The maturity date is June 30, 2015. |
| Interest is payable monthly based on the 30 day LIBOR plus a margin that fluctuates between 2.50% and 3.50% based on the Companys leverage ratio, as defined in the Credit Agreement Amendment. |
| A commitment fee of 0.25% per annum on the unused portion of the revolving commitment. |
| Certain financial covenants are provided for, including a maximum senior funded debt to EBITDA ratio, and a minimum ratio of EBITDA to debt service costs and other fixed charges. |
In connection with entering into the Credit Agreement Amendment, existing shareholders of the Company invested $12,500,000 of equity into the Company (see Note 14).
In connection with entering into the Credit Agreement Amendment, the Company also amended the subordinated loan credit agreement (the Subordinated Credit Amendment). The Subordinated Credit Amendment was amended to provide for financial covenants and other terms consistent with the Credit Agreement Amendment. In connection with entering into the Subordinated Credit Amendment, existing shareholders provided subordinated loans to the Company in the net amount of $7,500,000. These loans bear interest for the first 18 months at 14.5%, all of which is paid-in-kind and added to the principal balance. Thereafter, these loans bear interest at 13.5%, of which 12.0% is payable in cash quarterly and the remaining 1.5% will be paid-in-kind and added to the principal balance. These loans are due November 30, 2017.
On February 17, 2014, American Tire Distributors, Inc. entered into a Stock Purchase Agreement with the Company. The consummation of the Acquisition, which is subject to customary closing conditions is expected to occur by the end of first quarter or early in the second quarter of 2014. The Stock Purchase Agreement provides for the payment of aggregate cash consideration of $345,000,000 subject to certain customary pre-closing requirements, plus up to $20,000,000 in additional consideration contingent upon the occurrence of certain post-closing events. The closing purchase price is subject to certain post-closing adjustments, including, but not limited to, working capital adjustments.
The Company has considered subsequent events through February 28, 2014, the date on which the consolidated financial statements were available to be issued.
F-196
TTT Holdings, Inc. and Subsidiaries
December 31, 2012 and 2011
Page(s) |
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F-198 | ||||
Consolidated Financial Statements |
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F-199 | ||||
F-200 | ||||
F-201 | ||||
F-202 | ||||
F-203 F-218 |
F-197
To the Board of Directors of
TTT Holdings, Inc. and Subsidiaries
We have audited the accompanying consolidated financial statements of TTT Holdings, Inc. and its subsidiaries, which comprise the consolidated balance sheets as of December 31, 2012 and 2011, and the related consolidated statements of operations, of stockholders equity and mezzanine equity and of cash flows for the years then ended.
Managements Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Companys preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of TTT Holdings, Inc. and its subsidiaries at December 31, 2012 and 2011, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
/s/ PricewaterhouseCoopers, LLP
Columbus, Ohio
April 30, 2013, except for Note 14, as to which the date is June 16, 2014
F-198
TTT Holdings, Inc. and Subsidiaries
Balance Sheets
December 31, 2012 and 2011
2012 |
2011 |
|||||||
Assets |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 2,704,505 | $ | 7,535,815 | ||||
Accounts receivable |
65,949,428 | 67,580,592 | ||||||
Other receivables |
19,021,928 | 18,752,064 | ||||||
Inventories |
105,494,221 | 97,122,446 | ||||||
Prepaid expenses and other |
2,355,902 | 5,360,165 | ||||||
|
|
|
|
|||||
Total current assets |
195,525,984 | 196,351,082 | ||||||
Notes receivable, net of allowance for doubtful accounts of $269,420 and $273,750, respectively |
130,795 | 224,490 | ||||||
Property and equipment, net |
7,074,576 | 5,209,083 | ||||||
Intangible assets, net |
97,087,731 | 106,564,611 | ||||||
Goodwill |
44,395,930 | 44,140,645 | ||||||
Other noncurrent assets |
1,291,987 | 1,341,741 | ||||||
|
|
|
|
|||||
Total assets |
$ | 345,507,003 | $ | 353,831,652 | ||||
|
|
|
|
|||||
Liabilities and Stockholders Equity |
||||||||
Current liabilities |
||||||||
Account payable |
$ | 159,766,404 | $ | 152,797,085 | ||||
Accrued liabilities |
5,827,556 | 5,201,654 | ||||||
Fair value of interest rate swap |
1,341,780 | 1,566,305 | ||||||
Current maturities of long-term debt |
7,676,809 | 6,765,533 | ||||||
|
|
|
|
|||||
Total current liabilities |
174,612,549 | 166,330,577 | ||||||
Long-term debt |
83,192,672 | 96,868,863 | ||||||
|
|
|
|
|||||
Total liabilities |
257,805,221 | 263,199,440 | ||||||
|
|
|
|
|||||
Commitments and contingencies |
||||||||
Mezzanine equity |
||||||||
Redeemable common stock; $.001 par value: 8,326 shares issued and outstanding |
14,212,482 | 11,406,620 | ||||||
Stockholders equity |
||||||||
Common stock, $.001 par value per share; 150,000 voting and 15,000 nonvoting shares authorized, 71,569 voting shares issued and outstanding |
72 | 72 | ||||||
Additional paid-in capital |
74,651,789 | 79,591,310 | ||||||
Note receivable from stockholder |
(775,166 | ) | (763,199 | ) | ||||
Accumulated earnings |
(387,345 | ) | | |||||
Noncontrolling interest |
| 397,409 | ||||||
|
|
|
|
|||||
Total stockholders equity |
73,489,300 | 79,225,592 | ||||||
|
|
|
|
|||||
Total liabilities and stockholders equity |
$ | 345,507,003 | $ | 353,831,652 | ||||
|
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|
|
The accompanying notes are an integral part of these consolidated financial statements
F-199
TTT Holdings, Inc. and Subsidiaries
Statement of Operations
Years Ended December 31, 2012 and 2011
2012 |
2011 |
|||||||
Net sales |
$ | 570,042,650 | $ | 356,292,982 | ||||
Cost of goods sold |
481,747,063 | 301,404,493 | ||||||
|
|
|
|
|||||
Gross profit |
88,295,587 | 54,888,489 | ||||||
Operating expenses |
79,195,149 | 46,868,511 | ||||||
|
|
|
|
|||||
Operating income |
9,100,438 | 8,019,978 | ||||||
Interest expense, net |
9,202,654 | 4,882,576 | ||||||
|
|
|
|
|||||
Income (loss) before income taxes |
(102,216 | ) | 3,137,402 | |||||
Income tax expense |
182,357 | 141,469 | ||||||
|
|
|
|
|||||
Net income (loss) from continuing operations |
(284,573 | ) | 2,995,933 | |||||
Income from discontinued operations |
| 1,899,118 | ||||||
|
|
|
|
|||||
Net income (loss) |
(284,573 | ) | 4,895,051 | |||||
Net income attributable to the noncontrolling interest |
102,822 | 294,925 | ||||||
|
|
|
|
|||||
Net income (loss) attributable to TTT Holdings, Inc. stockholders |
$ | (387,395 | ) | $ | 4,600,126 | |||
|
|
|
|
|||||
Amounts attributable to TTT Holdings, Inc. stockholders |
||||||||
Income (loss) from continuing operations |
$ | (387,395 | ) | $ | 2,701,008 | |||
Income from discontinued operations |
| 1,899,118 | ||||||
|
|
|
|
|||||
Net income (loss) |
$ | (387,395 | ) | $ | 4,600,126 | |||
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements
F-200
TTT Holdings, Inc. and Subsidiaries
Statement of Stockholders Equity and Mezzanine Equity
Years Ended December 31, 2012 and 2011
TTT Holdings, Inc. Stockholders Equity |
Mezzanine Equity |
|||||||||||||||||||||||||||||||||||
Common Stock |
Additional Capital |
Note Stockholder |
Accumulated Earnings |
Noncontrolling Interest |
Total |
Redeemable Common |
||||||||||||||||||||||||||||||
Shares |
Amount |
Shares |
Amount |
|||||||||||||||||||||||||||||||||
Balances at December 31, 2010 |
50,589 | $ | 51 | $ | 50,590,224 | $ | (750,000 | ) | $ | (1,686,092 | ) | $ | 102,484 | $ | 48,256,667 | 5,590 | $ | 5,589,500 | ||||||||||||||||||
Net income |
| | | | 4,600,126 | 294,925 | 4,895,051 | |||||||||||||||||||||||||||||
Interest earned on note receivable from stockholder |
| | | (13,199 | ) | | | (13,199 | ) | |||||||||||||||||||||||||||
Stock based compensation |
| | 703,712 | | | | 703,712 | |||||||||||||||||||||||||||||
Dividends |
| | | | (1,299,909 | ) | | (1,299,909 | ) | |||||||||||||||||||||||||||
Issuance of redeemable common stock |
| | | | | | | 2,736 | 3,749,005 | |||||||||||||||||||||||||||
Adjustments to redeemable common stock fair value measurement |
(453,990 | ) | (1,614,125 | ) | (2,068,115 | ) | | 2,068,115 | ||||||||||||||||||||||||||||
Issuance of common stock |
20,980 | 21 | 28,751,364 | | | | 28,751,385 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Balances at December 31, 2011 |
71,569 | 72 | 79,591,310 | (763,199 | ) | | 397,409 | 79,225,592 | 8,326 | 11,406,620 | ||||||||||||||||||||||||||
Net income (loss) |
| | | | (387,395 | ) | 102,822 | (284,573 | ) | |||||||||||||||||||||||||||
Interest earned on note receivable from stockholder |
| | | (11,967 | ) | | | (11,967 | ) | |||||||||||||||||||||||||||
Stock based compensation |
| | 418,006 | | | | 418,006 | |||||||||||||||||||||||||||||
Dividends |
| | (2,551,665 | ) | | | (500,231 | ) | (3,051,896 | ) | ||||||||||||||||||||||||||
Adjustments to Redeemable Common Stock fair value measurement |
| | (2,805,862 | ) | | | | (2,805,862 | ) | | 2,805,862 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Balances at December 31, 2012 |
71,569 | $ | 72 | $ | 74,651,789 | $ | (775,166 | ) | $ | (387,395 | ) | $ | | $ | 73,489,300 | 8,326 | $ | 14,212,482 | ||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements
F-201
TTT Holdings, Inc. and Subsidiaries
Statement of Cash Flows
Years Ended December 31, 2012 and 2011
2012 |
2011 |
|||||||
Cash flows from operating activities |
||||||||
Net income (loss) |
$ | (284,573 | ) | $ | 4,895,051 | |||
Adjustments to reconcile net income to net cash used in operating activities |
||||||||
Depreciation and amortization |
11,510,415 | 6,698,251 | ||||||
Noncash stock compensation |
418,006 | 703,712 | ||||||
Amortization of deferred financing costs |
238,710 | 117,451 | ||||||
Amortization of discount on subordinated loan |
165,816 | | ||||||
Amortization of deferred rent expense |
611,078 | | ||||||
Unrealized (gain) loss on interest rate swap |
(224,525 | ) | 825,076 | |||||
Interest paid-in-kind |
739,349 | 332,055 | ||||||
Interest earned on note receivable from stockholder |
(11,967 | ) | (13,199 | ) | ||||
Gain on sale of business |
| (1,827,692 | ) | |||||
Changes in assets and liabilities, net of acquisitions |
||||||||
Accounts receivable |
1,631,166 | (7,928,310 | ) | |||||
Inventories |
(6,938,498 | ) | (33,658,656 | ) | ||||
Other receivables |
(269,864 | ) | (6,784,516 | ) | ||||
Notes receivable |
93,695 | 97,664 | ||||||
Prepaid expenses and other assets |
(1,247,222 | ) | (663,376 | ) | ||||
Accounts payable |
6,937,441 | 30,903,075 | ||||||
Accrued liabilities |
(81,165 | ) | 1,515,317 | |||||
|
|
|
|
|||||
Net cash provided by (used in) operating activities |
13,287,862 | (4,788,097 | ) | |||||
|
|
|
|
|||||
Cash flows from investing activities |
||||||||
Purchase of property and equipment |
(3,204,868 | ) | (2,414,669 | ) | ||||
Proceeds from sale of business |
| 4,840,861 | ||||||
Proceeds from (payment of) settlement from prior acquisition |
4,075,010 | (2,304,181 | ) | |||||
Acquisition of business, net of cash acquired |
(2,267,338 | ) | (91,872,539 | ) | ||||
|
|
|
|
|||||
Net cash used in investing activities |
(1,397,196 | ) | (91,750,528 | ) | ||||
|
|
|
|
|||||
Cash flows from financing activities |
||||||||
Proceeds from issuance of common stock |
| 25,000,390 | ||||||
Payment of financing costs |
| (771,261 | ) | |||||
Distributions to stockholders |
(3,051,896 | ) | (1,299,909 | ) | ||||
Borrowings from line of credit |
234,276,642 | 140,328,380 | ||||||
Repayments on line of credit |
(241,497,733 | ) | (129,327,287 | ) | ||||
Proceeds from long-term debt |
| 61,369,868 | ||||||
Payments on long-term debt |
(6,448,989 | ) | (4,299,375 | ) | ||||
|
|
|
|
|||||
Net cash (used in) provided by financing activities |
(16,721,976 | ) | 91,000,806 | |||||
|
|
|
|
|||||
Net decrease in cash and cash equivalents |
(4,831,310 | ) | (5,537,819 | ) | ||||
Cash and cash equivalents at beginning of year |
7,535,815 | 13,073,634 | ||||||
|
|
|
|
|||||
Cash and cash equivalents at end of year |
$ | 2,704,505 | $ | 7,535,815 | ||||
|
|
|
|
|||||
Supplemental disclosure of cash flow information |
||||||||
Cash paid for interest |
$ | 8,316,273 | $ | 3,761,923 | ||||
Noncash investing and financing activities |
||||||||
Issuance of common shares in conjunction with business acquisition |
$ | | $ | 7,500,000 | ||||
Adjustment to purchase price for business acquisition |
$ | | $ | 4,075,010 |
The accompanying notes are an integral part of these consolidated financial statements
F-202
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
1. Description of Business
TTT Holdings, Inc. (Holdings) is incorporated in Delaware as an S-Corporation. Terrys Tire Town Holdings, Inc. (TTT), its wholly owned subsidiary, is incorporated in Ohio as an S-corporation. Through its operating subsidiaries, TTTs primary operations are as a wholesale distributor of tires and accessories throughout the eastern half of the United States. During 2011, TTT formed Summit Tire Northeast, LLC (Summit) to acquire the assets of Summit Tire of Massachusetts, Inc., a wholesale tire distributor with operations focused in the New England area and TTT directly acquired the stock of Englewood Tire Wholesale, Inc. (Englewood), a wholesale tire distributor with operations focused primarily in the Greater New York, New Jersey and Connecticut area (See Note 3). TTT sold its retail division during 2011 to another automotive retail company (See Note 17). Holdings has no significant assets or operations other than its ownership of TTT. The operations of TTT constitutes the operations of Holdings.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Holdings, TTT and each of TTTs wholly owned subsidiaries and entities controlled by TTT but not wholly-owned (collectively the Company). All significant intercompany balances and transactions have been eliminated in consolidation.
Noncontrolling interests represent the portion of equity the Company does not own in the controlled entities included in the financial statements. The Company identifies its noncontrolling interests separately within the equity section on the consolidated balance sheet. The amounts of consolidated net earnings attributable to the Company and to the noncontrolling interests are presented separately on the Companys consolidated statement of operations.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The most significant estimates include the Companys valuation of doubtful accounts receivable, valuation of inventory reserves, valuation of goodwill, share-based compensation, the fair value of derivative instruments, the fair value of purchased assets and liabilities, including intangible assets and related useful lives assigned to such assets. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid financial instruments purchased with an original maturity of three months or less which are not subject to withdrawal restrictions or penalties to be cash and cash equivalents. Such investments are carried at their cost, which approximates their estimated fair market value.
Concentration of Credit Risk
Financial instruments that potentially expose the Company to concentration of credit risk consist primarily of cash and cash equivalents. The majority of cash and cash equivalents at December 31, 2012 and 2011 were deposited with large banking institutions. The Company maintains cash deposits in banks which, from time to time, exceed the amount of deposit insurance available. Management periodically assesses the financial condition of the institutions and believes that any potential credit loss is minimal.
F-203
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
Accounts Receivable
Trade receivables represent amounts due from product sales in the ordinary course of business. Accounts receivable are recorded at the invoiced amount and do not bear interest. Credit is extended based on an evaluation of customers financial condition, and trade receivables are generally not collateralized.
Allowance for Doubtful Accounts
The allowance for doubtful accounts is the Companys best estimate of the amount of probable losses for uncollected receivables. The Company determines the allowance based on customer risk, the length of time accounts are past due, and historical write-off experience. Account balances are charged to the allowance when it is probable the receivable will not be recovered. The total adjustment to reduce accounts receivable to the recoverable amount was $2,885,703 and $3,496,273 at December 31, 2012 and 2011, respectively.
Inventories
Inventories consist of products held for resale and are valued at the lower of cost or market, with cost determined by the last-in, first-out method (LIFO) for tire inventory and at moving average cost for non-tire inventory. The LIFO reserve was $4,576,974 and $3,315,201 at December 31, 2012 and 2011, respectively. The composition of inventory valued at LIFO and FIFO is as follows:
2012 |
2011 |
|||||||
Inventory at LIFO (primarily tire inventory) |
$ | 101,192,482 | $ | 93,413,218 | ||||
Inventory at FIFO (primarily non-tire inventory) |
4,301,739 | 3,709,228 | ||||||
|
|
|
|
|||||
$ | 105,494,221 | $ | 97,122,446 | |||||
|
|
|
|
The above balances are presented net for slow-moving and obsolete inventory of $1,101,894 and $887,022 at December 31, 2012 and 2011, respectively.
Derivative Instruments
The Companys interest rate risk management strategy uses derivative instruments to minimize cash flow risks caused by interest rate volatility associated with the Companys variable rate debt. At December 31, 2012 and 2011, the derivative instruments used to meet the Companys risk management objectives were interest rate swaps. The Company chose not to apply hedge accounting for its interest rate swap agreements. Accordingly, the interest rate swaps are carried at their fair value on the consolidated balance sheet, with changes in their fair value recognized in current earnings (See Note 11).
Deferred Financing Costs
Deferred financing costs are included in other noncurrent assets and represent the direct costs of establishing the Companys term and revolving debt. Deferred financing costs are amortized to interest expense over the term of the related debt using the effective interest method for term commitments and the straight-line method for revolving commitments.
Property and Equipment
Property and equipment are stated at cost. Expenditures for maintenance, repairs and minor renewals are charged to expense as incurred. Major renewals and improvements are capitalized. The cost and accumulated
F-204
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
depreciation of disposed assets are eliminated from the accounts and resulting gain or loss is reflected in earnings. Leasehold improvements are amortized over the shorter of the lease term or useful life of the asset. Depreciation and amortization is computed using the straight-line method over the following estimated useful lives:
Leasehold improvements |
5 25 years | |
Machinery and equipment |
7 years | |
Furniture and fixtures |
5 years | |
Vehicles |
5 years | |
Computer software and equipment |
3 years |
Intangible Assets
Intangible assets consist of customer relationships and trade names. The intangible assets were determined to have finite lives. Amortization of finite-lived intangible assets is recorded to reflect the pattern of economic benefits based on projected revenues over their respective estimated useful lives. Intangible assets are amortized by the straight-line method over the estimated useful lives (customer relationships11 to 13 years and trade names3 to 18 years).
Impairment of Long-Lived Assets
The Company assesses the recoverability of property and equipment and amortizable intangible assets whenever events and circumstances indicate that the carrying value of the asset may not be recoverable from its future undiscounted cash flows. If it is determined an impairment has occurred, an impairment loss is recognized for the amount by which the carrying amount of the asset exceeds its estimated fair value. No impairments were recorded for the year ended December 31, 2012 and 2011.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of net assets acquired. Goodwill is assessed at least annually for impairment and between annual tests, if events or changes in circumstances indicate potential impairment exists, using a fair value-based approach. Any such impairment is recognized in the period identified. In evaluating goodwill for impairment, the Company identifies goodwill related to each of its reporting units. The Company has determined it operates in two reporting units: wholesale and commercial. For purposes of evaluating goodwill for impairment, assets and liabilities, including goodwill, were allocated to each reporting unit on the basis of relative fair value of each unit. No impairment of goodwill was recorded in the years ended December 31, 2012 and 2011.
Revenue Recognition
Sales are recognized when products are shipped or when title transfers to customers, if later, net of estimated returns and customer discounts.
Supplier Incentives
The Company receives monthly, quarterly and annual performance rebates from suppliers based on attaining certain purchase and/or sales goals. The Company receives other rebates from suppliers which are negotiated with suppliers and are not dependent on the Company meeting minimum purchase and/or sales goals. Suppliers rebates are recognized ratably based on the terms of the contracts or programs with each supplier and
F-205
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
are recorded as a reduction of cost of goods sold. Supplier rebates are classified as a reduction of inventory when the incentive is part of buying arrangement. Receivables from suppliers for rebates and incentives are included in other receivables in the consolidated balance sheet.
Shipping and Handling Costs
The Company includes in cost of goods sold the cost of tire and non-tire inventory sold. Warehousing and distribution costs, including costs associated with delivering product to customers are included in operating expenses. Total warehousing and distribution costs for the years ended December 31, 2012 and 2011 were approximately $37,992,000 and $18,170,000, respectively including approximately $14,842,000 and $8,298,000, respectively, related to shipping and handling.
Advertising Costs
Advertising costs are expensed when incurred as part of operating expenses. The Company receives reimbursements from vendors for advertising costs. Reimbursements for advertising expenditures are reported on a net basis within operating expenses. Reimbursements received in excess of the cost of advertising are reported within cost of goods sold. Net advertising costs were $180,924 and $243,436 for the years ended December 31, 2012 and 2011, respectively.
Stock-Based Compensation
The Company recognizes compensation expense for equity awards provided to employees in return for employee service. The Company issued both time vesting and performance-based stock options to certain employees. Time vesting options are measured at the fair value of the award at the grant date and are expensed on a straight-line basis over the service period. The performance-based options vest in tranches based on the Company meeting annual earnings targets and also contain a service requirement. Compensation expense for performance-based options is recorded over the relevant service period when it becomes probable that the contingent performance measures are expected to be met. Fair value is measured at the grant date and amortized on a graded vesting basis over the requisite service periods of the awards, which is generally the vesting period.
Income Taxes
There is no provision for federal and certain state income taxes in the consolidated financial statements of the Company, as an S-corporation is generally not subject to these taxes. Stockholders are individually subject to the income taxes on the Companys results of operations and, accordingly, the Company pays distributions to the members to the extent needed to fund the stockholders tax obligations. Certain state and local jurisdictions do not recognize the flow-through status of an S-corporation and require minimum income tax expense. Accordingly, the Company has recognized a state and local income tax in the accompanying statement of operations for these jurisdictions.
3. Business Acquisitions
Summit Tire Northeast, LLC
On February 28, 2011, the Company, through its newly formed subsidiary Summit Tire Northeast, LLC, acquired substantially all of the assets of Summit Tire of Massachusetts, Inc. Summit is in the business of wholesale distribution of tires and tire accessories throughout the New England area. The intent of the acquisition was to expand into a new geographic market consistent with the Companys long-term growth strategy.
F-206
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
The purchase price was $16,202,421 paid in cash. The purchase was accounted for on the acquisition method and the assets acquired and liabilities assumed have been recorded based on their respective fair values at the acquisition date. Goodwill of $2,984,208 was recorded for the excess of the purchase price over the fair value of net assets acquired. Transaction costs of $279,317 were expensed in the consolidated statement of operations for the year ended December 31, 2011.
The purchase price was allocated as follows:
Assets |
||||
Accounts receivable |
$ | 5,071,731 | ||
Other receivables |
361,722 | |||
Inventories |
7,895,119 | |||
Property and equipment |
613,997 | |||
Intangible assets |
9,350,000 | |||
Goodwill |
2,984,208 | |||
Other assets |
198,176 | |||
|
|
|||
Total assets acquired |
26,474,953 | |||
Total liabilities assumed |
(10,272,532 | ) | ||
|
|
|||
Fair value of net assets acquired |
$ | 16,202,421 | ||
|
|
Englewood Tire Wholesale, Inc.
On November 30, 2011, the Company acquired 100% of the stock of Englewood Tire Wholesale, Inc. Englewood was in the business of wholesale distribution of tires and tire accessories throughout the Greater New York, New Jersey and Connecticut areas. The intent of the acquisition was to expand into a new geographic market consistent with the Companys long-term growth strategy.
The purchase price was $80,045,976, comprised of $7,500,000 in common shares of TTT Holdings, Inc. and $72,545,976 in cash. The Company paid $76,620,986 in 2011 but then received $4,075,010 from the seller in March 2012 as a final purchase price adjustment.
The purchase was accounted for on the acquisition method and the assets acquired and liabilities assumed have been recorded based on their respective fair values at the acquisition date. Goodwill of $25,695,425 was recorded for the excess of the purchase price over the fair value of net assets acquired. Transaction costs of $923,355 were expensed in the consolidated statement of operations for the year ended December 31, 2011.
F-207
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
The purchase price was allocated as follows:
Assets |
||||
Cash |
$ | 950,868 | ||
Accounts receivable |
28,235,551 | |||
Other receivables |
5,443,752 | |||
Inventories |
26,321,184 | |||
Property and equipment |
844,652 | |||
Intangible assets |
48,900,000 | |||
Goodwill |
25,695,425 | |||
Other assets |
294,529 | |||
|
|
|||
Total assets acquired |
136,685,961 | |||
Total liabilities assumed |
(56,639,985 | ) | ||
|
|
|||
Fair value of net assets acquired |
$ | 80,045,976 | ||
|
|
The purchase price allocation has been retrospectively adjusted to reflect information identified during the measurement period relating to facts and circumstances present at the acquisition date. Accounts receivable was decreased by $1,422,307 to reflect additional uncollectible accounts, inventory was decreased by $262,218 to reflect additional slow-moving items and liabilities were increased $113,411 to reflect cash discounts against payables previously estimated. These adjustments resulted in additional goodwill of $1,797,936.
Kramer Tire
On May 13, 2012, the Company acquired substantially all of the assets associated with the wholesale distribution operations of two facilities located in Norfolk and Richmond, Virginia, from Monro Muffler Brake, Inc. The intent of the acquisition was to increase operations in the Mid-Atlantic market and reinforce relationships with Monro Muffler Brake, Inc.
The purchase price was $2,267,338 paid in cash. The purchase was accounted for on the acquisition method and the assets acquired and liabilities assumed have been recorded based on their respective fair values at the acquisition date. Goodwill of $255,285 was recorded for the excess of the purchase price over the fair value of net assets acquired. Transaction costs of $114,000 were expensed in the consolidated statement of operations for the year ended December 31, 2012.
The purchase price was allocated as follows:
Assets |
||||
Inventories |
$ | 1,433,277 | ||
Intangible assets |
656,088 | |||
Goodwill |
255,285 | |||
Other assets |
12,480 | |||
|
|
|||
Total assets acquired |
2,357,130 | |||
Total liabilities assumed |
(89,792 | ) | ||
|
|
|||
Fair value of net assets acquired |
$ | 2,267,338 | ||
|
|
The estimated fair value of net assets acquired, including the allocation of the fair value to identifiable assets and liabilities, was determined using Level 3 inputs in the fair value hierarchy (See Fair Value
F-208
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
Measurements in Note 12). The estimated fair value of identifiable intangible assets, consisting of customer relationships for Summit, Englewood and Kramer, and the Summit and Englewood trade names were determined using an income approach based on excess cash flow, relief of royalty and discounted cash flow methods. The discounted cash flow valuation method requires the use of assumptions, the most significant of which include: future revenue growth, future earnings before interest, taxes, depreciation and amortization, estimated synergies to be achieved by a market participant as a result of the business combination, marginal tax rate, terminal value growth rate, weighted average cost of capital and discount rate.
The excess earnings method used to value customer relationships requires the use of assumptions the most significant of which include: the remaining useful life, expected revenue, survivor curve, earnings before interest and tax margins, marginal tax rate, contributory asset charges, discount rate and tax amortization benefit. The most significant assumptions under the relief of royalty method include: estimated remaining useful life, expected revenue, royalty rate, tax rate, discount rate and tax amortization benefit. Management, with the assistance of a third party valuation specialist, has developed these assumptions on the basis of knowledge of the business and projected financial information of Summit, Englewood and Kramer. These assumptions may vary based on future events, perceptions of different market participants and other factors outside the control of management, and such variations may be significant to estimated values.
4. Property and Equipment
The components of property and equipment at December 31, 2012 and 2011 are as follows:
2012 |
2011 |
|||||||
Leasehold improvements |
$ | 1,692,834 | $ | 1,469,162 | ||||
Machinery and equipment |
4,003,548 | 2,424,632 | ||||||
Furniture and fixtures |
927,334 | 354,462 | ||||||
Vehicles |
776,635 | 549,274 | ||||||
Computer software and equipment |
1,845,803 | 719,817 | ||||||
Construction in progress |
638,321 | 1,130,959 | ||||||
|
|
|
|
|||||
9,884,475 | 6,648,306 | |||||||
Less: Accumulated depreciation and amortization |
(2,809,899 | ) | (1,439,223 | ) | ||||
|
|
|
|
|||||
Property and equipment, net |
$ | 7,074,576 | $ | 5,209,083 | ||||
|
|
|
|
Depreciation and amortization expense was $1,377,447 and $1,500,862 for the years ended December 31, 2012 and 2011.
5. Intangible Assets
Intangible assets consisted of the following as of December 31, 2012:
Cost |
Accumulated |
Net |
||||||||||
Customer relationships |
$ | 79,319,088 | $ | (10,059,300 | ) | $ | 69,259,788 | |||||
Trade names |
33,426,000 | (5,598,057 | ) | 27,827,943 | ||||||||
|
|
|
|
|
|
|||||||
$ | 112,745,088 | $ | (15,657,357 | ) | $ | 97,087,731 | ||||||
|
|
|
|
|
|
F-209
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
Intangible assets consisted of the following as of December 31, 2011:
Cost |
Accumulated |
Net |
||||||||||
Customer relationships |
$ | 78,663,000 | $ | (3,447,000 | ) | $ | 75,216,000 | |||||
Trade names |
33,426,000 | (2,077,389 | ) | 31,348,611 | ||||||||
|
|
|
|
|
|
|||||||
$ | 112,089,000 | $ | (5,524,389 | ) | $ | 106,564,611 | ||||||
|
|
|
|
|
|
Amortization expense was $10,132,968 and $5,197,389 for the years ended December 31, 2012 and 2011, respectively.
The estimated future amortization of intangible assets is as follows:
2013 |
$ | 10,152,430 | ||
2014 |
9,726,041 | |||
2015 |
8,155,763 | |||
2016 |
8,155,763 | |||
2017 |
8,155,763 | |||
Thereafter |
52,741,971 | |||
|
|
|||
$ | 97,087,731 | |||
|
|
6. Goodwill
Activity related to goodwill for the years ended December 31, 2012 and 2011 was as follows:
Balance at December 31, 2010 |
$ | 16,732,183 | ||
Additions to goodwill from acquisitions during the period |
26,881,697 | |||
Measurement period adjustments |
1,797,936 | |||
Reductions to goodwill from the disposition of a reporting unit during the period |
(1,271,171 | ) | ||
|
|
|||
Balance at December 31, 2011 |
44,140,645 | |||
Additions to goodwill from acquisitions during the period |
255,285 | |||
|
|
|||
Balance at December 31, 2012 |
$ | 44,395,930 | ||
|
|
There is no cumulative impairment to goodwill.
F-210
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
7. Other Noncurrent Assets
Other noncurrent assets consisted of the following at December 31, 2012 and 2011:
2012 |
2011 |
|||||||
Deferred financing costs |
$ | 1,043,137 | $ | 1,043,137 | ||||
Investment in American Car Care Centers |
285,316 | 245,875 | ||||||
Deposits |
319,695 | 170,180 | ||||||
|
|
|
|
|||||
1,648,148 | 1,459,192 | |||||||
Less: Accumulated amortization of deferred financing costs |
(356,161 | ) | (117,451 | ) | ||||
|
|
|
|
|||||
Total other noncurrent assets |
$ | 1,291,987 | $ | 1,341,741 | ||||
|
|
|
|
Amortization of deferred financing costs was $238,710 and $117,451 for the years ended December 31, 2012 and 2011.
The estimated future amortization of deferred financing costs is as follows:
2013 |
$ | 209,421 | ||
2014 |
180,223 | |||
2015 |
151,024 | |||
2016 |
110,937 | |||
2017 |
35,371 | |||
|
|
|||
$ | 686,976 | |||
|
|
8. Accrued Liabilities
Accrued liabilities consisted of the following at December 31:
2012 |
2011 |
|||||||
Salaries, wages, commissions, bonuses and related payroll taxes |
$ | 4,176,527 | $ | 3,184,742 | ||||
Other accrued liabilities |
1,651,029 | 2,016,912 | ||||||
|
|
|
|
|||||
$ | 5,827,556 | $ | 5,201,654 | |||||
|
|
|
|
F-211
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
9. Debt
Debt consisted of the following at December 31:
2012 |
2011 |
|||||||
Term loan |
$ | 38,035,718 | $ | 44,464,286 | ||||
Revolving loan |
3,780,002 | 11,001,093 | ||||||
Subordinated loan |
38,703,833 | 38,265,306 | ||||||
Seller note |
10,632,877 | 10,332,055 | ||||||
Other debt |
316,541 | 336,962 | ||||||
|
|
|
|
|||||
Total |
91,468,971 | 104,399,702 | ||||||
Less: Original issue discount on the subordinated loan |
(599,490 | ) | (765,306 | ) | ||||
|
|
|
|
|||||
Total |
90,869,481 | 103,634,396 | ||||||
Less: Current maturities |
(7,676,809 | ) | (6,765,533 | ) | ||||
|
|
|
|
|||||
Total long-term debt |
$ | 83,192,672 | $ | 96,868,863 | ||||
|
|
|
|
Term and Revolving Debt
On November 30, 2011, the Company entered into a credit agreement (the Agreement) consisting of revolving and term debt with a lender group. The Agreement is collateralized by substantially all of the Companys assets.
The revolving commitment including outstanding letters of credit is available up to the lesser of $45,000,000 or an agreed-upon percentage of the Companys accounts receivable and inventory and has a maturity date of November 30, 2016. The Company is required to pay commitment fees up to 0.375% per annum on the unused portion of the revolving commitment.
The total term loan commitment is $45,000,000 and requires monthly principal payments of $535,714 through November 30, 2016. The remaining outstanding principal is due on November 30, 2016. The Agreement also contains provisions which, under certain circumstances, require the Company to make prepayments of the term loan commitment beginning in 2012, based on excess cash flows as defined in the Agreement.
Interest on the revolving loan and term loan is payable monthly based on 30 day LIBOR plus a margin that fluctuates between 2.25% and 3.50% based on the Companys leverage ratio, as defined in the Agreement. At December 31, 2012, the margin was 2.75% with a total rate of 2.96%. At December 31, 2011, the margin was 2.75% with a total rate of 3.05%.
Subordinated Loan
On November 30, 2011, the Company entered into a subordinated credit agreement (the Subordinated Loan) with a lender. The Subordinated Loan consists of term debt which is due in full on November 30, 2017. This term debt was issued at an original issue discount of $765,306. The Company amortizes the original issue discount over the life of the loan commitment using the effective interest method. The Subordinated Loan also contains provisions which, under certain circumstances, require the Company to make prepayments of the loan commitment beginning in 2013, based on excess cash flows as defined in the Subordinated Loan. The Subordinated Loan is unsecured and bears interest at 13.5%, of which at least 12% shall be payable in cash
F-212
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
quarterly, through maturity. The remaining 1.5% may be paid in kind and added to the principal balance, at the Companys option. The Subordinated Loan allows for optional prepayments at redemption prices ranging from 100% to 103%, based on the date of the redemption.
The Subordinated Loan also allowed for a delayed draw term commitment of up to $28,061,224. The Company did not make any borrowings under the delayed draw term commitment which expired on November 30, 2012.
The Agreement and the Subordinated Loan contain certain restrictive financial covenants, which specify minimum net worth requirements, maximum liabilities to earnings before income taxes, interest, depreciation and amortization (EBITDA) ratio and a minimum ratio of EBITDA to debt service cost, among others. The Company is also required to meet certain non-financial covenants, which include restrictions on indebtedness, liens and dividends.
Seller Note
The Company has a credit agreement with a former shareholder of the predecessor Company (the Seller Note) that matures on May 31, 2018. No principal payments are required to be made until the maturity date. The Seller Note bears interest at an annual rate of 13%, of which at least 10% is payable in cash on a quarterly basis, through maturity. The remaining 3% is considered paid-in-kind interest and is added to the principal balance. The seller note is subordinate to the Companys other financing arrangements.
Aggregate annual maturities of long-term debt are as follows:
2013 |
$ | 7,676,809 | ||
2014 |
6,428,568 | |||
2015 |
6,428,568 | |||
2016 |
21,598,316 | |||
2017 |
38,703,833 | |||
Thereafter |
10,632,877 | |||
|
|
|||
$ | 91,468,971 | |||
|
|
10. Commitments and Contingencies
Leases
The Company leases certain warehouse facilities, office facilities and vehicles under operating leases expiring at various dates through November 2020. The leases require the Company to pay taxes, maintenance, insurance and certain other operating expenses applicable to the leased facilities. The terms of certain warehouse and office facility leases call for minimum rents to increase each year. Accordingly, the Company has accounted for the rent expense under the straight-line method.
F-213
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
At December 31, 2012, future minimum lease payments under operating leases are as follows:
Related |
Third Parties |
Total |
||||||||||
2013 |
$ | 2,234,788 | $ | 7,907,068 | $ | 10,141,856 | ||||||
2014 |
2,113,788 | 6,624,546 | 8,738,334 | |||||||||
2015 |
2,002,124 | 5,540,082 | 7,542,206 | |||||||||
2016 |
773,820 | 3,699,037 | 4,472,857 | |||||||||
2017 |
773,820 | 5,260,608 | 6,034,428 | |||||||||
Thereafter |
2,256,975 | 12,761,306 | 15,018,281 | |||||||||
|
|
|
|
|
|
|||||||
$ | 10,155,315 | $ | 41,792,647 | $ | 51,947,962 | |||||||
|
|
|
|
|
|
Total rent expense charged to operations, including $2,245,788 and $1,416,984 to related parties, was $9,857,191 and $5,389,072 for the years ended December 31, 2012 and 2011, respectively.
Legal
Contingent liabilities arise in the ordinary course of the Companys activities. Various legal actions, proceedings and claims may be instituted or asserted in the future against the Company. Litigation is subject to many uncertainties and it is possible that some of the legal proceedings and claims could be decided unfavorably to the Company. Based on information presently known, management does not believe any claims will have a material impact on the Companys financial position or results of operation.
11. Derivative Instruments
The Company has two separate interest rate swap agreements with a lender for the purpose of reducing certain exposures to interest rate fluctuations on the variable rate term debt. The notional amount of each of the swaps is $25,000,000. In accordance with the swap agreements, the Company pays a fixed rate of interest of 2.10% and 2.12% plus the applicable spread, and receives a floating rate of the lenders LIBOR rate plus the applicable spread. One of the swap agreements expires in November 2015 and the other swap agreement expires in January 2016.
At December 31, 2012 and 2011, the fair value of the interest rate swaps was ($1,341,780) and ($1,566,305). The resulting loss in their fair value from December 31, 2010 was included as an increase in interest expense, net and was $(224,525) and $825,076 for the years ended December 31, 2012 and 2011, respectively.
12. Fair Value Measurements
The Company measures or monitors certain assets and liabilities on a fair value basis. Fair value is used on a recurring basis for assets and liabilities in which fair value is the primary basis of accounting, mainly derivative instruments. 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. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principle or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability. The Company applies the fair value hierarchy, and when possible looks to active and observable markets to price identical assets and liabilities. If identical assets and liabilities are not traded in active markets, the Company looks to market observable data for similar assets and liabilities. The fair value hierarchy prioritizes the inputs used in measuring fair value into three broad levels as follows:
Level 1 |
Quoted prices in active markets for identical assets or liabilities. |
F-214
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
Level 2 |
Inputs, other than quoted prices in active markets, that are observable either directly or indirectly. | |
Level 3 |
Unobservable inputs based on the Companys own assumptions. |
The following table summarizes the estimated fair value of the Companys financial instruments as of December 31, 2012:
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
Liabilities |
||||||||||||||||
Derivative instruments |
$ | | $ | 1,341,780 | $ | | $ | 1,341,780 | ||||||||
Long-term debt |
| | 90,869,481 | 90,869,481 |
The following table summarizes the estimated fair value of the Companys financial instruments as of December 31, 2011:
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
Liabilities |
||||||||||||||||
Derivative instruments |
$ | | $ | 1,566,305 | $ | | $ | 1,566,305 | ||||||||
Long-term debt |
| | 103,634,396 | 103,634,396 |
The fair value of the Companys interest rate swaps are estimated using discounted cash flows that use market observable inputs of forward interest rate yield curves and a Company-specific risk adjusted discount rate. The fair value of long-term debt reflects the present value of future cash outflows relating to the obligation based on estimated credit market interest premiums and expected future interest rates.
The carrying amounts reported on the consolidated balance sheet for cash, accounts receivable, other receivables, accounts payable and other current liabilities approximate their fair value due to the short maturity of those instruments.
13. Stockholders Equity
On November 23, 2010, the Company issued 56,179 shares of common stock under the terms of the Stockholders Agreement of which 5,590 are redeemable. A total of 85,000 shares were originally authorized at November 23, 2010. On November 30, 2011, an additional 23,716 shares were issued of which 2,736 are redeemable. Of the 23,716 shares issued, 5,473 were issued as consideration for the purchase of Englewood. The total number of authorized shares was increased to 150,000 shares. Common shares are entitled to one vote per share and are entitled to vote on all matters upon which stockholders have the right to vote under law or the Companys Amended and Restated Stockholders Agreement (the Stockholders Agreement) which was amended on November 30, 2011.
The Stockholders Agreement also provides for annual tax distributions on the taxable income allocated to each stockholder.
The Company is authorized to issue 15,000 non-voting shares, none of which are outstanding at December 31, 2012 or 2011.
14. Mezzanine Equity
Two stockholders have the right to require the Company to purchase up to approximately half of their respective common shares at a future date (the Put Options). The Put Options are exercisable at the option of
F-215
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
the holder for a 90 day window beginning on November 23, 2015 and November 23, 2018 for one of the stockholders and November 30, 2016 and November 30, 2019 for the second stockholder. If the Put Options are exercised, the Company would purchase the put common shares at a price equal to the fair market value of the shares at the put option exercise date. As the Put Options are a redemption right which is outside the Companys control, under Regulation S-X, the Company should have classified this redeemable common stock in the mezzanine equity section in the accompanying Balance Sheets at its redemption value, which is equal to fair value, and recorded changes in fair value to Additional paid-in capital since the Company has an accumulated deficit. The financial statements previously presented the redeemable common stock within Stockholders Equity. The 2012 and 2011 Balance Sheets and Statement of Stockholders Equity have been revised to correct the misstatement in presentation of the redeemable common stock as Mezzanine Equity. The impact of this revision is as follows and was not material to the current or prior year financial statements.
Total stockholders equity at December 31, 2012, 2011 and 2010 was reduced by $14,212,482, $11,406,620, and $5,589,500, respectively primarily reflecting a reduction in Additional paid-in capital, and Mezzanine Equity was increased at December 31, 2012, 2011, and 2010 by the same amounts. Proceeds from the issuance of common stock were decreased and proceeds from the issuance of redeemable stock were increased by $3,749,005 within the presentation of cash flows from financing activities for the year ended December 31, 2011. There was no effect on the statements of operations for the years ended December 31, 2012 or 2011 and no effect on the statement of cash flow for the year ended December 31, 2012. The fair value of common shares subject to the put options at December 31, 2012 was calculated using a discounted cash flow model. The discounted cash flow valuation method uses assumptions, the most significant of which include: future revenue growth, future earnings before interest, taxes, depreciation and amortization, marginal tax rate, terminal value growth rate, weighted average cost of capital and discount rate. The fair value of common shares subject to the put options at December 31, 2011 was calculated by using the fair value of common stock issued in a recent market transaction.
Subsequent to the revision discussed above, the statement of cash flows was further revised to increase the proceeds from the issuance of common stock and decrease the proceeds from the issuance of redeemable common stock by $3,749,005. This revision had no effect on total cash flows from financing activities. During 2011, 18,243 common shares were issued for cash of $25,000,390. Additionally, 2,737 common shares and 2,736 redeemable common shares were issued as non-cash consideration in exchange for the acquisition of Englewood (see Note 3). The impact of this revision was not material to the previously issued financial statements.
15. Stock Based Compensation
In November 2010, the Board of Directors approved the TTT Holdings Equity Incentive Plan (Equity Incentive Plan). In November 2011, the Board of Directors increased the number of nonvoting common shares authorized for issuance under the Equity Incentive Plan to 8,000. As of December 31, 2012, the Equity Incentive Plan had 1,647 nonvoting common shares available for granting in the form of stock options. The Equity Incentive Plan permits the grant of a variety of stock and stock-based awards, including restricted stock or stock options, as determined by the Companys Board of Directors. To date, the Company has stock options which expire no later than ten years from the date of grant and will become exercisable as directed by the Board of Directors. The time vesting stock options generally vest in equal annual installments over a three-year period, while the performance based stock options vest in tranches based on the Company meeting annual earnings targets and also contain a service requirement.
Stock-based compensation expense was $418,006 and $703,712 during the years ended December 31, 2012 and 2011, respectively, which was recorded in operating expenses in the statement of operations. Of the total stock-based compensation expense recognized, $0 and $327,950 related to performance-based options during the years ending December 31, 2012 and 2011, respectively. Stock-based compensation expense is based on the grant-date fair value. The fair value of stock option grants is estimated using the Black-Scholes option
F-216
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
pricing model. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. Expected volatility was calculated based on the historical volatility of comparable public companies for a period equal to the expected term. The risk-free interest rate is based on U.S. Treasury interest rates with a remaining term which approximates the expected life of the options assumed at the date of grant.
The weighted average assumptions used in the Black-Scholes option pricing model for options granted during 2012 are as follows:
Expected volatility |
46.22 | % | ||
Expected term (years) |
6.36 | |||
Risk free interest rate |
1.80 | % | ||
Expected dividend yield |
0.00 | % |
The weighted average grant date fair value of options is as follows:
Shares |
Weighted Average Grant Date Fair Value |
|||||||
Nonvested at December 31, 2010 |
4,352 | $ | 452 | |||||
Granted |
401 | 652 | ||||||
Vested |
1,451 | 452 | ||||||
Forfeited |
| | ||||||
|
|
|||||||
Nonvested at December 31, 2011 |
3,302 | 473 | ||||||
Granted |
1,600 | 486 | ||||||
Vested |
792 | 457 | ||||||
Forfeited |
792 | 467 | ||||||
|
|
|||||||
Nonvested at December 31, 2012 |
3,318 | $ | 482 | |||||
|
|
A summary of option activity as of December 31, 2012 and changes during the period is presented below:
Shares |
Weighted Average Exercise Price |
Weighted Average Remaining Contractual Term (in years) |
||||||||||
Outstanding at December 31, 2010 |
4,352 | $ | 1,000 | |||||||||
Granted |
401 | $ | 1,370 | |||||||||
Exercised |
| |||||||||||
Cancelled/Expired |
| |||||||||||
|
|
|||||||||||
Outstanding at December 31, 2011 |
4,753 | $ | 1,031 | 9.00 | ||||||||
Granted |
1,600 | $ | 2,000 | |||||||||
Exercised |
| |||||||||||
Cancelled/Expired |
| |||||||||||
|
|
|||||||||||
Outstanding at December 31, 2012 |
6,353 | $ | 1,275 | 8.31 | ||||||||
|
|
|||||||||||
Vested and unvested expected to vest at December 31, 2012 |
5,561 | $ | 1,310 | 8.36 | ||||||||
Exercisable at December 31, 2012 |
2,243 | $ | 1,011 | 7.94 |
There was $1,599,276 and $1,515,325 of total unrecognized compensation cost related to unvested stock options granted at December 31, 2012 and 2011, respectively. The cost is expected to be recognized through 2016.
16. Employee Benefit Plan
The Company maintains a 401(k) savings plan covering substantially all full-time employees. The Company matches 25% of each participating employees elective deferral amount. The Companys expense related
F-217
TTT Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2012 and 2011
to this matching contribution totaled approximately $247,229 and $140,873 for the years ended December 31, 2012 and 2011, respectively. In addition, the Company has the option of making an annual discretionary profit-sharing contribution. No profit-sharing contribution was declared for the year ended December 31, 2012.
17. Discontinued Operations
On October 9, 2011, the Company sold the retail division to a strategic buyer for approximately $4,900,000, less certain selling costs, in an asset acquisition agreement. The results of operations of the retail division have been presented as discontinued operations.
The major classes of assets and liabilities disposed of are as follows:
Inventories |
$ | 785,066 | ||
Property and equipment, net |
894,780 | |||
Goodwill |
1,271,171 | |||
Accrued liabilities |
62,152 | |||
|
|
|||
$ | 3,013,169 | |||
|
|
The following is a summary of the operating results for the retail reporting unit for the year ended December 31, 2011:
Net sales |
$ | 6,537,359 | ||
Cost of good sold |
(3,594,830 | ) | ||
Operating expenses |
(2,871,103 | ) | ||
Gain on sale of division |
1,827,692 | |||
|
|
|||
Income from discontinued operations |
$ | 1,899,118 | ||
|
|
18. Related Party Transactions
In accordance with a management services agreement dated November 23, 2010, the Company pays $600,000 annually to Robert D. Walter Company, an affiliate of the Company, for corporate support functions. Management fee expense totaled $600,000 for the years ended December 31, 2012 and 2011, and is included in operating expenses in the consolidated statement of operations. There were no outstanding accounts payable at December 31, 2012 and 2011.
The Company has various building leases with two separate related parties. The terms of these lease agreement range from four to ten years from the rent commencement dates with varying renewal options.
Prior to their respective acquisitions, TTT, Englewood and Summit periodically made sales to one another. Total pre-acquisition sales between these companies totaled $972,268 for the year ended December 31, 2011.
19. Subsequent Events
In March 2013, the Company amended the term and revolving debt credit agreement and the subordinated loan credit agreement. These amendments modify the minimum net worth requirements, maximum liabilities to EBITDA ratio and the minimum ratio of EBITDA to debt service cost covenants and are now less restrictive.
The Company has considered subsequent events through April 30, 2013, the date on which the consolidated financial statements were available to be issued.
F-218
The Hercules Tire & Rubber Company and Subsidiaries
Contents
F-220 | ||||
Consolidated Financial Statements |
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F-221 | ||||
F-222 | ||||
F-223 | ||||
F-224 | ||||
F-225 F-234 | ||||
Additional Information |
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F-235 | ||||
F-236 |
F-219
To the Board of Directors
The Hercules Tire & Rubber
Company and Subsidiaries
We have audited the accompanying consolidated financial statements of The Hercules Tire & Rubber Company and Subsidiaries (the Company), which comprise the consolidated balance sheet as of October 31, 2013 and 2012 and the related consolidated statements of operations and comprehensive income, stockholders equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entitys preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Hercules Tire & Rubber Company and Subsidiaries as of October 31, 2013 and 2012 and the results of their operations and their cash flows for the years then ended, in accordance with accounting principles generally accepted in the United States of America.
/s/ Plante & Moran, PLLC
Toledo, OH
December 19, 2013
F-220
The Hercules Tire & Rubber Company and Subsidiaries
Consolidated Balance Sheet
October 31, |
October 31, |
|||||||
Assets | ||||||||
Current Assets |
||||||||
Cash |
$ | 5,831,219 | $ | 7,813,040 | ||||
Accounts receivableNet (Note 1) |
95,475,412 | 90,929,981 | ||||||
InventoryFinished goods (Note 1) |
135,268,064 | 134,767,138 | ||||||
Prepaid expenses and other current assets: |
||||||||
Prepaid expenses and deposits |
4,193,836 | 2,681,764 | ||||||
Refundable taxes |
258,001 | 1,166,050 | ||||||
Deferred tax assets (Note 7) |
4,054,000 | 3,867,000 | ||||||
|
|
|
|
|||||
Total current assets |
245,080,532 | 241,224,973 | ||||||
Property and EquipmentNet (Note 2) |
24,969,328 | 25,178,057 | ||||||
Goodwill (Note 15) |
703,529 | 650,701 | ||||||
Intangible AssetsNet (Note 3) |
6,324,008 | 6,799,004 | ||||||
Other AssetsOther noncurrent assets |
3,791,691 | 4,816,677 | ||||||
|
|
|
|
|||||
Total assets |
$ | 280,869,088 | $ | 278,669,412 | ||||
|
|
|
|
|||||
Liabilities and Stockholders Equity | ||||||||
Current Liabilities |
||||||||
Trade accounts payable |
$ | 96,582,099 | $ | 94,606,284 | ||||
Accounts payable settlement arrangements (Note 4) |
5,657,190 | 8,372,049 | ||||||
Bank line of credit (Note 5) |
97,379,524 | 93,800,000 | ||||||
Current portion of long-term debt (Note 6) |
4,570,000 | 4,738,284 | ||||||
Accrued and other current liabilities: |
||||||||
Taxes payable |
89,000 | 2,482,000 | ||||||
Accrued compensation |
2,438,449 | 2,549,105 | ||||||
Other accrued liabilities |
13,931,772 | 12,117,846 | ||||||
|
|
|
|
|||||
Total current liabilities |
220,648,034 | 218,665,568 | ||||||
Long-term DebtNet of current portion (Note 6) |
8,615,000 | 13,185,000 | ||||||
Other Long-term LiabilitiesDeferred tax liabilities (Note 7) |
4,761,000 | 6,239,000 | ||||||
Stockholders Equity |
46,845,054 | 40,579,844 | ||||||
|
|
|
|
|||||
Total liabilities and stockholders equity |
$ | 280,869,088 | $ | 278,669,412 | ||||
|
|
|
|
See Notes to Consolidated Financial Statements.
F-221
The Hercules Tire & Rubber Company and Subsidiaries
Consolidated Statement of Operations and Comprehensive Income
Year Ended |
||||||||
October 31, |
October 31, |
|||||||
Net Sales |
$ | 602,921,274 | $ | 593,833,304 | ||||
Cost of Sales |
496,067,862 | 490,181,208 | ||||||
|
|
|
|
|||||
Gross Profit |
106,853,412 | 103,652,096 | ||||||
Operating Expenses |
||||||||
General and administrative expenses |
44,074,099 | 41,714,850 | ||||||
Selling and marketing |
19,144,367 | 18,575,837 | ||||||
Delivery expense |
19,857,509 | 19,836,367 | ||||||
Depreciation and amortization |
6,635,544 | 6,300,784 | ||||||
|
|
|
|
|||||
Total operating expenses |
89,711,519 | 86,427,838 | ||||||
|
|
|
|
|||||
Operating Income |
17,141,893 | 17,224,258 | ||||||
Nonoperating Income (Expenses) |
||||||||
Interest income |
303,810 | 172,579 | ||||||
Loss on disposal of fixed assets |
(204,421 | ) | (57,927 | ) | ||||
Foreign exchange loss |
(2,075,289 | ) | (377,180 | ) | ||||
Other income (expense) |
327,197 | (130,975 | ) | |||||
Interest expense |
(6,699,610 | ) | (6,596,842 | ) | ||||
|
|
|
|
|||||
Total nonoperating expenses |
(8,348,313 | ) | (6,990,345 | ) | ||||
|
|
|
|
|||||
IncomeBefore income taxes |
8,793,580 | 10,233,913 | ||||||
Income Tax Expense (Note 7) |
(3,209,000 | ) | (4,031,000 | ) | ||||
|
|
|
|
|||||
Net Income |
5,584,580 | 6,202,913 | ||||||
Other Comprehensive IncomeNet of tax |
||||||||
Foreign currency translation adjustment |
361,295 | 13,809 | ||||||
Cash flow hedge |
169,125 | 171,372 | ||||||
|
|
|
|
|||||
Total other comprehensive income |
530,420 | 185,181 | ||||||
|
|
|
|
|||||
Comprehensive Income |
$ | 6,115,000 | $ | 6,388,094 | ||||
|
|
|
|
See Notes to Consolidated Financial Statements.
F-222
The Hercules Tire & Rubber Company and Subsidiaries
Consolidated Statement of Stockholders Equity
Common Stock |
Accumulated |
Accumulated Other Loss |
Total |
|||||||||||||
BalanceOctober 31, 2011 |
$ | 57,136,697 | $ | (22,004,406 | ) | $ | (1,095,856 | ) | $ | 34,036,435 | ||||||
Net income |
| 6,202,913 | | 6,202,913 | ||||||||||||
Other comprehensive income |
| | 185,181 | 185,181 | ||||||||||||
Stock options (Note 9) |
155,315 | | | 155,315 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
BalanceOctober 31, 2012 |
57,292,012 | (15,801,493 | ) | (910,675 | ) | 40,579,844 | ||||||||||
Net income |
| 5,584,580 | | 5,584,580 | ||||||||||||
Other comprehensive income |
| | 530,420 | 530,420 | ||||||||||||
Stock options (Note 9) |
150,210 | | | 150,210 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
BalanceOctober 31, 2013 |
$ | 57,442,222 | $ | (10,216,913 | ) | $ | (380,255 | ) | $ | 46,845,054 | ||||||
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
F-223
The Hercules Tire & Rubber Company and Subsidiaries
Consolidated Statement of Cash Flows
Year Ended |
||||||||
October 31, |
October 31, |
|||||||
Cash Flows from Operating Activities |
||||||||
Net income |
$ | 5,584,580 | $ | 6,202,913 | ||||
Adjustments to reconcile net income to net cash from operating activities: |
||||||||
Depreciation and amortization |
6,635,544 | 6,300,784 | ||||||
Loss on disposal of property and equipment |
204,421 | 57,927 | ||||||
Stock-based compensation expense |
2,050,204 | 1,455,315 | ||||||
Deferred income tax (recovery) expense |
(1,665,000 | ) | 623,000 | |||||
Changes in operating assets and liabilities which (used) provided cash, net of effects of business acquisition: |
||||||||
Accounts receivable |
(4,390,428 | ) | (11,917,439 | ) | ||||
Inventory |
(1,630,884 | ) | (11,500,911 | ) | ||||
Prepaid expenses and other assets |
(616,137 | ) | (634,356 | ) | ||||
Accounts payable |
3,719,227 | (74,659 | ) | |||||
Accrued and other liabilities |
(1,733,697 | ) | 2,100,206 | |||||
|
|
|
|
|||||
Net cash provided by (used in) operating activities |
8,157,830 | (7,387,220 | ) | |||||
Cash Flows from Investing Activities |
||||||||
Purchase of property and equipment |
(5,467,604 | ) | (6,426,089 | ) | ||||
Proceeds from disposition of property and equipment |
57,263 | 46,992 | ||||||
Cash paid for business acquisition |
| (3,468,257 | ) | |||||
|
|
|
|
|||||
Net cash used in investing activities |
(5,410,341 | ) | (9,847,354 | ) | ||||
Cash Flows from Financing Activities |
||||||||
Net borrowings from (payments on) accounts payable settlement arrangements |
(2,714,859 | ) | 2,437,491 | |||||
Net borrowings from line of credit agreement |
3,936,135 | 18,965,432 | ||||||
Payments on debt |
(4,738,284 | ) | (3,813,378 | ) | ||||
|
|
|
|
|||||
Net cash (used in) provided by financing activities |
(3,517,008 | ) | 17,589,545 | |||||
Effect of Exchange Rate Changes on Cash |
(1,212,302 | ) | (20,017 | ) | ||||
|
|
|
|
|||||
Net (Decrease) Increase in Cash |
(1,981,821 | ) | 334,954 | |||||
CashBeginning of year |
7,813,040 | 7,478,086 | ||||||
|
|
|
|
|||||
CashEnd of year |
$ | 5,831,219 | $ | 7,813,040 | ||||
|
|
|
|
|||||
Supplemental Cash Flow InformationCash paid for |
||||||||
Interest |
$ | 6,696,381 | $ | 6,652,097 | ||||
Taxes |
5,783,393 | 4,319,082 |
See Notes to Consolidated Financial Statements.
F-224
The Hercules Tire & Rubber Company and Subsidiaries
Notes to Consolidated Financial Statements
October 31, 2013 and 2012
Note 1Nature of Business and Significant Accounting Policies
The Hercules Tire & Rubber Company and Subsidiaries (the Company) is a leading marketer of replacement tires in the U.S., Canada, and globally. The Company offers an extensive selection of passenger, ultra-high performance, light truck, medium truck, trailer, off-the-road, industrial, and specialty tires manufactured by its worldwide supplier network. In addition to its Hercules flag brand, the Company also markets the controlled brands of Ironman and Avalanche. The Company is also a major distributor of many select manufacturer brands throughout the Companys global distribution network.
The Company is headquartered in Findlay, Ohio and operates 21 regional wholesale distribution operations throughout North America. Current locations reside in Arizona, California, Colorado, Ohio, Texas, Illinois, Florida, Oregon, Washington, Ontario (Canada), British Columbia (Canada), Montreal (Canada), and New Brunswick (Canada) using the names TDW (Tire Dealers Warehouse) or Hercules Tire Canada. The Company operates on an international basis in the U.S., Canada, and China under the name Hercules Tire International. The international organizations presence includes warehouse operations in Qingdao (China), Ontario (Canada), Ohio, and Florida with representative offices in Guangzhou (China), Ontario (Canada), and Florida.
Principles of ConsolidationThe consolidated financial statements include the accounts of The Hercules Tire & Rubber Company and its wholly owned subsidiary, Hercules Tire Company of Canada, Inc. All material intercompany accounts and transactions have been eliminated in consolidation.
Use of EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
ReceivablesIn the course of extending credit to its customers, the Company occasionally requires notes receivable or security interests in inventory and other property, mortgages, personal guarantees, and other collateral. The allowance for doubtful accounts is determined by considering a number of factors, including the length of time trade accounts receivable are past due, the Companys previous loss history, and the customers current obligation to pay the Company. The Company writes off accounts receivable against the allowance when they become uncollectible, and payments subsequently received are credited to bad debt recoveries. The Companys allowance for doubtful accounts was approximately $1,561,000 and $1,540,000 as of October 31, 2013 and 2012, respectively.
Revenue RecognitionRevenue from the sale of the Companys products is recognized once the risk and rewards of ownership have transferred to the customers, which, in most cases, coincide with shipment of the products. For other cases involving export sales, the title transfers when the products are delivered to the port of embarkation or when they are received at the port of the country of destination. Late payment charges are assessed for invoices not paid by the due date. Such charges are recognized in income when collected. Cash discounts are treated as a reduction to sales and are provided for based on historical experience and current estimates.
InventoryInventory is stated at the lower of cost or market, with cost determined on the first-in, first-out (FIFO) method. Inventory includes product, duty, freight, and other direct costs.
F-225
The Hercules Tire & Rubber Company and Subsidiaries
Notes to Consolidated Financial Statements
October 31, 2013 and 2012
Property and EquipmentProperty and equipment are recorded at cost. Depreciation and amortization are provided over the estimated useful lives, ranging from 3 to 40 years, of the various classes of assets using the straight-line method. Costs of maintenance and repairs are charged to expense when incurred.
GoodwillThe recorded amounts of goodwill from prior business combinations are based on managements best estimates of the fair values of assets acquired and liabilities assumed at the date of acquisition. Goodwill is not amortized, but rather is assessed at least on an annual basis for impairment.
Impairment of Long-lived AssetsWhen indicators of impairment are present, management evaluates the net carrying value of long-lived assets by considering estimated future cash flows from both use and disposal of the assets. No impairment charges were recognized in 2013 and 2012.
Intangible AssetsIndefinite-lived intangible assets, consisting of trademarks, are carried at historical cost and are not amortized. Indefinite-lived intangible assets are reviewed for impairment annually as of October 31, or more frequently if impairment indicators exist. The impairment analysis compares the estimated fair value of these assets to the related carrying value and an impairment charge is recorded for any excess of carrying value over estimated fair value. The estimated fair value is based upon projected cash flows discounted at rates commensurate with the risks involved.
Acquired intangible assets subject to amortization are stated at cost and are amortized using the straight-line method over the estimated useful lives of the assets. Intangible assets that are subject to amortization are reviewed for potential impairment whenever events or circumstances indicate that carrying amounts may not be recoverable.
Deferred Finance ChargesDeferred finance charges represent legal, consulting, and financial costs associated with debt financing (see Note 5) and are reported net of accumulated amortization, resulting in balances of approximately $480,000 and $1,318,000 at October 31, 2013 and 2012, respectively. Such charges are being amortized over the respective terms of the debt agreements. Amortization costs totaling approximately $833,000 and $775,000 for the years ended October 31, 2013 and 2012, respectively, related to deferred finance charges are included in general and administrative expenses.
Stock-based CompensationThe Company has adopted the fair value method of recording stock-based employee compensation as contained in accounting standards. As a result of adopting the fair value method, stock options and the incentive plan are expensed over the vesting period of the options/plan.
Income TaxesA current tax liability or asset is recognized for the estimated taxes payable or refundable on tax returns for the year. Deferred tax liabilities or assets are recognized for the estimated future tax effects of temporary differences between financial reporting and tax accounting.
Foreign Currency TranslationAssets and liabilities of the Companys Canadian wholesale distribution division, Hercules Tire Company of Canada, Inc., are translated into U.S. dollars at the rate of exchange in effect at the close of the period. Income and expenses are translated at an average rate of exchange for the period. The aggregate effect of translating the consolidated financial statements is included in other comprehensive income.
Other Comprehensive Income (Loss)Accounting principles generally require that recognized revenue, expenses, gains, and losses be included in net income. Certain changes in assets and liabilities, however, such as foreign currency translation adjustments and unrealized gains and losses on certain derivative instruments, are reported as a direct adjustment to the equity section of the consolidated balance sheet. Such items, along with net income, are considered components of comprehensive income (loss).
F-226
The Hercules Tire & Rubber Company and Subsidiaries
Notes to Consolidated Financial Statements
October 31, 2013 and 2012
Included in accumulated other comprehensive income (loss) at October 31, 2013 and 2012 was approximately ($380,000) and ($742,000), respectively, related to the foreign currency translation adjustment. There was no interest rate swap cash flow hedge at October 31, 2013 and there was approximately ($169,000) related to the interest rate swap cash flow hedge at October 31, 2012.
The cash flow hedge recorded in other comprehensive income (loss) was $171,372 and $169,125, respectively, net of tax expense of $100,647 and $99,331, respectively, during the years ended October 31, 2013 and 2012.
During fiscal year 2013, the Company adopted new guidance related to the presentation of comprehensive income in the financial statements. Among other changes, the new guidance eliminated the prior option to only present comprehensive income in the statement of equity. The Company has elected to report comprehensive income in a single statement of operations and comprehensive income. The change in presentation has been applied retrospectively and the October 31, 2012 financial statements have been restated to conform to the new presentation method. Other than the change in presentation of comprehensive income and related disclosures, the new guidance did not have a material effect on the financial statements.
Shipping and Handling CostsThe Company records shipping and handling costs for the delivery of finished goods in operating expenses in the consolidated statement of operations and comprehensive income. Total shipping and handling costs for the years ended October 31, 2013 and 2012 were approximately $26,906,000 and $27,141,000, respectively.
Major SuppliersDuring the year ended October 31, 2013, the Companys three largest suppliers accounted for 22 percent, 21 percent, and 9 percent, respectively, of the Companys tire purchases. During the year ended October 31, 2012, the Companys three largest suppliers accounted for 25 percent, 19 percent, and 7 percent, respectively, of the Companys tire purchases.
Subsequent EventsThe consolidated financial statements and related disclosures include evaluation of events up through and including December 19, 2013, which is the date the consolidated financial statements were available to be issued.
Fair Value of Financial InstrumentsThe carrying amounts of the Companys accounts receivable, accounts payable, line of credit, and bank note payable approximate their fair value due to either the short maturity of such instruments or the existence of variable interest rates that approximate prevailing market rates. The fair value of the interest rate swap generally reflects the estimated amount the Company would receive or pay to terminate the contract at the reporting date.
ReclassificationCertain 2012 amounts have been reclassified to conform to the 2013 presentation.
F-227
The Hercules Tire & Rubber Company and Subsidiaries
Notes to Consolidated Financial Statements
October 31, 2013 and 2012
Note 2Property and Equipment
Property and equipment are summarized as follows:
2013 |
2012 |
|||||||
Land |
$ | 1,630,642 | $ | 1,630,642 | ||||
Buildings and fixtures |
15,640,587 | 14,385,537 | ||||||
Machinery and equipment |
7,533,901 | 7,018,988 | ||||||
Tire molds |
25,019,437 | 22,377,127 | ||||||
Computer equipment and software |
4,982,509 | 4,635,445 | ||||||
Leasehold improvements |
2,186,096 | 1,844,766 | ||||||
Construction in progress |
95,530 | 604,257 | ||||||
|
|
|
|
|||||
Total cost |
57,088,702 | 52,496,762 | ||||||
Accumulated depreciation |
32,119,374 | 27,318,705 | ||||||
|
|
|
|
|||||
Net property and equipment |
$ | 24,969,328 | $ | 25,178,057 | ||||
|
|
|
|
Depreciation expense was approximately $5,327,000 in 2013 and $4,845,000 in 2012.
At October 31, 2013 and 2012, the Company had net property and equipment of approximately $8,283,000 and $8,857,000, respectively, located in foreign jurisdictions.
Note 3Acquired Intangible Assets
Intangible assets are summarized as follows as of October 31, 2013 and 2012:
2013 |
2012 |
|||||||||||||||
Gross Carrying |
Accumulated |
Gross Carrying |
Accumulated |
|||||||||||||
Amortized intangible assetsCustomer relationships |
$ | 16,700,000 | $ | 16,075,992 | $ | 16,700,000 | $ | 15,600,996 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Unamortized intangible assetsTrademarks |
$ | 5,700,000 | $ | | $ | 5,700,000 | $ | | ||||||||
|
|
|
|
|
|
|
|
Amortization expense for customer relationships approximated $475,000 and $680,000 for the years ended October 31, 2013 and 2012, respectively.
The customer relationships asset is being amortized over a period of nine years and estimated amortization expense for the next three years ending October 31 is as follows:
2014 |
$ | 318,000 | ||
2015 |
200,000 | |||
2016 |
106,008 | |||
|
|
|||
Total |
$ | 624,008 | ||
|
|
The Company evaluates its trademarks for impairment at least annually. No impairment charges were recognized in 2013 and 2012.
F-228
The Hercules Tire & Rubber Company and Subsidiaries
Notes to Consolidated Financial Statements
October 31, 2013 and 2012
Note 4Accounts Payable Settlement Arrangements
At October 31, 2013 and 2012, the Company had accounts payable settlement arrangements with a certain vendor and third-party intermediary of approximately $5,657,000 and $8,372,000, respectively. This arrangement provides that, at the vendors request, the third-party intermediary advances the amount of the scheduled payment to the vendor, less an appropropriate discount, before the scheduled payment date and the Company makes their payment to the third-party intermediary on the date stipulated with interest at LIBOR plus 3 percent in accordance with the commercial terms negotiated with its vendor. The Company records interest related to these arrangements as interest expense in the consolidated statement of operations and comprehensive income.
Note 5Line of Credit
The Company has a revolving line of credit expiring in October 2015 that provides for total borrowing capacity of $142 million at October 31, 2013 and 2012. Aggregate outstanding borrowings are limited to a percentage of U.S. and Canadian trade accounts receivable and inventory. Outstanding Canadian and U.S. borrowings are limited to $25 million and $117 million, respectively in both 2013 and 2012. Borrowings accrue interest based on the prime rate, bankers acceptance rate, or eurodollar rate, plus a rate spread, which is dependent on the Companys leverage ratio as defined in the agreement. A commitment fee on the Companys total unused borrowing capacity is paid quarterly. Unused availability, net of outstanding letters of credit, aggregated approximately $42,775,000 at October 31, 2013 and $46,355,000 at October 31, 2012.
Both the line of credit and the term loan described in Note 6 are collateralized by substantially all of the Companys assets.
Note 6Long-term Debt
Long-term debt at October 31 is as follows:
2013 |
2012 |
|||||||
Bank term debt payable in quarterly installments of amounts ranging from $550,000 to $910,000 plus a payment of $1,430,000 due at maturity including interest based upon the prime rate or eurodollar rate plus rate spread, expires October 2015, collateralized by substantially all of the Companys assets |
$ | 7,800,000 | $ | 11,440,000 | ||||
Unsecured debt to former stockholders, various rates based on applicable adjusted federal long-term rates as published by the Internal Revenue Service at time of debt issuance and 5 percent at October 31, 2012. |
| 238,284 | ||||||
Bonds payable for Findlay Distribution Center in monthly installments ranging between $108,000 and $112,000 including interest of 7.63 percent and 7.25 percent until maturity in October 2018 and collateralized by the facility and letter of credit reserves of $500,000 and $835,000 |
5,385,000 | 6,245,000 | ||||||
|
|
|
|
|||||
Total |
13,185,000 | 17,923,284 | ||||||
Less current portion |
4,570,000 | 4,738,284 | ||||||
|
|
|
|
|||||
Long-term portion |
$ | 8,615,000 | $ | 13,185,000 | ||||
|
|
|
|
F-229
The Hercules Tire & Rubber Company and Subsidiaries
Notes to Consolidated Financial Statements
October 31, 2013 and 2012
The balance of the above debt matures as follows:
2014 |
$ | 4,570,000 | ||
2015 |
5,155,000 | |||
2016 |
1,070,000 | |||
2017 |
1,155,000 | |||
2018 |
1,235,000 | |||
|
|
|||
Total |
$ | 13,185,000 | ||
|
|
Interest expense for the years ended October 31, 2013 and 2012 was approximately $6,700,000 and $6,597,000, respectively.
Under the agreements with the bank for both the term loan and line of credit described in Note 5, the Company is subject to various financial covenants, including fixed charge coverage, consolidated capital funds test, and minimum EBITDA test.
The Company follows current guidance relating to accounting for derivative instruments and hedging activities, which requires that all derivative instruments be reported on the consolidated balance sheet at fair value as either assets or liabilities and establishes criteria for designation and effectiveness of transactions entered into for hedging purposes.
In June 2010, the Company entered into an interest rate swap that fixed the rate on a notional amount of $45,000,000. The Company determined that the derivative instruments meet the criteria for cash flow hedge accounting. During fiscal year 2013 the interest rate swap contract expired. The fair value of the swap was approximately $268,000 of liability on October 31, 2012. The net change in fair value during fiscal year 2012 was recorded, net of income taxes, in other comprehensive income. There was no impact on net income for the year ended October 31, 2012 because the swap was an effective cash flow hedge.
Note 7Income Taxes
The components of the income tax provision included in the consolidated statement of operations are all attributable to continuing operations and are detailed as follows:
2013 |
2012 |
|||||||
U.S. federal |
$ | 3,624,000 | $ | 2,017,000 | ||||
Foreign |
1,071,000 | 807,000 | ||||||
State and local |
179,000 | 584,000 | ||||||
Deferred income tax (recovery) expense |
(1,665,000 | ) | 623,000 | |||||
|
|
|
|
|||||
Total income tax expense |
$ | 3,209,000 | $ | 4,031,000 | ||||
|
|
|
|
During the years ended October 31, 2013 and 2012, the Company paid taxes of approximately $5,783,000 and $4,319,000, respectively.
F-230
The Hercules Tire & Rubber Company and Subsidiaries
Notes to Consolidated Financial Statements
October 31, 2013 and 2012
The details of the net deferred tax liability are as follows:
2013 |
2012 |
|||||||
Deferred tax assets: |
||||||||
Tax operating loss carryforwards |
$ | 166,098 | $ | 166,116 | ||||
Allowances on inventories and receivables |
2,654,492 | 2,339,018 | ||||||
Foreign tax credit |
| 39,854 | ||||||
Accrued liabilities and other |
2,821,788 | 1,601,122 | ||||||
|
|
|
|
|||||
Gross deferred tax assets |
5,642,378 | 4,146,110 | ||||||
Deferred tax liabilities: |
||||||||
Property and equipment |
(3,481,393 | ) | (3,677,015 | ) | ||||
Intangible assets |
(2,391,165 | ) | (2,518,268 | ) | ||||
Other |
(476,820 | ) | (322,827 | ) | ||||
|
|
|
|
|||||
Gross deferred tax liabilities |
(6,349,378 | ) | (6,518,110 | ) | ||||
|
|
|
|
|||||
Net deferred tax liability |
$ | (707,000 | ) | $ | (2,372,000 | ) | ||
|
|
|
|
The Company has approximately $5,537,000 of state net operating loss carryforwards available to reduce future income taxes, expiring in 2014 through 2027.
The Company is not currently under examination by the U.S. Internal Revenue Service or any state or local tax authorities. The Companys federal income tax returns for the years prior to October 31, 2010 are no longer subject to examination. The Company had an Internal Revenue Service audit through October 31, 2008. The Company also files in various states within the U.S., most notably California and Florida. The state tax returns prior to October 31, 2008 are no longer subject to examination.
The Company was under audit with the Canada Revenue Agency (CRA) during fiscal year 2012 for the 2009 and 2010 tax years. The CRA has completed its audit and has assessed an insignificant amount of taxes owed. The Company is in the process of appealing. The additional taxes, if any, are deemed insignificant by management.
Note 8Capital Stock
Common stock consists of 1,500,000 authorized shares of no par value stock. As of October 31, 2013 and 2012, there were 1,034,172 shares issued and outstanding.
Note 9Stock-based Compensation
The Management Stock Option Plan permits the grant of share options to employees for up to 123,596 shares of common stock. Option awards are generally granted with an exercise price equal to the fair value of the Companys stock at the date of grant; those option awards generally vest based on four years of continuous service and have 10-year contractual terms. Certain option and share awards provide for accelerated vesting if there is a change in control (as defined in the plan).
Total compensation cost that has been charged against income for those plans was approximately $150,000 and $155,000 for 2013 and 2012, respectively.
F-231
The Hercules Tire & Rubber Company and Subsidiaries
Notes to Consolidated Financial Statements
October 31, 2013 and 2012
The fair value of each option award is estimated on the date of grant using a BlackScholes option valuation model that uses the weighted average assumptions noted in the following table. Expected volatility is based on historical volatility of the NASDAQ transportation index. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.
2013 |
2012 |
|||||||
Range of expected volatility |
32 | % | 34 | % | ||||
Range of expected dividends |
0 | % | 0 | % | ||||
Expected term (in years) |
5 | 5 | ||||||
Risk-free rate |
1.01 | % | 0.88 | % |
A summary of option activity under the plan for the year ended October 31, 2013 is presented below:
Options |
Number of Shares |
Weighted |
Weighted |
|||||||||
Outstanding at November 1, 2011 |
104,899 | $ | 61.69 | 5.4 | ||||||||
Granted |
4,500 | 93.96 | 9.0 | |||||||||
Outstanding at November 1, 2012 |
109,399 | 63.02 | 4.6 | |||||||||
Granted |
19,000 | 75.67 | 9.3 | |||||||||
Forfeited or expired |
(6,750 | ) | 61.12 | 7.4 | ||||||||
|
|
|||||||||||
Outstanding at October 31, 2013 |
121,649 | 64.89 | 4.0 | |||||||||
|
|
As of October 31, 2013, there was approximately $487,000 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the plan. That cost is expected to be recognized over a weighted average period of 1.9 years. As of October 31, 2013 and 2012, there were no options exercised. As of October 31, 2013, there are 76,639 options fully vested.
The Company has an incentive plan that provides an incentive payment at the time of a change of control. The benefits vest over four years and were fully vested as of October 31, 2013. At October 31, 2013 and 2012, a liability of $3,200,000 and $1,300,000, respectively has been recorded based on the fair value of the incentive plan. Compensation expense of $1,900,000 and $1,300,000 has been recorded for 2013 and 2012, respectively, related to the incentive plan.
Note 10Related Party Transactions
Management FeesFor the years ended October 31, 2013 and 2012, the Company incurred expenses and management fees payable to an affiliate of one of the stockholders of $1,000,014 and $505,897, respectively.
Note 11Operating Leases
The Company leases certain buildings, equipment, and land for use in operations. Rental expense under all operating leases was approximately $13,030,000 and $12,376,000 for the years ended October 31, 2013 and 2012, respectively. Certain leases provide for renewals at the Companys option at the end of the initial lease term.
F-232
The Hercules Tire & Rubber Company and Subsidiaries
Notes to Consolidated Financial Statements
October 31, 2013 and 2012
Future minimum annual commitments under these operating leases are as follows:
Years Ending October 31 |
Amount |
|||
2014 |
$ | 9,313,854 | ||
2015 |
8,695,265 | |||
2016 |
6,356,289 | |||
2017 |
3,532,766 | |||
2018 |
2,172,756 | |||
Thereafter |
1,898,221 | |||
|
|
|||
Total |
$ | 31,969,151 | ||
|
|
Note 12Retirement Plans
The Company sponsors a 401(k) plan for substantially all employees. The plan provides for the Company to make a matching contribution. Contributions to the plan approximated $939,000 and $912,000 for the years ended October 31, 2013 and 2012, respectively.
Note 13Contingencies
The Company is a party to various lawsuits and claims arising in the normal course of business, including certain claims pertaining to product liability matters that name the Company as co-defendant along with the manufacturer. In most of these cases, the manufacturer has assumed defense of the claim on behalf of the named defendants. Management believes that the ultimate resolution of pending lawsuits and claims will not have a material adverse effect on the consolidated financial statements of the Company.
Note 14Fair Value Measurements
Accounting standards require certain assets and liabilities be reported at fair value in the consolidated financial statements and provide a framework for establishing that fair value. The framework for determining fair value is based on a hierarchy that prioritizes the valuation techniques and inputs used to measure fair value.
In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets and liabilities in active markets and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset. These Level 3 fair value measurements are based primarily on managements own estimates using pricing models, discounted cash flow methodologies, or similar techniques taking into account the characteristics of the asset.
In instances whereby inputs used to measure fair value fall into different levels of the fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The Companys assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability.
F-233
The Hercules Tire & Rubber Company and Subsidiaries
Notes to Consolidated Financial Statements
October 31, 2013 and 2012
The Company measures interest rate swaps at fair value on a recurring basis. The fair value of interest rate swaps is based primarily on Level 2 inputs as described above.
Note 15Business Combination
On November 9, 2011, the Company purchased certain assets and assumed certain liabilities of a Canadian tire distributor located in Ville Sainte-Catherine in the Province of Quebec (the Montreal location). The primary reason for the acquisition was to expand the Companys distribution operations by adding the Montreal location. The goodwill arising from the acquisition consists largely of the synergies and economies of scale expected from combining the operations of the Company and the Montreal location. The agreed-upon price was $3,545,614; however, subsequent to the asset purchase, final adjustments to the consideration resulted in a decrease to the purchase price of approximately $177,000. The transaction was financed through the Companys line of credit.
The following table summarizes the acquisition date fair values of the assets acquired and liabilities assumed translated to U.S. dollars:
Accounts receivable |
$ | 1,847,405 | ||
Inventory |
3,043,422 | |||
Prepaids |
28,758 | |||
Property, plant, and equipment |
357,499 | |||
Other assets |
289,585 | |||
Accounts payable |
(2,623,411 | ) | ||
Accrued liabilities |
(168,844 | ) | ||
|
|
|||
Total identifiable net assets |
2,774,414 | |||
Goodwill |
636,270 | |||
|
|
|||
Total |
$ | 3,410,684 | ||
|
|
The difference between the goodwill amount in the schedule above and the goodwill reported on the consolidated balance sheet is due to foreign currency translation.
F-234
Independent Auditors Report on Additional Information
To the Board of Directors
The Hercules Tire & Rubber
Company and Subsidiaries
We have audited the consolidated financial statements of The Hercules Tire & Rubber Company and Subsidiaries as of and for the years ended October 31, 2013 and 2012. Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements taken as a whole. The consolidated schedule of adjusted earnings before interest, taxes, depreciation, and amortization (Adjusted EBITDA) is presented for the purpose of additional analysis and is not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements taken as a whole.
/s/ Plante & Moran, PLLC
December 19, 2013
F-235
The Hercules Tire & Rubber Company and Subsidiaries
Consolidated Schedule of Adjusted EBITDA
Year Ended October 31 |
||||||||
2013 |
2012 |
|||||||
Net income |
$ | 5,584,580 | $ | 6,202,913 | ||||
Interest expense |
6,699,610 | 6,596,842 | ||||||
Income tax expense |
3,209,000 | 4,031,000 | ||||||
Depreciation expense |
5,327,346 | 4,845,363 | ||||||
AmortizationIntangible assets |
474,996 | 680,004 | ||||||
AmortizationDebt issue costs |
833,202 | 775,417 | ||||||
Management fees and expenses |
1,000,014 | 505,897 | ||||||
Noncash compensation expense |
2,050,204 | 1,455,315 | ||||||
Loss on sale of fixed assets |
204,421 | 57,927 | ||||||
Foreign exchange loss |
2,075,289 | 377,180 | ||||||
|
|
|
|
|||||
Adjusted earnings before interest, taxes, depreciation, and amortization (ADJUSTED EBITDA) |
$ | 27,458,662 | $ | 25,527,858 | ||||
|
|
|
|
Adjusted EBITDA includes adjustments for items not typically included in EBITDA such as management fees and expenses, non-cash compensation expense, loss on sale of fixed assets and foreign exchange loss, as presented above.
F-236
Regional Tire Distributors Inc.
January 31, 2013 and 2012
Table of contents
F-238 | ||||
F-239 | ||||
F-240 | ||||
F-241 | ||||
F-242 | ||||
F-243 F-256 |
F-237
Deloitte LLP | ||
1005 Skyview Drive | ||
Suite 200 | ||
Burlington ON L7P 5B1 | ||
Canada | ||
Tel: 905-315-6770 | ||
Fax: 905-315-6700 | ||
www.deloitte.ca |
To the shareholders of
Regional Tire Distributors Inc.
We have audited the accompanying consolidated financial statements of Regional Tire Distributors Inc. (the Company), which comprise the consolidated balance sheets as of January 31, 2013 and 2012, and the related consolidated statements of income and comprehensive income, stockholders equity, and cash flows for each of the years in the two year period ended January 31, 2013, and the related notes to the consolidated financial statements.
Managements Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Companys preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Regional Tire Distributors as of January 31, 2013 and 2012, and the results of their operations and their cash flows for each of the years in the two year period ending January 31, 2013 in accordance with accounting principles generally accepted in the United States of America.
/s/ Deloitte LLP
Chartered Professional Accountants, Chartered Accountants
Licensed Public Accountants
April 25, 2013
F-238
Regional Tire Distributors Inc.
Consolidated statements of income and comprehensive income
years ended January 31, 2013 and 2012
(Presented in United States Dollars)
2013 |
2012 |
|||||||
$ | $ | |||||||
Revenue |
113,573,723 | 77,049,240 | ||||||
Cost of sales |
89,280,458 | 60,739,542 | ||||||
|
|
|
|
|||||
Gross margin |
24,293,265 | 16,309,698 | ||||||
|
|
|
|
|||||
Selling, general and administrative expenses |
17,126,775 | 11,836,524 | ||||||
Depreciation and amortization |
520,913 | 119,849 | ||||||
|
|
|
|
|||||
17,647,688 | 11,956,373 | |||||||
|
|
|
|
|||||
Operating income |
6,645,577 | 4,353,325 | ||||||
|
|
|
|
|||||
Other income (expense) |
||||||||
Gain on acquisition (Note 16) |
2,033,068 | | ||||||
Interest expense |
(290,276 | ) | (37,559 | ) | ||||
Equity accounted income (Note 7) |
106,621 | 429,439 | ||||||
Management fee income |
115,201 | 82,866 | ||||||
Other income |
151,723 | 28,116 | ||||||
|
|
|
|
|||||
2,116,337 | 502,862 | |||||||
|
|
|
|
|||||
Income before income taxes |
8,761,914 | 4,856,187 | ||||||
Income tax expense (recovery) (Note 15) |
||||||||
Deferred |
(52,410 | ) | | |||||
Current |
1,855,519 | 1,187,407 | ||||||
|
|
|
|
|||||
Net income |
6,958,805 | 3,668,780 | ||||||
|
|
|
|
|||||
Net income attributable to non-controlling interest |
94,442 | | ||||||
Net income attributable to stockholders |
6,864,363 | 3,668,780 | ||||||
|
|
|
|
|||||
Net income |
6,958,805 | 3,668,780 | ||||||
|
|
|
|
|||||
Other comprehensive (loss) income |
||||||||
Foreign currency translation adjustment |
(17,867 | ) | (38,938 | ) | ||||
|
|
|
|
|||||
Comprehensive income |
6,940,938 | 3,629,842 | ||||||
|
|
|
|
|||||
Comprehensive income attributable to non-controlling interest |
93,191 | | ||||||
Comprehensive income attributable to stockholders |
6,847,747 | 3,629,842 | ||||||
|
|
|
|
|||||
Comprehensive income |
6,940,938 | 3,629,842 | ||||||
|
|
|
|
The accompanying notes to the consolidated financial statements are an integral part of this consolidated financial statement.
F-239
Regional Tire Distributors Inc.
Consolidated balance sheets
as at January 31, 2013 and 2012
(Presented in United States Dollars)
2013 |
2012 |
|||||||
$ | $ | |||||||
Assets |
||||||||
Current assets |
||||||||
Cash |
759,898 | 3,863,970 | ||||||
Accounts receivable (Note 3) |
7,369,355 | 4,870,362 | ||||||
Income taxes receivable |
| 238,534 | ||||||
Inventories (Note 4) |
20,257,556 | 10,343,466 | ||||||
Current portion of note receivable (Note 5) |
109,757 | 219,107 | ||||||
Due from related companies (Note 6) |
172,244 | 1,040,042 | ||||||
Prepaid expenses and deposits |
502,791 | 106,547 | ||||||
|
|
|
|
|||||
29,171,601 | 20,682,028 | |||||||
Note receivable (Note 5) |
| 109,553 | ||||||
Investments in affiliates (Note 7) |
60,361 | 1,030,436 | ||||||
Property, plant and equipment (Note 8) |
993,416 | 548,035 | ||||||
Intangible assets (Note 9) |
7,253,577 | | ||||||
Goodwill (Note 16) |
2,728,656 | | ||||||
|
|
|
|
|||||
40,207,611 | 22,370,052 | |||||||
|
|
|
|
|||||
Liabilities |
||||||||
Current liabilities |
||||||||
Bank indebtedness (Note 10) |
2,461,136 | | ||||||
Accounts payable and accrued liabilities |
14,458,562 | 11,750,038 | ||||||
Income taxes payable |
490,597 | | ||||||
Deferred revenue |
89,063 | 177,796 | ||||||
Due to related companies (Note 6) |
138,631 | 120,154 | ||||||
Current portion of long-term debt (Note 11) |
1,839,259 | | ||||||
|
|
|
|
|||||
19,477,248 | 12,047,988 | |||||||
Deferred income taxes (Note 15) |
1,931,374 | | ||||||
Long-term debt (Note 11) |
2,048,796 | | ||||||
|
|
|
|
|||||
23,457,418 | 12,047,988 | |||||||
|
|
|
|
|||||
Stockholders equity |
||||||||
Share capital (Note 12) |
1,490,610 | 1,490,610 | ||||||
Accumulated other comprehensive income |
397,779 | 414,395 | ||||||
Retained earnings |
14,279,222 | 8,417,059 | ||||||
|
|
|
|
|||||
Total equity attributable to stockholders |
16,167,611 | 10,322,064 | ||||||
Non-controlling interest |
582,582 | | ||||||
|
|
|
|
|||||
Total equity |
16,750,193 | 10,322,064 | ||||||
|
|
|
|
|||||
40,207,611 | 22,370,052 | |||||||
|
|
|
|
The accompanying notes to the consolidated financial statements are an integral part of this consolidated financial statement.
F-240
Regional Tire Distributors Inc.
Consolidated statements of cash flows
years ended January 31, 2013 and 2012
(Presented in United States Dollars)
2013 |
2012 |
|||||||
$ | $ | |||||||
Operating activities |
||||||||
Net income |
6,958,805 | 3,668,780 | ||||||
Items not affecting cash |
||||||||
Depreciation and amortization |
520,913 | 119,849 | ||||||
Equity accounted income (Note 7) |
(106,621 | ) | (429,439 | ) | ||||
Gain on acquisition (Note 16) |
(2,033,068 | ) | | |||||
Deferred income taxes |
(52,410 | ) | | |||||
Changes in non-cash operating working capital items |
||||||||
Accounts receivable |
(175,742 | ) | 87,161 | |||||
Inventory |
(360,603 | ) | (3,105,133 | ) | ||||
Prepaid expenses and deposits |
(289,830 | ) | 81,313 | |||||
Accounts payable and accrued liabilities |
(3,848,121 | ) | 1,903,589 | |||||
Deferred revenue |
(89,456 | ) | | |||||
Income taxes |
646,650 | (214,297 | ) | |||||
|
|
|
|
|||||
1,170,517 | 2,111,823 | |||||||
|
|
|
|
|||||
Investing activities |
||||||||
Acquisition of property, plant and equipment |
(323,960 | ) | (458,541 | ) | ||||
Advances to related parties |
(1,028,324 | ) | (564,049 | ) | ||||
Proceeds received from related parties |
| 121,813 | ||||||
Proceeds received from note receivable |
220,484 | | ||||||
Acquisition of intangible assets |
(100,220 | ) | | |||||
Acquisition of subsidiary (Note 16) |
(4,993,000 | ) | | |||||
|
|
|
|
|||||
(6,225,020 | ) | (900,777 | ) | |||||
|
|
|
|
|||||
Financing activities |
||||||||
Dividends paid |
(1,021,209 | ) | (1,514,550 | ) | ||||
Proceeds from bank indebtedness |
(57,559 | ) | | |||||
Proceeds from long-term debt |
3,507,700 | | ||||||
Repayment of long-term debt |
(471,034 | ) | | |||||
|
|
|
|
|||||
1,957,898 | (1,514,550 | ) | ||||||
|
|
|
|
|||||
Effect of foreign exchange rate changes on cash |
(7,467 | ) | 4,198 | |||||
|
|
|
|
|||||
Change in cash during the year |
(3,104,072 | ) | (299,306 | ) | ||||
Cash, beginning of the year |
3,863,970 | 4,163,276 | ||||||
|
|
|
|
|||||
Cash, end of the year |
759,898 | 3,863,970 | ||||||
|
|
|
|
|||||
Supplemental cash flow information |
||||||||
Income taxes paid |
1,440,690 | 1,426,096 | ||||||
|
|
|
|
|||||
Interest paid |
132,110 | 26,170 | ||||||
|
|
|
|
The accompanying notes to the consolidated financial statements are an integral part of this consolidated financial statement.
F-241
Regional Tire Distributors Inc.
Consolidated statements of stockholders equity
years ended January 31, 2013 and 2012
(Presented in United States Dollars)
Common shares |
Accumulated |
Retained |
Total equity |
Non- |
Total equity |
|||||||||||||||||||||||
# | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
Balance, January 31, 2011 |
1,500,000 | 1,490,610 | 453,333 | 6,262,829 | 8,206,772 | | 8,206,772 | |||||||||||||||||||||
Net income |
| | | 3,668,780 | 3,668,780 | | 3,668,780 | |||||||||||||||||||||
Other comprehensive loss |
| | (38,938 | ) | | (38,938 | ) | | (38,938 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Comprehensive income |
| | (38,938 | ) | 3,668,780 | 3,629,842 | | 3,629,842 | ||||||||||||||||||||
Dividends |
| | | (1,514,550 | ) | (1,514,550 | ) | | (1,514,550 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balance, January 31, 2012 |
1,500,000 | 1,490,610 | 414,395 | 8,417,059 | 10,322,064 | | 10,322,064 | |||||||||||||||||||||
Non-controlling interest acquired |
| | | | | 508,400 | 508,400 | |||||||||||||||||||||
Net income |
| | | 6,864,363 | 6,864,363 | 94,442 | 6,958,805 | |||||||||||||||||||||
Other comprehensive loss |
| | (16,616 | ) | | (16,616 | ) | (1,251 | ) | (17,867 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Comprehensive income |
| | 397,779 | 6,864,363 | 6,847,747 | 93,191 | 6,940,938 | |||||||||||||||||||||
Dividends |
| | | (1,002,200 | ) | (1,002,200 | ) | (19,009 | ) | (1,021,209 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balance, January 31, 2013 |
1,500,000 | 1,490,610 | 397,779 | 14,279,222 | 16,167,611 | 582,582 | 16,750,193 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to the consolidated financial statements are an integral part of this consolidated financial statement.
F-242
Regional Tire Distributors Inc.
Notes to the consolidated financial statements
January 31, 2013 and 2012
(Presented in United States Dollars)
1. Nature of business
Regional Tire Distributors Inc. (Company) was incorporated on July 21, 2008 under the laws of the Province of Ontario, Canada and commenced active operations in September of 2008. The Company, based in Burlington, Ontario, Canada, is a wholesale distributor of tires and services to retail tire locations across Canada including independent service garages, automotive car dealers and large national customers.
2. Significant accounting policies
Basis of preparation
These consolidated financial statements are prepared in United States (US) dollars and in accordance with accounting principles generally accepted in the United States of America (GAAP). A summary of significant accounting policies consistently applied in the preparation of the consolidated financial statements are outlined below.
Basis of consolidation
These consolidated financial statements include the financial statements of Regional Tire Distributors Inc., its wholly-owned subsidiary JAB Holdings Ltd. and its majority owned subsidiary Regional Tire Distributors (Atlantic) Inc. The Company does not have any variable interests in variable interest entities. All intercompany accounts and transactions have been eliminated during consolidation.
Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates are based on several factors including the facts and circumstances available at the time of the estimates are made, historical experience, risk of loss, general economic conditions and trends, and the assessment of the probably future outcome. Significant estimates include inventory obsolescence reserves, allowance for doubtful accounts, returns and rebates, valuation of long lived assets, purchase price allocations in business combinations and deferred taxes. Estimates and assumptions are reviewed periodically, and the effects of changes, if any, are reflected in the statement of comprehensive income in the period that they are determined.
Allowance for doubtful accounts
The allowance for doubtful accounts represents the best estimate of probable loss inherent within the Companys accounts receivable balance. Estimates are based upon the creditworthiness of specific customers and past experience of write offs.
Inventories
Inventories are stated at the lower of cost, determined on the first-in, first-out (FIFO) method, or net realizable value and consist primarily of automotive tires, wheels, tubes and wheel accessories. The Company performs periodic assessments to determine the existence of obsolete, slow-moving and non-saleable inventories and records necessary provisions to reduce such inventories to net realizable value.
F-243
Regional Tire Distributors Inc.
Notes to the consolidated financial statements
January 31, 2013 and 2012
(Presented in United States Dollars)
Investments in affiliates
The Company holds equity investments in affiliates for which it does not have a controlling financial interest, but has the ability to exercise significant influence over the operating and financial policies of the investee. These investments are accounted for under the equity method of accounting wherein the Company records its proportionate share of the investees income or loss in its consolidated financial statements.
Investments are evaluated for impairment when facts or circumstances indicate that the fair value of the investment is less than its carrying value. Impairment is recognized when a decline in fair value is determined to be other-than-temporary. The Company reviews several factors to determine whether a loss is other-than-temporary. These factors include, but are not limited to, the: (1) nature of the investment; (2) cause and duration of the impairment; (3) extent to which fair value is less than cost; (4) financial conditions and near term prospects of the issuers; and (5) ability to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value.
Business combinations
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Company, liabilities incurred by the Company to the former owners of the acquiree and the equity interests issued by the Company in exchange for control of the acquiree.
At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognized at their fair value. The Corporation measures goodwill as the fair value of the consideration transferred, including the recognized amount of any non-controlling interest in the acquiree, less the net recognized amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date. When the excess is negative, a bargain purchase gain is recognized immediately in profit or loss.
The Company has measured the non-controlling interest at its fair value on the acquisition date.
Transaction costs, other than those associated with the issuance of debt or equity securities, that the Company incurs in connection with a business combination are expensed as incurred.
Income taxes
The Company accounts for income taxes in accordance with FASB Accounting Standard Codification (ASC) Topic 740, Income Taxes (ASC Topic 740). ASC Topic 740 requires the determination of deferred tax assets and liabilities based on the differences between the financial statement and income tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. The measurement of a deferred tax asset is adjusted by a valuation allowance, if necessary, to recognize tax benefits only to the extent that, based on available evidence, it is more likely than not that they will be realized. In determining the valuation allowance, the Company considers factors by taxing jurisdiction, including estimated taxable income, history of losses for tax purposes, tax planning strategies and the likelihood of success of tax filing positions, among others. A change to any of these factors could impact the estimated valuation allowance and income tax expense.
F-244
Regional Tire Distributors Inc.
Notes to the consolidated financial statements
January 31, 2013 and 2012
(Presented in United States Dollars)
The Company accounts for uncertain tax positions by recognizing the financial statement effects of a tax position only when, based upon the technical merits, it is more-likely-than-not that the position will be sustained upon examination. The tax impacts recognized in the financial statements from such positions are then measured based on the largest impact that has a greater than 50% likelihood of being realized upon settlement. The Company recognizes potential accrued interest and penalties associated with unrecognized tax positions as a component of the provision for income taxes.
Foreign currency
The Canadian dollar is the currency in which a substantial amount of the Companys transactions are denominated and is the functional currency of the Company. Monetary assets and liabilities denominated in currencies other than the Canadian dollar are translated into Canadian dollars at the rates of exchange ruling at the balance sheet date. Transactions in currencies other than the Canadian dollar during the year are converted into Canadian dollar at the applicable rates of exchange prevailing on the transaction date. Transaction gains and losses are recognized in the consolidated statements of comprehensive income.
The Company has chosen to present its financial statements in United States Dollars. The financial statements are translated to the United States dollar presentation currency at the end of the reporting period. Assets and liabilities are translated at the January 31 rates of exchange. Income and expenses are translated at rates prevailing at the date of the transaction. The Company has used average exchange rates to approximate the rates prevailing at the date of the transactions. All exchange gains and losses are recognized as a separate component of stockholders equity.
Financial instruments
Financial instruments are comprised of cash, accounts receivable, due to/from related parties, note receivable, bank indebtedness, accounts payable and accrued liabilities and long-term debt. The estimated fair values of cash, accounts receivable, due to/from related parties, note receivable, bank indebtedness, accounts payable and accrued liabilities are approximate to book values because of their short-term maturities. The long-term debt approximates carrying value as it bears interests at variable rates. All financial instruments are measured at amortized cost.
Interest rate risk
The Company is subject to interest rate risk due to changes to the prime rate since the majority of its borrowings bear variable interest rates. A change in the interest rate of plus or minus one percent as at January 31, 2013 would result in a $54,844 decrease or increase in net income before income taxes. The Company does not use derivative instruments to manage this risk.
Liquidity risk
The Companys objective is to have sufficient liquidity to meet its liabilities when due. The Company monitors its cash balances and cash flows generated from operations to meet its requirements. As at January 31, 2013 and January 31, 2012, the most significant financial liabilities relate to bank indebtedness, accounts payable and accrued liabilities, due to related parties, and long-term debt.
F-245
Regional Tire Distributors Inc.
Notes to the consolidated financial statements
January 31, 2013 and 2012
(Presented in United States Dollars)
Credit risk
The Company provides credit to its customers in the normal course of its operations. It carries out, on a continuing basis, credit checks on its customers and maintains provisions for contingent credit losses. The Companys maximum exposure to credit risk is represented by the carrying value of financial assets on the consolidated balance sheets.
Property, plant and equipment
Property, plant and equipment are stated at cost, less accumulated depreciation. For financial reporting purposes, assets placed in service are recorded at cost and depreciated using the declining-balance method at annual rates sufficient to amortize the cost of the assets less estimated salvage values over the assets estimated useful lives. Leasehold improvements are amortized over the shorter of their economic useful life or the related lease term. The depreciation rates used to depreciate property, plant and equipment is as follows:
Vehicles |
30% declining-balance | |
Computer equipment |
30% declining-balance | |
Office equipment |
20% declining-balance | |
Warehouse equipment |
20% declining-balance | |
Leasehold improvements |
Over the term of the lease |
Impairment of long-lived assets
The Company evaluates the carrying value of definite life long-lived assets such as property, plant and equipment and intangible assets, whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. An impairment loss is recognized when the estimate of undiscounted future cash flows generated by such assets is less than the carrying value. Measurement of the impairment loss is based on the present value of the expected future cash flows.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets of acquired businesses and is tested for impairment annually and whenever an event or circumstance occurs that indicates that goodwill might be impaired. When the carrying amount of a reporting unit, including goodwill, exceeds its fair value, a goodwill impairment loss is recognized in net earnings in an amount equal to the excess.
Intangible assets
Intangible assets are comprised of customer relationships and a tradename acquired through the business acquisition of Regional Tire Distributors (Atlantic) Inc.
Amortization is provided using the following methods and annual rates:
Customer relationships | 12 years straight line | |
Tradename |
7 years straight line |
F-246
Regional Tire Distributors Inc.
Notes to the consolidated financial statements
January 31, 2013 and 2012
(Presented in United States Dollars)
Revenue recognition
Revenue is recognized and earned when all of the following criteria are satisfied: (a) persuasive evidence of a sales arrangement exists; (b) price is fixed or determinable; (c) collectability is reasonably assured; and (d) delivery has occurred or service has been rendered. The Company recognizes revenue when the title and the risks and rewards of ownership have substantially transferred to the customer, which is upon delivery under free on board (FOB) destination terms. The Company permits customers from time to time to return certain products, but there is no contractual right of return. The Company continuously monitors and tracks such returns and records an estimate of such future returns, which is based on historical experience and recent trends.
Customer rebates
The Company offers rebates to its customers under a number of different programs. These rebates are recorded in accordance with the accounting standards for consideration given by a vendor to a customer. The majority of these programs provide for the customer to receive rebates, generally in the form of a reduction in the related accounts receivable balance, when certain measures are achieved, generally related to the volume of product purchased from the Company. These rebates are recorded as a reduction of the related price of the product, which reduces the amount of revenue recorded. Throughout the year, the amount of rebates is estimated based on the expected level of purchases to be made by customers that participate in the rebate programs. These estimates are periodically revised to reflect rebates earned by customers based on actual purchases made.
Manufacturer rebates
The Company receives rebates from its vendors under a number of different programs. These rebates are recorded in accordance with the accounting standards for cash consideration received from a vendor. Many of the vendor programs provide for the Company to receive rebates when any of a number of measures are achieved, generally related to the volume of purchases. These rebates are accounted for as a reduction to the price of the product, which reduces the carrying value of our inventory, and our cost of goods sold when product is sold.
3. Accounts receivable
2013 |
2012 |
|||||||
$ | $ | |||||||
Accounts receivable |
7,684,285 | 5,160,144 | ||||||
Less: allowance for doubtful accounts |
(314,930 | ) | (289,782 | ) | ||||
|
|
|
|
|||||
7,369,355 | 4,870,362 | |||||||
|
|
|
|
Bad debt expense was $13,129 for the year ended January 31, 2013 (2012$142,364).
4. Inventories
2013 |
2012 |
|||||||
$ | $ | |||||||
Tire inventories |
19,932,030 | 9,713,102 | ||||||
Wheel inventories |
247,503 | 578,992 | ||||||
Parts |
78,023 | 51,372 | ||||||
|
|
|
|
|||||
20,257,556 | 10,343,466 | |||||||
|
|
|
|
F-247
Regional Tire Distributors Inc.
Notes to the consolidated financial statements
January 31, 2013 and 2012
(Presented in United States Dollars)
5. Note receivable
2013 |
2012 |
|||||||
$ | $ | |||||||
Note receivable |
109,757 | 328,660 | ||||||
Less: current portion |
109,757 | 219,107 | ||||||
|
|
|
|
|||||
Long term portion |
| 109,553 | ||||||
|
|
|
|
The amount is due from one of the Companys landlords and relates to reimbursable costs for tenant improvements. As set out in the premise rental agreement, the Company is entitled to a total allowance of $329,271 ($330,000 Canadian dollars) for partial reimbursement of actual costs incurred relating to tenant improvements upon completion of a statutory declaration. The amount is payable in three installments of $109,757 ($110,000 Canadian dollars) with the final installment due on June 1, 2013.
6. Related party transactions
The following balances are due from related parties:
2013 |
2012 |
|||||||
$ | $ | |||||||
Regional Tire Distributors (Atlantic) Inc., demand promissory note, secured by a general pledge of all assets, non-interest bearing, payable on demand |
| 782,636 | ||||||
Tirecraft Eastern Canada Limited, demand promissory note, secured by a general pledge of all assets, non-interest bearing payable on demand |
| 49,747 | ||||||
Tire Hotel Inc., promissory note, unsecured, non-interest bearing, repayable on demand |
| 109,363 | ||||||
Trade receivable balances due from related parties |
172,244 | 98,296 | ||||||
|
|
|
|
|||||
172,244 | 1,040,042 | |||||||
|
|
|
|
The following balances are due to related parties:
2013 |
2012 |
|||||||
$ | $ | |||||||
Non-controlling interest, demand promissory note, secured by a general pledge of all assets, non-interest bearing, payable on demand |
48,886 | | ||||||
Trade payable and accrual balances due to related parties |
89,745 | 120,154 | ||||||
|
|
|
|
|||||
138,631 | 120,154 | |||||||
|
|
|
|
F-248
Regional Tire Distributors Inc.
Notes to the consolidated financial statements
January 31, 2013 and 2012
(Presented in United States Dollars)
During the year, the Company entered into the following transactions with related parties:
2013 |
2012 |
|||||||
$ | $ | |||||||
Management fees paid |
271,003 | 275,006 | ||||||
Management fees paid (Atlantic) |
56,987 | 129,155 | ||||||
Revenue from related parties |
4,632,486 | 4,838,502 | ||||||
Revenue from related parties (Atlantic) |
1,486,565 | 3,989,355 | ||||||
Purchases from related parties (Atlantic) |
8,045 | 6,057 | ||||||
Rebate commissions paid |
843,029 | 693,334 | ||||||
Rebate commissions paid (Atlantic) |
124,083 | 193,175 |
The transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. The companies above are owned and controlled by a shareholder of the Company or Atlantic or are related due to common control and ownership.
7. Investments
Investment in Regional Tire Distributors (Atlantic) Inc.
On December 2, 2009 the Company acquired 38% of Regional Tire Distributors (Atlantic) Inc. (Atlantic) for $4. On August 3, 2012, the Company acquired an additional 55% of Atlantic. See note 16 for details of the acquisition. The following table shows the change in the investment.
2013 |
2012 |
|||||||
$ | $ | |||||||
Beginning balance |
989,119 | 591,359 | ||||||
Share of comprehensive income |
87,619 | 404,685 | ||||||
Acquisition of control |
(1,071,632 | ) | | |||||
Foreign exchange adjustment |
(5,106 | ) | (6,925 | ) | ||||
|
|
|
|
|||||
Ending balance |
| 989,119 | ||||||
|
|
|
|
Summarized balance sheet information of Atlantic is as follows:
2013 |
2012 |
|||||||
$ | $ | |||||||
Current assets |
| 6,947,488 | ||||||
Non-current assets |
| 441,219 | ||||||
Current liabilities |
| 4,957,817 | ||||||
Non-current liabilities |
| |
Summarized statement of operation information of Atlantic is as follows:
2013* |
2012 |
|||||||
$ | $ | |||||||
Revenue |
13,789,205 | 26,155,597 | ||||||
Expenses |
13,726,820 | 25,439,225 | ||||||
|
|
|
|
|||||
Net income |
62,385 | 716,372 | ||||||
|
|
|
|
* | period ending August 2, 2012 |
F-249
Regional Tire Distributors Inc.
Notes to the consolidated financial statements
January 31, 2013 and 2012
(Presented in United States Dollars)
Investment in Tire Hotel Inc.
The Company holds a 50% equity interest in Tire Hotel Inc. The following is a summary of the changes in the investment. The following table shows the change in the investment.
2013 |
2012 |
|||||||
$ | $ | |||||||
Beginning balance |
41,317 | 16,891 | ||||||
Share of comprehensive income |
19,052 | 24,804 | ||||||
Foreign exchange adjustment |
(8 | ) | (378 | ) | ||||
|
|
|
|
|||||
Ending balance |
60,361 | 41,317 | ||||||
|
|
|
|
Total investment balance
2013 |
2012 |
|||||||
$ | $ | |||||||
Regional Tire Distributors (Atlantic) Inc. |
| 989,119 | ||||||
Tire Hotel Inc. |
60,361 | 41,317 | ||||||
|
|
|
|
|||||
Total investment |
60,361 | 1,030,436 | ||||||
|
|
|
|
Equity accounted income
2013 |
2012 |
|||||||
$ | $ | |||||||
Regional Tire Distributors (Atlantic) Inc. |
87,619 | 404,685 | ||||||
Tire Hotel Inc. |
19,052 | 24,804 | ||||||
Tirecraft Eastern Canada Ltd. |
(50 | ) | (50 | ) | ||||
|
|
|
|
|||||
Total investment |
106,621 | 429,439 | ||||||
|
|
|
|
8. Property, plant and equipment
2013 |
||||||||||||
Cost |
Accumulated |
Net book |
||||||||||
$ | $ | $ | ||||||||||
Vehicles |
14,462 | 8,402 | 6,060 | |||||||||
Computer equipment |
134,426 | 70,044 | 64,382 | |||||||||
Office equipment |
70,270 | 34,225 | 36,045 | |||||||||
Warehouse equipment |
864,144 | 246,035 | 618,109 | |||||||||
Leasehold improvements |
404,545 | 135,725 | 268,820 | |||||||||
|
|
|
|
|
|
|||||||
1,487,847 | 494,431 | 993,416 | ||||||||||
|
|
|
|
|
|
F-250
Regional Tire Distributors Inc.
Notes to the consolidated financial statements
January 31, 2013 and 2012
(Presented in United States Dollars)
2012 |
||||||||||||
Cost |
Accumulated |
Net book |
||||||||||
$ | $ | $ | ||||||||||
Vehicles |
13,190 | 5,356 | 7,834 | |||||||||
Computer equipment |
66,637 | 34,568 | 32,069 | |||||||||
Office equipment |
64,053 | 23,215 | 40,838 | |||||||||
Warehouse equipment |
413,147 | 102,947 | 310,200 | |||||||||
Leasehold improvements |
213,917 | 56,823 | 157,094 | |||||||||
|
|
|
|
|
|
|||||||
770,944 | 222,909 | 548,035 | ||||||||||
|
|
|
|
|
|
Depreciation expense for the year ended January 31, 2013 was $189,829 (2012$119,849).
9. Intangible assets
2013 |
||||||||||||
Cost |
Accumulated amortization |
Net book value |
||||||||||
$ | $ | $ | ||||||||||
Customer relationships |
6,984,530 | 286,865 | 6,697,665 | |||||||||
Tradename |
598,674 | 42,762 | 555,912 | |||||||||
|
|
|
|
|
|
|||||||
7,583,204 | 329,627 | 7,253,577 | ||||||||||
|
|
|
|
|
|
The weighted average life of intangible assets is 11.6 years.
Amortization expense for the year ended January 31, 2013 was $331,084 (2012). The estimated aggregate amortization expense of intangible assets, as of January 31, 2013, in each of the next five years is expected to be as follows:
$ | ||||
2014 |
667,569 | |||
2015 |
667,569 | |||
2016 |
667,569 | |||
2017 |
667,569 | |||
2018 |
667,569 |
10. Bank indebtedness
2013 |
2012 |
|||||||
$ | $ | |||||||
Regional Tire Distributors (Atlantic) Inc.: |
||||||||
Royal Bank of Canada, variable rate loan bearing interest at prime plus 1.0%. Balance is payable on demand. |
2,461,136 | | ||||||
|
|
|
|
|||||
2,461,136 | | |||||||
|
|
|
|
F-251
Regional Tire Distributors Inc.
Notes to the consolidated financial statements
January 31, 2013 and 2012
(Presented in United States Dollars)
Regional Tire Distributors Inc.
The Company has a revolving demand facility of $4,589,834 ($4,600,000 Canadian dollars) of which $nil was drawn upon at January 31, 2013 (2012$nil). The revolving facility bears interest at prime plus 0.95%. Borrowings under the facility cannot exceed 75% of accounts receivable less potential prior ranking claims. This facility is secured by a first ranking security interest in all personal property of the Company and a $3,492,265 ($3,500,000 Canadian dollars) guarantee and postponement of claim by Regional Tire Distributors (Atlantic) Inc.
Regional Tire Distributors (Atlantic) Inc.
Regional Tire Distributors (Atlantic) Inc. has a revolving demand facility of $2,993,370 ($3,000,000 Canadian dollars) of which $2,461,136 was drawn upon at January 31, 2013 and another revolving demand facility of $1,746,133 ($1,750,000 Canadian dollars) of which $nil was drawn upon at January 31, 2013. The latter facility is available June 30 to December 20 of each year. The revolving facilities bear interest at prime plus 1.0%. Borrowings under the facility cannot exceed the aggregate of 75% of accounts receivable less potential prior ranking claims and 50% of the lesser of cost or net realizable value of unencumbered inventory to a maximum of $1,995,580 ($2,000, 000 Canadian dollars) increasing to $2,993,370 ($3,000,000 Canadian dollars) for the period of June 30th to December 20th inclusive in each year. These facilities are secured by a first ranking security interest in all personal property of the Regional Tire Distributors (Atlantic) Inc.
11. | Long-term debt |
2013 |
2012 |
|||||||
$ | $ | |||||||
Regional Tire Distributors Inc.: |
||||||||
Royal Bank of Canada, variable rate loan bearing interest at prime plus 1.0%. Balance is repayable in monthly installments of $234,481 ($235,000 Canadian dollars) in December through May of each year. |
3,023,304 | | ||||||
Regional Tire Distributors (Atlantic) Inc.: |
||||||||
Promissory note bearing no interest. Repayable in annual installments of $432,375 ($433,333 Canadian dollars). Balance matures on April 30, 2013. |
864,751 | | ||||||
|
|
|
|
|||||
3,888,055 | | |||||||
Current portion |
1,839,259 | | ||||||
|
|
|
|
|||||
2,048,796 | | |||||||
|
|
|
|
Regional Tire Distributors Inc.
The Company has a non-revolving term facility of $3,492,265 ($3,500,000 Canadian dollars), at a rate of prime plus 1%, of which $3,023,304 ($3,030,000 Canadian dollars) has been drawn upon at January 31, 2013 (2012$nil). The Company is required to make monthly payments on this facility of $234,481 ($235,000 Canadian dollars) in December through May of each year.
The term facility is repayable in full within 30 months of the original drawdown of the facility in August, 2012.
F-252
Regional Tire Distributors Inc.
Notes to the consolidated financial statements
January 31, 2013 and 2012
(Presented in United States Dollars)
This facility is secured by a first ranking security interest in all personal property of the Company and a $3,492,265 ($3,500,000 Canadian dollars) guarantee and postponement of claim by Regional Tire Distributors (Atlantic) Inc.
Principal payments of long-term debt are as follows:
$ | ||||
2014 |
1,839,259 | |||
2015 |
2,048,796 | |||
|
|
|||
3,888,055 | ||||
|
|
12. Share capital
Authorized , unlimited number |
||||||||
Common shares |
||||||||
Class A common shares |
||||||||
Class B common shares |
||||||||
Class A special shares |
||||||||
Class B special shares |
||||||||
Class C special shares |
||||||||
Issued |
||||||||
2013 | 2012 | |||||||
$ | $ | |||||||
1,500,000 common shares |
1,490,610 | 1,490,610 |
13. | Financial instruments |
The accounting standard for fair value measurements establishes a framework for measuring fair value that is based on the inputs market participants use to determine the fair value of an asset or liability and establishes a fair value hierarchy to prioritize those inputs. The fair value hierarchy is comprised of three levels that are described below:
| Level 1Inputs based on quoted prices in active markets for identical assets or liabilities. |
| Level 2Inputs other than Level 1 quoted prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability. |
| Level 3Unobservable inputs based on little or no market activity and that are significant to the fair value of the assets and liabilities, therefore requiring an entity to develop its own assumptions. |
The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The Company has no assets measured at fair value.
F-253
Regional Tire Distributors Inc.
Notes to the consolidated financial statements
January 31, 2013 and 2012
(Presented in United States Dollars)
14. Commitments
The Company is committed to the leases of vehicles, equipment and building premises in Ontario, Nova Scotia and Newfoundland. Future lease payments aggregate $5,446,908 and include the following amounts payable over the next five years:
$ | ||||
2014 |
1,566,178 | |||
2015 |
1,437,047 | |||
2016 |
1,168,871 | |||
2017 |
1,015,607 | |||
2018 |
259,205 | |||
|
|
|||
5,446,908 | ||||
|
|
Rental expense was $1,745,021 for the year ended January 31, 2013 (20121,408,845).
15. Income taxes
A reconciliation comparing income taxes calculated at the Canadian statutory rate to the amount provided in the consolidated financial statements is as follows:
2013 |
2012 |
|||||||
$ | $ | |||||||
Combined federal and provincial statutory income tax rate |
26.7 | % | 26.7 | % | ||||
|
|
|
|
|||||
Income before income taxes |
8,761,914 | 4,856,187 | ||||||
|
|
|
|
|||||
Expected income tax provision |
2,339,431 | 1,296,602 | ||||||
Increase (decrease) resulting from: |
||||||||
Effect of items that are not taxable |
31,745 | 5,987 | ||||||
Excess of capital cost allowance for income tax purposes over capital asset amortization for accounting purposes |
63,695 | 6,159 | ||||||
Non-taxable gain on acquisition |
(520,885 | ) | | |||||
Non-taxable investment equity pickup |
(27,317 | ) | (114,457 | ) | ||||
Other |
(83,560 | ) | (6,884 | ) | ||||
|
|
|
|
|||||
1,803,109 | 1,187,407 | |||||||
|
|
|
|
|||||
Deferred income tax recovery |
(52,410 | ) | | |||||
Current income tax expense |
1,855,519 | 1,187,407 | ||||||
|
|
|
|
|||||
Total |
1,803,109 | 1,187,407 | ||||||
|
|
|
|
F-254
Regional Tire Distributors Inc.
Notes to the consolidated financial statements
January 31, 2013 and 2012
(Presented in United States Dollars)
An analysis of the deferred income tax liability is as follows:
2013 |
2012 |
|||||||
$ | $ | |||||||
Deferred tax liabilities: |
||||||||
Intangible assets |
1,924,253 | | ||||||
Property, plant and equipment |
7,121 | | ||||||
|
|
|
|
|||||
1,931,374 | | |||||||
|
|
|
|
16. Acquisition of Regional Tire Distributors (Atlantic) Inc.
On August 3, 2012, the Company acquired an additional 55% share ownership in Atlantic bringing the total share ownership to 93%. Atlantic is a wholesale tire distributor in Eastern Canada. The total purchase price was $4,993,000 ($5,000,000 Canadian dollars). There were also acquisition-related costs incurred of $92,211 ($92,340 Canadian dollars). This acquisition was completed in order to increase the Companys presence in eastern Canada.
As discussed in Note 7, the Company held a 38% interest in Atlantic prior to the acquisition. This share investment was accounted for under the equity method. The Company recognized a gain before income taxes of $2,033,068 as a result of measuring at fair value its equity investment in Atlantic before the business combination. The fair value of the equity investment was determined by the implied purchase price of Atlantic based on the $5,000,000 Canadian dollar purchase price for 55% of Atlantic less a 10% minority discount resulting in a fair value of $3,104,700 ($3,109,100 Canadian dollars).
The allocation of the purchase price for accounting purposes was as follows:
$ | ||||
Accounts receivable (net of allowance for doubtful accounts of $80,449) |
2,316,856 | |||
Inventories |
9,543,602 | |||
Prepaid expenses |
107,578 | |||
Property, plant and equipment |
310,769 | |||
Customer relationships |
6,890,300 | |||
Tradename |
599,200 | |||
Bank indebtedness |
(2,520,486 | ) | ||
Accounts payable and accrued liabilities |
(6,523,176 | ) | ||
Note payable |
(1,913,337 | ) | ||
Long-term debt (including current portion) |
(865,453 | ) | ||
Income taxes payable |
(85,839 | ) | ||
Deferred tax liabilities |
(1,984,718 | ) | ||
|
|
|||
Total identifiable net assets |
5,875,296 | |||
Goodwill |
2,730,804 | |||
|
|
|||
Total |
8,606,100 | |||
|
|
|||
Total cash consideration paid to vendor |
4,993,000 | |||
Fair value of previously held equity interest |
3,104,700 | |||
Fair value of non-controlling interest |
508,400 | |||
|
|
|||
Total |
8,606,100 | |||
|
|
F-255
Regional Tire Distributors Inc.
Notes to the consolidated financial statements
January 31, 2013 and 2012
(Presented in United States Dollars)
The goodwill on the acquisition arose as a result of the value of the assembled workforce and the combined strategic value to our growth plan. The goodwill arising from the acquisition is not deductible for tax purposes.
The revenue and net earnings of the acquiree since the acquisition date included in the consolidated statement of income and comprehensive income for the period ending January 31, 2013 was $22,839,194 and $1,349,166 respectively.
The revenue and net earnings for the Company and Atlantic combined for the year ending January 31, 2013 as though the acquisition date for the business combination was February 1, 2012, would have been $127,298,611 and $6,768,349 respectively. The net earnings have been adjusted for the pro forma amortization of intangible assets of $331,084.
The purchase agreement contains a clause that if within five years of the closing date, the Company enters into an agreement to sell the shares of Atlantic, directly or indirectly, and if the transaction is successfully completed, the Company is required to pay additional consideration to the seller. The payment is determined based on a predetermined formula mainly driven by the increase in value of Atlantic in the subsequent purchase. The Company has determined the fair value of this subsequent payment clause on August 3, 2012 to be nominal.
17. Subsequent events
On March 22, 2013, the Company entered into a purchase and sale agreement with TriCan Tire Distributors Inc. to sell 100% of the common shares of the Company. The transaction is expected to close April 30, 2013. Events have been evaluated to April 25, 2013, which is the date the financial statements are issued.
F-256
To the Shareholder of Triwest Trading (Canada) Ltd.
Report on the Financial Statements
We have audited the accompanying financial statements of Triwest Trading (Canada) Ltd., which comprise the balance sheets as at December 31, 2011, December 31, 2010 and January 1, 2010 and the statements of income, retained earnings and cash flows for the years ended December 31, 2011, December 31, 2010 and December 31, 2009, and a summary of significant accounting policies and other explanatory information.
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian accounting standards for private enterprises, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entitys preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of Triwest Trading (Canada) Ltd. as at December 31, 2011, December 31, 2010 and January 1, 2010, and the results of its operations and its cash flows for the years ended December 31, 2011, December 31, 2010 and December 31, 2009 in accordance with Canadian accounting standards for private enterprises.
/s/ Kouri Berezan Heinrichs
Edmonton, Alberta
January 7, 2013 |
Chartered Accountants |
F-257
Balance Sheet
December 31, 2011
(In Canadian Dollars)
December 31, |
December 31, 2010 |
January 1, 2010 and 2009 |
||||||||||
ASSETS |
||||||||||||
CURRENT: |
||||||||||||
Accounts receivable (Note 4) |
$ | 23,098,940 | $ | 19,751,076 | $ | 16,452,887 | ||||||
Inventory |
38,396,801 | 26,537,290 | 17,475,387 | |||||||||
Prepaid expenses and sundry assets |
371,507 | 318,607 | 214,964 | |||||||||
|
|
|
|
|
|
|||||||
61,867,248 | 46,606,973 | 34,143,238 | ||||||||||
PROPERTY, PLANT AND EQUIPMENT (Note 5) |
1,042,459 | 694,735 | 568,798 | |||||||||
LONG TERM INVESTMENTS (Note 6) |
53,631 | 53,631 | 53,631 | |||||||||
|
|
|
|
|
|
|||||||
$ | 62,963,338 | $ | 47,355,339 | $ | 34,765,667 | |||||||
|
|
|
|
|
|
|||||||
LIABILITIES |
||||||||||||
CURRENT: |
||||||||||||
Bank indebtedness (Note 7) |
$ | 12,930,771 | $ | 9,047,206 | $ | 3,756,128 | ||||||
Accounts payable and accrued liabilities |
22,105,364 | 18,482,230 | 14,866,476 | |||||||||
Income taxes payable |
860,052 | 645,025 | 1,528,049 | |||||||||
Current portion of long term debt (Note 8) |
613,307 | 600,000 | 600,000 | |||||||||
Current portion of promissory note (Note 10) |
| 381,465 | 381,465 | |||||||||
|
|
|
|
|
|
|||||||
36,509,494 | 29,155,926 | 21,132,118 | ||||||||||
|
|
|
|
|
|
|||||||
LONG TERM DEBT (Note 8) |
1,004,665 | 1,500,000 | 2,100,000 | |||||||||
DUE TO SHAREHOLDER (Note 9) |
19,448,580 | 11,868,580 | 7,410,925 | |||||||||
PROMISSORY NOTE (Note 10) |
| | 381,465 | |||||||||
|
|
|
|
|
|
|||||||
56,962,739 | 42,524,506 | 31,024,508 | ||||||||||
|
|
|
|
|
|
|||||||
SHAREHOLDERS EQUITY |
||||||||||||
Share capital (Note 11) |
100 | 100 | 100 | |||||||||
Retained earnings |
6,000,499 | 4,830,733 | 3,741,059 | |||||||||
|
|
|
|
|
|
|||||||
6,000,599 | 4,830,833 | 3,741,159 | ||||||||||
|
|
|
|
|
|
|||||||
$ | 62,963,338 | $ | 47,355,339 | $ | 34,765,667 | |||||||
|
|
|
|
|
|
CONTINGENT LIABILITY (Note 12) LEASE COMMITMENTS (Note 13) SUBSEQUENT EVENTS (Note 14)
F-258
Statements of Income
Years Ended December 31, 2011, 2010 and 2009
(In Canadian Dollars)
2011 |
2010 |
2009 |
||||||||||
SALES |
$ | 181,777,897 | $ | 138,411,203 | $ | 102,100,454 | ||||||
COST OF SALES |
147,632,991 | 112,834,960 | 83,641,770 | |||||||||
EXPENSES |
||||||||||||
Advertising and promotion |
325,299 | 215,957 | 189,759 | |||||||||
Amortization |
298,721 | 212,709 | 184,493 | |||||||||
Automotive |
370,820 | 328,302 | 332,735 | |||||||||
Bad debts |
348,494 | 789,716 | 535,280 | |||||||||
Business taxes, licenses and memberships |
295,279 | 279,564 | 237,853 | |||||||||
Insurance |
324,899 | 291,493 | 225,974 | |||||||||
Interest and bank charges (Note 9) |
2,519,749 | 1,038,512 | 607,357 | |||||||||
Interest on long term debt |
269,869 | 369,425 | 182,502 | |||||||||
Office |
538,943 | 623,912 | 441,156 | |||||||||
Professional fees |
78,238 | 51,964 | 105,383 | |||||||||
Rent |
3,797,834 | 2,986,407 | 1,998,584 | |||||||||
Repairs and maintenance |
336,782 | 222,964 | 183,107 | |||||||||
Salaries and benefits |
11,491,002 | 9,157,519 | 6,365,256 | |||||||||
Shipping and warehouse |
263,278 | 179,543 | 138,473 | |||||||||
Sub-contracts |
84,371 | 30,328 | 61,245 | |||||||||
Travel |
927,025 | 509,164 | 717,966 | |||||||||
Utilities |
578,217 | 510,947 | 393,854 | |||||||||
|
|
|
|
|
|
|||||||
22,848,820 | 17,798,426 | 12,900,977 | ||||||||||
|
|
|
|
|
|
|||||||
INCOME FROM OPERATIONS |
11,296,086 | 7,777,817 | 5,557,707 | |||||||||
OTHER INCOME |
||||||||||||
Gain (loss) on disposal of equipment |
2,171 | 175 | (3,730 | ) | ||||||||
|
|
|
|
|
|
|||||||
INCOME BEFORE INCOME TAXES |
11,298,257 | 7,777,992 | 5,553,977 | |||||||||
INCOME TAX EXPENSE |
3,128,491 | 2,288,318 | 1,608,616 | |||||||||
|
|
|
|
|
|
|||||||
NET INCOME |
$ | 8,169,766 | $ | 5,489,674 | $ | 3,945,361 | ||||||
|
|
|
|
|
|
F-259
Statement of Retained Earnings
Years ended December 31, 2011, 2010 and 2009
(In Canadian Dollars)
2011 |
2010 |
2009 |
||||||||||
RETAINED EARNINGSBEGINNING OF YEAR |
$ | 4,830,733 | $ | 3,741,059 | $ | 2,795,698 | ||||||
NET INCOME FOR THE YEAR |
8,169,766 | 5,489,674 | 3,945,361 | |||||||||
|
|
|
|
|
|
|||||||
13,000,499 | 9,230,733 | 6,741,059 | ||||||||||
DIVIDENDS |
(7,000,000 | ) | (4,400,000 | ) | (3,000,000 | ) | ||||||
|
|
|
|
|
|
|||||||
RETAINED EARNINGSEND OF YEAR |
$ | 6,000,499 | $ | 4,830,733 | $ | 3,741,059 | ||||||
|
|
|
|
|
|
F-260
Statements of Cash Flows
Years Ended December 31, 2011, 2010 and 2009
(In Canadian Dollars)
2011 |
2010 |
2009 |
||||||||||
OPERATING ACTIVITIES |
||||||||||||
Net income |
$ | 8,169,766 | $ | 5,489,674 | $ | 3,945,361 | ||||||
Amortization |
298,721 | 212,709 | 184,493 | |||||||||
Loss (gain) on disposal of equipment |
(2,171 | ) | (175 | ) | 3,730 | |||||||
Accounts receivable |
(3,347,864 | ) | (3,298,189 | ) | (6,931,196 | ) | ||||||
Inventory |
(11,859,511 | ) | (9,061,903 | ) | (7,133,290 | ) | ||||||
Accounts payable and accrued liabilities |
3,623,132 | 3,615,754 | 6,239,274 | |||||||||
Income taxes |
215,027 | (883,024 | ) | 919,165 | ||||||||
Prepaid expenses and sundry assets |
(52,900 | ) | (103,643 | ) | (132,028 | ) | ||||||
|
|
|
|
|
|
|||||||
Cash flow used by operating activities |
(2,955,800 | ) | (4,028,797 | ) | (2,904,491 | ) | ||||||
|
|
|
|
|
|
|||||||
INVESTING ACTIVITIES |
||||||||||||
Purchase of equipment |
(670,573 | ) | (346,347 | ) | (400,606 | ) | ||||||
Proceeds on disposal of equipment |
26,301 | 7,875 | 9,924 | |||||||||
|
|
|
|
|
|
|||||||
Cash flow used by investing activities |
(644,272 | ) | (338,472 | ) | (390,682 | ) | ||||||
|
|
|
|
|
|
|||||||
FINANCING ACTIVITIES |
||||||||||||
Dividends paid |
(7,000,000 | ) | (4,400,000 | ) | (3,000,000 | ) | ||||||
Bank indebtedness |
3,883,565 | 5,291,078 | (906,753 | ) | ||||||||
Advances from shareholder |
7,580,000 | 4,457,656 | 4,828,391 | |||||||||
Proceeds from long term financing |
121,136 | | 3,000,000 | |||||||||
Repayment of long term debt |
(603,164 | ) | (600,000 | ) | (300,000 | ) | ||||||
Repayment of promissory note |
(381,465 | ) | (381,465 | ) | (326,465 | ) | ||||||
|
|
|
|
|
|
|||||||
Cash flow from financing activities |
3,600,072 | 4,367,269 | 3,295,173 | |||||||||
|
|
|
|
|
|
|||||||
INCREASE IN CASH FLOW |
| | | |||||||||
Cashbeginning of year |
| | | |||||||||
|
|
|
|
|
|
|||||||
CASHEND OF YEAR |
$ | | $ | | $ | | ||||||
|
|
|
|
|
|
F-261
Notes to Financial Statements
Year Ended December 31, 2011
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of accounting
These financial statements have been prepared in accordance with Canadian accounting standards for private enterprises. Any measurement differences between these standards and U.S. Generally Accepted Accounting Principles as they apply to Triwest are not material.
Measurement uncertainty
The financial statements have been prepared by management in accordance with Canadian accounting standards for private enterprises. The precise value of many assets and liabilities is dependent on future events. As a result, the preparation of financial statements for a period involves the use of approximations which have been made using careful judgment. Actual results could differ from those approximations. The financial statements have, in managements opinion, been properly prepared within reasonable limits of materiality and within the framework of the accounting policies summarized below.
Financial instruments
Measurement of financial instruments
The entity initially measures its financial assets and liabilities at fair value, except for certain non arms length transactions. The entity subsequently measures all its financial assets and financial liabilities at amortized cost. Financial assets measured at amortized cost include accounts receivable and long term investments. Financial liabilities measured at amortized cost include the bank indebtedness, accounts payable and accrued liabilities, long term debt, promissory note and due to shareholder.
Impairment
Financial assets measured at cost are tested for impairment when there are indicators of impairment. The amount of the write down is recognized in net income. The previously recognized impairment loss may be reversed to the extent of the improvement, directly or by adjusting the allowance account, provided it is no greater than the amount that would have been reported at the date of the reversal had the impairment not been recognized previously. The amount of the reversal is recognized in net income.
Transaction costs
The entity recognizes its transaction costs in net income in the period incurred. However, financial instruments that will not be subsequently measured at fair value are adjusted by the transaction costs that are directly attributable to their origination, issuance or assumption.
Inventory
Inventory is valued at the lower of cost and net realizable value with cost being determined on the first in first out cost basis.
Supplier rebates and discounts are recognized when the vendor has applied them to the companys account.
F-262
TRIWEST TRADING (CANADA) LTD.
Notes to Financial Statements
Year Ended December 31, 2011
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated amortization. Property, plant and equipment are amortized over their estimated useful lives at the following rates and methods:
Warehouse equipment |
20% | declining balance method | ||
Motor vehicles |
30% | declining balance method | ||
Computer equipment |
30% | declining balance method | ||
Office equipment |
20% | declining balance method | ||
Leasehold improvements |
5 years | straight line method |
Long term investments
Long term investments are stated at cost. The investments are reduced to reflect any permanent impairment in value.
Future income taxes
Income taxes are reported using the future income tax method. Current income tax expense is the estimated income taxes payable for the current year after any refunds or the use of losses incurred in previous years. Future income taxes reflect:
| the temporary differences between the carrying amounts of assets and liabilities for accounting purposes and the amounts used for tax purposes; |
| the benefit of unutilized tax losses that will more likely than not be realized and carried forward to future years to reduce income taxes. |
Future income taxes are estimated using the rates enacted by tax law and those substantively enacted for the years in which future income tax assets are likely to be realized, or future income tax liabilities settled. The effect of a change in tax rates on future income tax assets and liabilities is included in earnings in the period when the change is substantively enacted.
Foreign currency translation
Assets, liabilities, revenues and expenses have been translated to the currency of Canada using the following exchange rates:
i. | Cash, accounts receivable and accounts payable and accrued liabilitiesat the rate in effect on the balance sheet date; |
ii. | Inventoryat the average rate in effect during the period; and |
iii. | Revenues and expensesat the average rate in effect during the period. |
Gains and losses on translation are included in income.
F-263
TRIWEST TRADING (CANADA) LTD.
Notes to Financial Statements
Year Ended December 31, 2011
Revenue recognition
Sales are recognized when the products are shipped and title passes to the customer.
2. FIRST TIME ADOPTION OF CANADIAN ACCOUNTING STANDARDS FOR PRIVATE ENTERPRISES
During the year the company adopted Canadian accounting standards for private enterprises. These financial statements are the first prepared in accordance with these standards. The adoption of these standards did not require restatement of the balance sheet, income statement or opening retained earnings as there were no accounting changes.
3. FINANCIAL INSTRUMENTS
The company is exposed to various risks through its financial instruments. The following analysis provides a measure of the companys risk exposure and concentrations at the balance sheet date.
Credit Risk
Credit risk arises from the potential that a counter party will fail to perform its obligations. The company is exposed to credit risk from customers. An allowance for doubtful accounts is established based upon factors surrounding the credit risk of specific accounts, historical trends and other information. The company has a significant number of customers which minimizes concentration of credit risk.
Currency Risk
Currency risk is the risk to the companys earnings that arise from fluctuations of foreign exchange rates and the degree of volatility of these rates. The company is exposed to foreign currency exchange risks on cash and accounts payable held in U.S. dollars because it purchases inventory in U.S. dollars. This risk is mitigated by the company maintaining a U.S. dollar bank account and purchasing futures regarding U.S. cash.
Interest Rate Risk
Interest rate risk is the risk that the value of a financial instrument might be adversely affected by a change in the interest rates. In seeking to minimize the risks from interest rate fluctuations, the company manages exposure through its normal operating and financing activities. The company is exposed to interest rate risk primarily through fluctuations in the banks prime rate on its operating line of credit as reported in Note 7.
Commodity Risk
The company is exposed to fluctuations in commodity prices for fuel and oil which impact freight costs. Commodity prices are affected by many factors including supply, demand and the Canadian to U.S. dollar exchange rate. The company had no financial hedges or price commodity contracts in place at year end.
Liquidity Risk
The companys exposure to liquidity risk is dependent on the sale of inventory, collection of accounts receivable, purchasing commitments and obligations or raising of funds to meet commitments and sustain operations. The company controls liquidity risk by management of working capital, cash flows and the availability of borrowing facilities.
F-264
TRIWEST TRADING (CANADA) LTD.
Notes to Financial Statements
Year Ended December 31, 2011
4. ACCOUNTS RECEIVABLE
2011 |
2010 |
2009 |
||||||||||
Accounts receivable |
$ | 24,415,820 | $ | 21,117,246 | $ | 17,272,544 | ||||||
Allowance for doubtful accounts |
(1,316,880 | ) | (1,366,170 | ) | (819,657 | ) | ||||||
|
|
|
|
|
|
|||||||
$ | 23,098,940 | $ | 19,751,076 | $ | 16,452,887 | |||||||
|
|
|
|
|
|
5. PROPERTY, PLANT AND EQUIPMENT
Cost |
Accumulated |
2011 net |
||||||||||
Warehouse equipment |
$ | 1,052,357 | $ | 421,160 | $ | 631,197 | ||||||
Motor vehicles |
285,411 | 209,002 | 76,409 | |||||||||
Computer equipment |
650,747 | 548,158 | 102,589 | |||||||||
Office equipment |
163,986 | 116,076 | 47,910 | |||||||||
Leasehold improvements |
301,877 | 117,523 | 184,354 | |||||||||
|
|
|
|
|
|
|||||||
$ | 2,454,378 | $ | 1,411,919 | $ | 1,042,459 | |||||||
|
|
|
|
|
|
Cost |
Accumulated |
2010 net |
||||||||||
Warehouse equipment |
$ | 707,357 | $ | 266,881 | $ | 440,476 | ||||||
Motor vehicles |
236,582 | 180,920 | 55,662 | |||||||||
Computer equipment |
602,135 | 504,186 | 97,949 | |||||||||
Office equipment |
138,972 | 104,098 | 34,874 | |||||||||
Leasehold improvements |
132,473 | 66,699 | 65,774 | |||||||||
|
|
|
|
|
|
|||||||
$ | 1,817,519 | $ | 1,122,784 | $ | 694,735 | |||||||
|
|
|
|
|
|
Cost |
Accumulated |
2009 net |
||||||||||
Warehouse equipment |
$ | 444,921 | $ | 159,070 | $ | 285,851 | ||||||
Motor vehicles |
224,832 | 157,063 | 67,769 | |||||||||
Computer equipment |
601,059 | 462,209 | 138,850 | |||||||||
Office equipment |
118,841 | 95,378 | 23,463 | |||||||||
Leasehold improvements |
93,070 | 40,205 | 52,865 | |||||||||
|
|
|
|
|
|
|||||||
$ | 1,482,723 | $ | 913,925 | $ | 568,798 | |||||||
|
|
|
|
|
|
6. LONG TERM INVESTMENTS
The investment consists of shares and debentures in a U.S. private company which acts as a buying group for the purchase of tires by wholesale distributors. The investment does not represent a significant influence in the company and accordingly is recorded at cost. Interest is paid annually on the debentures at a rate of 9%. The purchase of the debenture is a requirement of utilizing the purchasing services of the buying group. The debentures are redeemable at the option of the issuer at any time at an amount equal to the issue price plus any accrued interest. No changes in the investment occurred during the year and the current market value is unavailable.
F-265
TRIWEST TRADING (CANADA) LTD.
Notes to Financial Statements
Year Ended December 31, 2011
7. BANK INDEBTEDNESS
The company has an authorized line of credit in the amount of $25,000,000 (2010$20,000,000 and 2009$10,000,000) renewed annually. The line of credit bears interest at bank prime rate plus 1.25%, is secured by a general security agreement, a general assignment of book debts, inventory, assignment of insurance and assignments and postponements by Fab Five Ltd., 1274942 Alberta Ltd. and 1279156 Alberta Inc.
The company is required to meet certain financial covenants under its lending agreement with the bank. The company is in compliance with these covenants.
8. LONG TERM DEBT
2011 |
2010 |
2009 |
||||||||||
BDC loan, bearing interest at 14.7% per annum, payable in monthly payments of $50,000 plus interest, due May 15, 2014 |
$ | 1,500,000 | $ | 2,100,000 | $ | 2,700,000 | ||||||
Morguard Investments loan, bearing interest at 8% per annum, payable in monthly blended payments of $1,855, due November 1, 2018, secured by specific equipment with a net book value of $85,760 |
117,972 | | | |||||||||
|
|
|
|
|
|
|||||||
1,617,972 | 2,100,000 | 2,700,000 | ||||||||||
Amounts payable within one year |
(613,307 | ) | (600,000 | ) | (600,000 | ) | ||||||
|
|
|
|
|
|
|||||||
$ | 1,004,665 | $ | 1,500,000 | $ | 2,100,000 | |||||||
|
|
|
|
|
|
Principal repayment terms are approximately:
2012 |
$ | 613,307 | ||
2013 |
614,411 | |||
2014 |
315,607 | |||
2015 |
16,902 | |||
2016 |
18,305 | |||
Thereafter |
39,440 | |||
|
|
|||
$ | 1,617,972 | |||
|
|
The BDC loan is secured by a general security agreement, an assignment and postponement of loans to the shareholder, personal guarantees from two directors for the full amount of the loan, an assignment of a life insurance policy on one of the directors and an assignment of all after acquired intangible and tangible assets relating to the companys operations in the province of Quebec. The guarantees are provided without charge.
The company is required to meet certain financial covenants under its lending agreement with the BDC. The company was in compliance with these covenants.
9. DUE TO SHAREHOLDER
The amount due to shareholder bears interest at 12% per annum, has no fixed terms of repayment and is unsecured. The shareholder has agreed to provide twelve months written notice prior to calling the loan balance, and accordingly all has been classified as long term. During the year interest was paid on the shareholder loan in the amount of $2,133,220 (2010$1,022,894 and 2009$505,438).
F-266
TRIWEST TRADING (CANADA) LTD.
Notes to Financial Statements
Year Ended December 31, 2011
10. PROMISSORY NOTE
The promissory note is non-interest bearing and is secured by a general security agreement covering all of the assets of the company. The balance was repaid in 2011.
11. SHARE CAPITAL
Authorized:
Unlimited Common voting shares
Unlimited Non-voting, redeemable, retractable preferred shares
Issued | 2011 |
2010 |
2009 |
|||||||||
10,000 Common shares |
$ | 100 | $ | 100 | $ | 100 |
12. CONTINGENT LIABILITY
The bank provides letters of credit to guarantee the vendor payables for imported inventory. These letters of credit are limited to $4,000,000 and are secured by the same items listed in Note 7. As of December 31, 2011 the company has utilized $361,527 (2010$92,854 and 2009$290,140) of the available limit.
13. LEASE COMMITMENTS
The company has several long term leases with respect to its premises. The leases contain renewal options and provide for payment of utilities, property taxes and maintenance costs. Future minimum lease payments as at December 31, 2011 are as follows:
2012 |
$ | 2,470,797 | ||
2013 |
2,381,098 | |||
2014 |
2,297,746 | |||
2015 |
2,136,780 | |||
2016 |
1,249,699 | |||
Thereafter |
2,231,858 | |||
|
|
|||
$ | 12,767,978 | |||
|
|
14. SUBSEQUENT EVENTS
Subsequent to year end the company finalized a lease agreement with a company related through common ownership. The company has agreed to lease premises in Quebec City for monthly payments of $24,250 plus operating costs and relevant sales tax until June 30, 2015 and then $27,556 plus operating costs and relevant sales tax until the expiry of the agreement on June 30, 2020. This lease is not reflected in Note 13 above.
On November 20, 2012, the companys term loan with BDC as described in Note 8 was paid in full. The principal outstanding on that date was $950,000 and bonus interest and early payout penalty paid in accordance with the terms of the loan was $839,807.
F-267
TRIWEST TRADING (CANADA) LTD.
Notes to Financial Statements
Year Ended December 31, 2011
On November 30, 2012, the common shares of the company were purchased by ATD Acquisition Co. V Inc. (Canada Acquisition), a newly formed direct wholly-owned Canadian subsidiary of American Tire Distributors, Inc. (ATDI), a direct wholly-owned subsidiary of American Tire Distributors Holdings, Inc. (Holdings). Proceeds of the sale included payment of all shareholder loans.
In connection with the acquisition on November 30, 2012, Holdings amended and restated its credit facility (as amended and restated, the Sixth Amended and Restated Credit Agreement) in order to provide for borrowings under the agreement by Canada Acquisition (the Canadian Tranche). The Canadian Tranche provides for revolving loans available only to Canada Acquisition in an aggregate amount equal to $60.0 million, subject to a Canadian borrowing base. The maturity date for the Canadian Tranche is November 16, 2017 or March 1, 2017 as determined by the outstanding aggregate principal amount of ATDIs Senior Secured Notes on March 1, 2017. Holdings is a guarantor of Canada Acquisitions obligations under the Canadian Tranche.
On November 30, 2012 the company ended its distribution relationship with one of its suppliers and paid all obligations due to the supplier totaling approximately $4.8 million.
15. RELATED PARTY TRANSACTIONS
Included in cost of sales is $3,686,543 (2010$nil and 2009$nil) of freight expense to a related company. Of this amount, $447,784 is included in accounts payable and accrued liabilities. This company is related by virtue of common shareholders. These transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
16. COMPARATIVE FIGURES
Some of the comparative figures have been reclassified to conform to the current year presentation
F-268
Balance Sheets
In Canadian Dollars
(Unaudited)
September 30, |
December 31, 2011 |
|||||||
ASSETS |
||||||||
CURRENT: |
||||||||
Accounts receivable (Note 3) |
$ | 24,089,088 | $ | 23,098,940 | ||||
Inventory |
72,690,650 | 38,396,801 | ||||||
Prepaid expenses and sundry assets |
750,000 | 371,507 | ||||||
|
|
|
|
|||||
97,529,738 | 61,867,248 | |||||||
PROPERTY, PLANT AND EQUIPMENT (Note 4) |
1,241,678 | 1,042,459 | ||||||
LONG TERM INVESTMENTS (Note 5) |
53,631 | 53,631 | ||||||
|
|
|
|
|||||
$ | 98,825,047 | $ | 62,963,338 | |||||
|
|
|
|
|||||
LIABILITIES |
||||||||
CURRENT: |
||||||||
Bank indebtedness (Note 6) |
$ | 17,774,320 | $ | 12,930,771 | ||||
Accounts payable and accrued liabilities |
48,551,377 | 22,105,364 | ||||||
Income taxes payable |
154,140 | 860,052 | ||||||
Current portion of long term debt (Note 7) |
600,000 | 613,307 | ||||||
|
|
|
|
|||||
67,079,837 | 36,509,494 | |||||||
LONG TERM DEBT (Note 7) |
450,000 | 1,004,665 | ||||||
DUE TO SHAREHOLDER (Note 8) |
18,868,580 | 19,448,580 | ||||||
|
|
|
|
|||||
86,398,417 | 56,962,739 | |||||||
|
|
|
|
|||||
SHAREHOLDERS EQUITY |
||||||||
Share capital (Note 9) |
100 | 100 | ||||||
Retained earnings |
12,426,530 | 6,000,499 | ||||||
|
|
|
|
|||||
12,426,630 | 6,000,599 | |||||||
|
|
|
|
|||||
$ | 98,825,047 | $ | 62,963,338 | |||||
|
|
|
|
|||||
CONTINGENT LIABILITY (Note 10) |
||||||||
LEASE COMMITMENTS (Note 11) |
||||||||
SUBSEQUENT EVENTS (Note 13) |
F-269
Statements of Income
In Canadian Dollars
(Unaudited)
Nine Months |
Nine Months |
|||||||
SALES |
$ | 122,293,422 | $ | 108,962,669 | ||||
COST OF SALES |
97,352,124 | 88,296,456 | ||||||
EXPENSES |
||||||||
Advertising and promotion |
291,665 | 167,219 | ||||||
Amortization |
231,413 | 163,318 | ||||||
Automotive |
243,596 | 268,628 | ||||||
Bad Debts |
(291,836 | ) | 70,384 | |||||
Business taxes, licenses and memberships |
202,610 | 239,102 | ||||||
Insurance |
225,347 | 235,173 | ||||||
Interest and bank charges (Note 8) |
2,069,602 | 1,496,431 | ||||||
Interest on long term debt |
4,611 | | ||||||
Office |
402,567 | 385,276 | ||||||
Professional fees |
55,442 | 25,418 | ||||||
Rent |
3,068,723 | 2,811,932 | ||||||
Repairs and maintenance |
225,626 | 235,003 | ||||||
Salaries and benefits |
7,951,347 | 6,849,156 | ||||||
Shipping and warehouse |
164,885 | 175,710 | ||||||
Sub-contracts |
75,343 | 47,534 | ||||||
Travel |
680,972 | 581,834 | ||||||
Utilities |
435,991 | 424,424 | ||||||
|
|
|
|
|||||
16,037,904 | 14,176,542 | |||||||
|
|
|
|
|||||
INCOME FROM OPERATIONS |
8,903,394 | 6,489,671 | ||||||
OTHER INCOME |
||||||||
Gain (loss) on disposal of equipment |
22,127 | (122 | ) | |||||
|
|
|
|
|||||
INCOME BEFORE INCOME TAXES |
8,925,521 | 6,489,549 | ||||||
INCOME TAX EXPENSE |
2,499,490 | 1,819,809 | ||||||
|
|
|
|
|||||
NET INCOME |
$ | 6,426,031 | $ | 4,669,740 | ||||
|
|
|
|
F-270
Statement of Retained Earnings
In Canadian Dollars
(Unaudited)
2012 |
||||
RETAINED EARNINGSDECEMBER 31, 2011 |
$ | 6,000,499 | ||
NET INCOME FOR THE NINE MONTHS OF 2012 |
6,426,031 | |||
|
|
|||
12,426,530 | ||||
DIVIDENDS |
| |||
|
|
|||
RETAINED EARNINGSSEPTEMBER 30, 2012 |
$ | 12,426,530 | ||
|
|
F-271
Statements of Cash Flows
In Canadian Dollars
(Unaudited)
Nine Months |
Nine Months 2011 |
|||||||
OPERATING ACTIVITIES |
||||||||
Net income |
$ | 6,426,031 | $ | 4,669,740 | ||||
Amortization |
231,413 | 163,318 | ||||||
(Gain) loss on disposal of equipment |
(22,127 | ) | 122 | |||||
Accounts receivable |
(990,148 | ) | (3,284,955 | ) | ||||
Inventory |
(34,293,849 | ) | (35,588,117 | ) | ||||
Accounts payable and accrued liabilities |
26,446,013 | 27,128,041 | ||||||
Income taxes |
(705,912 | ) | (521,987 | ) | ||||
Prepaid expenses and sundry assets |
(378,494 | ) | (78,955 | ) | ||||
|
|
|
|
|||||
Cash flow used by operating activities |
(3,287,073 | ) | (7,512,793 | ) | ||||
|
|
|
|
|||||
INVESTING ACTIVITIES |
||||||||
Purchase of equipment |
(443,940 | ) | (403,066 | ) | ||||
Proceeds on disposal of equipment |
35,436 | 19,825 | ||||||
|
|
|
|
|||||
Cash flow used by investing activities |
(408,504 | ) | (383,241 | ) | ||||
|
|
|
|
|||||
FINANCING ACTIVITIES |
||||||||
Bank indebtedness |
4,843,549 | 8,346,034 | ||||||
Repayment of shareholder loan |
(580,000 | ) | | |||||
Repayment of long term debt |
(567,972 | ) | (450,000 | ) | ||||
|
|
|
|
|||||
Cash flow from financing activities |
3,695,577 | 7,896,034 | ||||||
|
|
|
|
|||||
INCREASE IN CASH FLOW |
| | ||||||
Cashbeginning of period |
| | ||||||
|
|
|
|
|||||
CASHEND OF PERIOD |
$ | | $ | | ||||
|
|
|
|
F-272
Notes to Financial Statements
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of accounting
These financial statements have been prepared in accordance with Canadian accounting standards for private enterprises (Canadian GAAP). Any measurement differences in accounting principles between Canadian GAAP and U.S. Generally Accepted Accounting Principles as they apply to Triwest are not material.
Measurement uncertainty
The financial statements have been prepared by management in accordance with Canadian accounting standards for private enterprises. The precise value of many assets and liabilities is dependent on future events. As a result, the preparation of financial statements for a period involves the use of approximations which have been made using careful judgment. Actual results could differ from those approximations. The financial statements have, in managements opinion, been properly prepared within reasonable limits of materiality and within the framework of the accounting policies summarized below.
Financial instruments
Measurement of financial instruments
The entity initially measures its financial assets and liabilities at fair value, except for certain non arms length transactions. The entity subsequently measures all its financial assets and financial liabilities at amortized cost. Financial assets measured at amortized cost include accounts receivable and long term investments. Financial liabilities measured at amortized cost include the bank indebtedness, accounts payable and accrued liabilities, long term debt, and due to shareholder.
Impairment
Financial assets measured at cost are tested for impairment when there are indicators of impairment. The amount of the write down is recognized in net income. The previously recognized impairment loss may be reversed to the extent of the improvement, directly or by adjusting the allowance account, provided it is no greater than the amount that would have been reported at the date of the reversal had the impairment not been recognized previously. The amount of the reversal is recognized in net income.
Transaction costs
The entity recognizes its transaction costs in net income in the period incurred. However, financial instruments that will not be subsequently measured at fair value are adjusted by the transaction costs that are directly attributable to their origination, issuance or assumption.
Inventory
Inventory is valued at the lower of cost and net realizable value with cost being determined on the first in first out cost basis.
Supplier rebates and discounts are recognized when the vendor has applied them to the companys account.
F-273
TRIWEST TRADING (CANADA) LTD.
Notes to Financial Statements
(Unaudited)
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated amortization. Property, plant and equipment are amortized over their estimated useful lives at the following rates and methods:
Warehouse equipment |
20% | declining balance method | ||||
Motor vehicles |
30% | declining balance method | ||||
Computer equipment |
30% | declining balance method | ||||
Office equipment |
20% | declining balance method | ||||
Leasehold improvements |
5 years | straight line method |
Long term investments
Long term investments are stated at cost. The investments are reduced to reflect any permanent impairment in value.
Future income taxes
Income taxes are reported using the future income tax method. Current income tax expense is the estimated income taxes payable for the current year after any refunds or the use of losses incurred in previous years. Future income taxes reflect:
| the temporary differences between the carrying amounts of assets and liabilities for accounting purposes and the amounts used for tax purposes; |
| the benefit of unutilized tax losses that will more likely than not be realized and carried forward to future years to reduce income taxes. |
Future income taxes are estimated using the rates enacted by tax law and those substantively enacted for the years in which future income taxes assets are likely to be realized, or future income tax liabilities settled. The effect of a change in tax rates on future income tax assets and liabilities is included in earnings in the period when the change is substantively enacted.
Foreign currency translation
Assets, liabilities, revenues and expenses have been translated to the currency of Canada using the following exchange rates:
i. | Cash, accounts receivable and accounts payable and accrued liabilitiesat the rate in effect on the balance sheet date; |
ii. | Inventoryat the average rate in effect during the period; and |
iii. | Revenues and expensesat the average rate in effect during the period. |
Gains and losses on translation are included in income.
Revenue recognition
Sales are recognized when the products are shipped and title passes to the customer.
F-274
TRIWEST TRADING (CANADA) LTD.
Notes to Financial Statements
(Unaudited)
2. FINANCIAL INSTRUMENTS
The company is exposed to various risks through its financial instruments. The following analysis provides a measure of the companys risk exposure and concentrations at the balance sheet date.
Credit Risk
Credit risk arises from the potential that a counter party will fail to perform its obligations. The company is exposed to credit risk from customers. An allowance for doubtful accounts is established based upon factors surrounding the credit risk of specific accounts, historical trends and other information. The company has a significant number of customers which minimizes concentration of credit risk.
Currency Risk
Currency risk is the risk to the companys earnings that arise from fluctuations of foreign exchange rates and the degree of volatility of these rates. The company is exposed to foreign currency exchange risks on cash and accounts payable held in U.S. dollars because it purchases inventory in U.S. dollars. This risk is mitigated by the company maintaining a U.S. dollar bank account and purchasing futures regarding U.S. cash.
Interest Rate Risk
Interest rate risk is the risk that the value of a financial instrument might be adversely affected by a change in the interest rates. In seeking to minimize the risks from interest rate fluctuations, the company manages exposure through its normal operating and financing activities. The company is exposed to interest rate risk primarily through fluctuations in the banks prime rate on its operating line of credit as reported in Note 7.
Commodity Risk
The company is exposed to fluctuations in commodity prices for fuel and oil which impact freight costs. Commodity prices are affected by many factors including supply, demand and the Canadian to U.S. dollar exchange rate. The company had no financial hedges or price commodity contracts in place at September 30, 2012.
Liquidity Risk
The companys exposure to liquidity risk is dependent on the sale of inventory, collection of accounts receivable, purchasing commitments and obligations or raising of funds to meet commitments and sustain operations. The company controls liquidity risk by management of working capital, cash flows and the availability of borrowing facilities.
3. ACCOUNTS RECEIVABLE
September 30, |
December 31, |
|||||||
Accounts receivable |
$ | 24,908,081 | $ | 24,415,820 | ||||
Allowance for doubtful accounts |
(818,993 | ) | (1,316,880 | ) | ||||
|
|
|
|
|||||
$ | 24,089,088 | $ | 23,098,940 | |||||
|
|
|
|
F-275
TRIWEST TRADING (CANADA) LTD.
Notes to Financial Statements
(Unaudited)
4. PROPERTY, PLANT AND EQUIPMENT
September 30, 2012 |
||||||||||||
Cost |
Accumulated |
Net |
||||||||||
Warehouse equipment |
$ | 1,339,165 | $ | 542,954 | $ | 796,211 | ||||||
Motor vehicles |
291,660 | 203,409 | 88,251 | |||||||||
Computer equipment |
650,747 | 568,114 | 82,633 | |||||||||
Office equipment |
174,503 | 124,460 | 50,043 | |||||||||
Leasehold improvements |
395,974 | 171,434 | 224,540 | |||||||||
|
|
|
|
|
|
|||||||
$ | 2,852,049 | $ | 1,610,371 | $ | 1,241,678 | |||||||
|
|
|
|
|
|
|||||||
December 31, 2011 |
||||||||||||
Cost |
Accumulated |
Net |
||||||||||
Warehouse equipment |
$ | 1,052,357 | $ | 421,160 | $ | 631,197 | ||||||
Motor vehicles |
285,411 | 209,002 | 76,409 | |||||||||
Computer equipment |
650,747 | 548,158 | 102,589 | |||||||||
Office equipment |
163,986 | 116,076 | 47,910 | |||||||||
Leasehold improvements |
301,877 | 117,523 | 184,354 | |||||||||
|
|
|
|
|
|
|||||||
$ | 2,454,378 | $ | 1,411,919 | $ | 1,042,459 | |||||||
|
|
|
|
|
|
5. LONG TERM INVESTMENTS
The investment consists of shares and debentures in a U.S. private company which acts as a buying group for the purchase of tires by wholesale distributors. The investment does not represent a significant influence in the company and accordingly is recorded at cost. Interest is paid annually on the debentures at a rate of 9%. The purchase of the debenture is a requirement of utilizing the purchasing services of the buying group. The debentures are redeemable at the option of the issuer at any time at an amount equal to the issue price plus any accrued interest. No changes in the investment occurred during the nine months ended September 30, 2012 and the current market value is unavailable.
6. BANK INDEBTEDNESS
The company has an authorized line of credit in the amount of $30,000,000 (2011$25,000,000) renewed annually. The line of credit bears interest at bank prime rate plus 1.00%, is secured by a general security agreement, a general assignment of book debts, inventory, assignment of insurance and assignments and postponements by Fab Five Ltd., 1274942 Alberta Ltd. and 1279156 Alberta Inc.
The company is required to meet certain financial covenants under its lending agreement with the bank. The company is in compliance with these covenants.
F-276
TRIWEST TRADING (CANADA) LTD.
Notes to Financial Statements
(Unaudited)
7. LONG TERM DEBT
September 30, |
December 31, |
|||||||
BDC loan, bearing interest at 14.7% per annum, payable in monthly payments of $50,000 plus interest, due May 15, 2014 |
$ | 1,050,000 | $ | 1,500,000 | ||||
Morguard Investments loan, bearing interest at 8% per annum, payable in monthly blended payments of $1,855, due November 1, 2018, secured by specific equipment with a net book value of $85,760 |
| 117,972 | ||||||
|
|
|
|
|||||
1,050,000 | 1,617,972 | |||||||
Amounts payable within one year |
(600,000 | ) | (613,307 | ) | ||||
|
|
|
|
|||||
450,000 | 1,004,665 | |||||||
|
|
|
|
Principal repayment terms are approximately:
2012 (remainder) |
$ | 150,000 | ||
2013 |
600,000 | |||
2014 |
300,000 | |||
2015 |
| |||
2016 |
| |||
Thereafter |
| |||
|
|
|||
$ | 1,050,000 | |||
|
|
The BDC loan is secured by a general security agreement, an assignment and postponement of loans to the shareholder, personal guarantees from two directors for the full amount of the loan, an assignment of a life insurance policy on one of the directors and an assignment of all after acquired intangible and tangible assets relating to the companys operations in the province of Quebec. The guarantees are provided without charge.
The company is required to meet certain financial covenants under its lending agreement with the BDC. The company was in compliance with these covenants.
The Morguard Investments loan was repaid in September 2012.
8. DUE TO SHAREHOLDER
The amount due to shareholder bears interest at 12% per annum, has no fixed terms of repayment and is unsecured. The shareholder has agreed to provide twelve months written notice prior to calling the loan balance, and accordingly all has been classified as long term. During the nine months ended September 30, 2012 and 2011, interest was paid on the shareholder loan in the amount of $1,794,879 and $1,164,915, respectively.
F-277
TRIWEST TRADING (CANADA) LTD.
Notes to Financial Statements
(Unaudited)
9. SHARE CAPITAL
Authorized:
Unlimited Common voting shares
Unlimited Non-voting, redeemable, retractable preferred shares
Issued |
September 30, |
December 31, 2011 |
||||||||
10,000 |
Common shares |
$ | 100 | $ | 100 | |||||
|
|
|
|
10. CONTINGENT LIABILITY
The bank provides letters of credit to guarantee the vendor payables for imported inventory. These letters of credit are limited to $4,000,000 and are secured by the same items listed in Note 6. As of September 30, 2012 the company has utilized $151,934.
11. LEASE COMMITMENTS
The company has several long term operating leases with respect to its premises. The leases contain renewal options and provide for payment of utilities, property taxes and maintenance costs. Future minimum lease payments as at September 30, 2012 are as follows:
2012 ( remainder) |
$ | 959,339 | ||
2013 |
3,205,984 | |||
2014 |
2,994,877 | |||
2015 |
2,724,050 | |||
2016 |
1,860,622 | |||
Thereafter |
3,572,070 | |||
|
|
|||
$ | 15,316,942 | |||
|
|
12. RELATED PARTY TRANSACTIONS
Included in cost of sales for the nine months ended September 30, 2012 is $3,332,976 ($2,231,904.96 for the nine months ended September 30, 2011) of freight expense to a related company. Of this amount, $276,160 is included in accounts payable and accrued liabilities at September 30, 2012. This company is related by virtue of common shareholders. These transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.
13. SUBSEQUENT EVENTS
On November 20, 2012, the companys term loan with BDC as described in Note 7 was paid in full. The principal outstanding on that date was $950,000 and bonus interest and early payout penalty paid in accordance with the terms of the loan was $839,807.
On November 30, 2012, the common shares of the company were purchased by ATD Acquisition Co. V Inc. (Canada Acquisition), a newly formed direct wholly-owned Canadian subsidiary of American Tire Distributors, Inc. (ATDI), a direct wholly-owned subsidiary of American Tire Distributors Holdings, Inc. (Holdings). Proceeds of the sale included repayment of all shareholder loans.
F-278
TRIWEST TRADING (CANADA) LTD.
Notes to Financial Statements
(Unaudited)
In connection with the acquisition on November 30, 2012, Holdings amended and restated its credit facility (as amended and restated, the Sixth Amended and Restated Credit Agreement) in order to provide for borrowings under the agreement by Canada Acquisition (the Canadian Tranche). The Canadian Tranche provides for revolving loans available only to Canada Acquisition in an aggregate amount equal to $60.0 million, subject to a Canadian borrowing base. The maturity date for the Canadian Tranche is November 16, 2017 or March 1, 2017 as determined by the outstanding aggregate principal amount of ATDIs Senior Secured Notes on March 1, 2017. Holdings is a guarantor of Canada Acquisitions obligations under the Canadian Tranche.
On November 30, 2012 the company ended its distribution relationship with one of its suppliers and paid all obligations due to the supplier totaling approximately $4.8 million.
F-279
Through and including , 2014 (the 25th day after the date of this prospectus), all dealers effecting transactions in the Common Stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to a dealers obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
Shares
ATD Corporation
Common Stock
P R O S P E C T U S
BofA Merrill Lynch
Deutsche Bank Securities
Goldman, Sachs & Co.
Barclays
J.P. Morgan
UBS Investment Bank
TPG Capital BD, LLC
RBC Capital Markets
SunTrust Robinson Humphrey
, 2014
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than the underwriting discounts and commissions, payable by the registrant in connection with the sale of common stock being registered. All amounts are estimates except for the SEC registration fee, the FINRA filing fee and the NYSE listing fee.
Item |
Amount to be |
|||
SEC registration fee |
$ | 12,880 | ||
FINRA filing fee |
$ | 15,500 | ||
NYSE listing fee |
* | |||
Blue sky fees and expenses |
* | |||
Printing and engraving expenses |
* | |||
Legal fees and expenses |
* | |||
Accounting fees and expenses |
* | |||
Transfer agent fees and expenses |
* | |||
Miscellaneous expenses |
* | |||
|
|
|||
Total |
$ | * | ||
|
|
* | To be completed by amendment. |
Item 14. Indemnification of Directors and Officers
Section 102(b)(7) of the General Corporation Law of the State of Delaware (the DGCL) enables a corporation to eliminate or limit the personal liability of a director for violations of the directors fiduciary duty, except (i) for any breach of the directors duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for liability of directors for unlawful payment of dividends or unlawful stock purchase or redemptions pursuant to Section 174 of the DGCL or (iv) for any transaction from which a director derived an improper personal benefit. Our certificate of incorporation includes a provision that eliminates the personal liability of directors for monetary damages for actions taken as a director to the fullest extent authorized by the DGCL.
Section 145(a) of the DGCL provides in relevant part that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), by reason of the fact that such person is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of another entity, against expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such persons conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that such person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such persons conduct was unlawful.
Section 145(b) of the DGCL provides in relevant part that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or
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in the right of the corporation to procure a judgment in its favor by reason of the fact that the person is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of another entity, against expenses (including attorneys fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
Our bylaws provide that we will indemnify our directors and officers to the fullest extent permitted by law. Our bylaws also provide that the indemnification and advancement of expenses provided by, or granted pursuant to the bylaws, are not exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of directors or stockholders or otherwise. Section 145(f) of the DGCL further provides that a right to indemnification or to advancement of expenses arising under a provision of the certificate of incorporation shall not be eliminated or impaired by an amendment to such provision after the occurrence of the act or omission which is the subject of the civil, criminal, administrative or investigative action, suit or proceeding for which indemnification or advancement of expenses is sought.
We have also entered into indemnification agreements with each of our directors. Such agreements generally provide for indemnification by reason of being our director, as the case may be. These agreements are in addition to the indemnification provided by our certificate of incorporation and bylaws.
The underwriting agreement provides that the underwriters are obligated, under certain circumstances, to indemnify our directors, officers and controlling persons against certain liabilities, including liabilities under the Securities Act. Please refer to the form of underwriting agreement filed as Exhibit 1.1 hereto.
In connection with our acquisition by investment funds affiliated with TPG Global, LLC (together with its affiliates, TPG), we entered into an indemnification agreement pursuant to which we agreed to indemnify TPG, including the TPG funds invested in us and their respective affiliates, against liabilities, costs and expenses incurred by TPG arising out of or in connection with securities offerings, including liabilities under the securities laws, actions or failures to act by us or our affiliates generally, or the performance by TPG of services under the transaction and monitoring fee agreement described above.
We also maintain officers and directors liability insurance that insures against liabilities that our officers and directors may incur in such capacities. Section 145(g) of the DGCL provides that a corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of another entity, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such persons status as such, whether or not the corporation would have the power to indemnify such person against such liability under that section.
Item 15. Recent Sales of Unregistered Securities
In the three years preceding the filing of this registration statement, we have issued the following securities that were not registered under the Securities Act. No underwriters were involved in any of the following transactions.
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Equity Securities
During the year ended December 31, 2011, we issued to directors 100,000 shares of restricted stock. We also granted to certain eligible employees options to purchase 1,900,000 shares of our common stock at a weighted average exercise price of $1.00. These securities were issued without registration in reliance on the exemptions afforded by Section 4(a)(2) of the Securities Act and Rule 701 promulgated thereunder.
During the year ended December 29, 2012, we issued to directors 219,298 shares of restricted stock. We also granted to certain eligible employees options to purchase 2,277,600 shares of our common stock at a weighted average exercise price of $1.14. These securities were issued without registration in reliance on the exemptions afforded by Section 4(a)(2) of the Securities Act and Rule 701 promulgated thereunder. We also issued and sold 50,000,000 shares of common stock to investment funds affiliated with TPG and certain co-investors for aggregate consideration of $60.0 million without registration in reliance on the exemption afforded by Section 4(a)(2) of the Securities Act and Rule 506 promulgated thereunder.
During the year ended December 28, 2013, we granted to certain eligible employees options to purchase 3,500,002 shares of our common stock at a weighted average exercise price of $1.20. These securities were issued without registration in reliance on the exemptions afforded by Section 4(a)(2) of the Securities Act and Rule 701 promulgated thereunder.
Since December 28, 2013, we have issued 133,333 shares of restricted stock to directors. We have also granted to certain eligible employees options to purchase 4,528,833 shares of our common stock at a weighted average exercise price of $1.50. These securities were issued without registration in reliance on the exemptions afforded by Section 4(a)(2) of the Securities Act and Rules 506 and 701 promulgated thereunder. We have also issued and sold 33,333,333 shares of common stock to investment funds affiliated with TPG and certain co-investors for aggregate consideration of $50.0 million without registration in reliance on the exemption afforded by Section 4(a)(2) of the Securities Act and Rule 506 promulgated thereunder.
Debt Securities
On January 31, 2014, American Tire Distributors, Inc. issued an aggregate principal amount of $225.0 million of 11.5% Senior Subordinated Notes (the Additional Subordinated Notes), which was issued in connection with the consummation of the acquisition of Hercules Tire Holdings LLC. Interest on the 11.5% Senior Subordinated notes is paid semi-annually in arrears on June 1 and December 1 of each year, commencing on June 1, 2014. The Additional Subordinated Notes will mature on June 1, 2018. The Additional Subordinated Notes may be redeemed at any time at the option of ATDI, in whole or in part, upon not less than 30 nor more than 60 days notice at a redemption price of 104.0% of the principal amount if the redemption date occurs between June 1, 2013 and May 31, 2014, 102.0% of the principal amount if the redemption date occurs between June 1, 2014 and May 31, 2015 and 100.0% of the principal amount if the redemption date occurs on June 1, 2015 or thereafter. The Additional Subordinated Notes were offered and sold to qualified institutional buyers pursuant to Rule 144A under the Securities Act or to non-U.S. investors outside the United States in compliance with Regulation S of the Securities Act.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
See Exhibit Index following the signature page.
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(b) Financial Statement Schedules
See the Index to Consolidated Financial Statements and Financial Statement Schedules included in the prospectus, which forms a part of this registration statement.
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) That for purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this registration statement as of the time it was declared effective.
(2) That for the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) For the purpose of determining liability under the Securities Act of 1933 to any purchaser, if the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(4) The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(5) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the
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registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
(6) To provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Huntersville, North Carolina on September 11, 2014.
ATD CORPORATION | ||
By: | /s/ William E. Berry | |
Name: | William E. Berry | |
Title: | President and Chief Executive Officer |
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
Signature |
Title |
Date | ||
/s/ William E. Berry |
||||
William E. Berry | Director, President and Chief Executive Officer (Principal Executive Officer) |
September 11, 2014 | ||
/s/ Jason T. Yaudes |
||||
Jason T. Yaudes | Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
September 11, 2014 | ||
* |
||||
James M. Micali | Director | September 11, 2014 | ||
* |
||||
Kevin Burns | Director | September 11, 2014 | ||
* |
||||
Peter McGoohan | Director | September 11, 2014 | ||
* |
||||
W. James Farrell | Director | September 11, 2014 | ||
* |
||||
Gary M. Kusin | Director | September 11, 2014 | ||
* |
||||
David Krantz | Director | September 11, 2014 |
* By: | /s/ J. Michael Gaither | |
Attorney-in-fact |
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EXHIBIT INDEX
Exhibit |
Exhibit Title | |
1.1* | Form of Underwriting Agreement. | |
2.1 | Share Purchase Agreement, dated as of November 30, 2012, by and among ATD Acquisition Co. V Inc., American Tire Distributors, Inc., as parent guarantor, 1278104 Alberta Inc., Triwest Trading (Canada) Ltd., and the shareholders of 1278104 Alberta Inc. party thereto (incorporated by reference to Exhibit 2.2 to American Tire Distributors Holdings, Inc.s Form 10-Q filed May 10, 2013). | |
2.2 | Share Purchase Agreement, dated as of March 22, 2013, by and among TriCan Tire Distributors Inc., American Tire Distributors, Inc., as parent guarantor, Regional Tire Holdings Inc., Regional Tire Distributors Inc., and the shareholders of Regional Tire Holdings Inc., and Regional Tire Distributors Inc. (incorporated by reference to Exhibit 2.1 to American Tire Distributors Holdings, Inc.s Form 10-Q filed May 10, 2013). | |
2.3 | Agreement and Plan of Merger, dated as of January 24, 2014, by and among ATD Merger Sub II LLC, American Tire Distributors, Inc., Hercules Tire Holdings LLC and the Equityholders of Hercules Tire Holdings LLC (incorporated by reference to Exhibit 2.1 to American Tire Distributors Holdings, Inc.s Form 10-Q filed on May 16, 2014). | |
2.4 | Stock Purchase Agreement, dated as of February 17, 2014, by and among American Tire Distributors, Inc. and TTT Holding, Inc. (incorporated by reference to Exhibit 2.2 to American Tire Distributors Holdings, Inc.s Form 10-Q filed on May 16, 2014). | |
2.5 | Asset Purchase Agreement, dated as of June 27, 2014, by and among Trican Tire Distributors Inc., Regional Tire Distributors (Calgary) Inc. and its shareholders and principals (incorporated by reference to Exhibit 2.3 to American Tire Distributors Holdings, Inc.s Form 10-Q filed August 15, 2014). | |
2.6 | Asset Purchase Agreement, dated as of June 27, 2014, by and among Trican Tire Distributors Inc., Regional Tire Distributors (Edmonton) Inc. and its shareholders and principals (incorporated by reference to Exhibit 2.4 to American Tire Distributors Holdings, Inc.s Form 10-Q filed August 15, 2014). | |
2.7 | Asset Purchase Agreement, dated as of June 27, 2014, by and among Trican Tire Distributors Inc., Kirks Tire Ltd. and its shareholders and principals (incorporated by reference to Exhibit 2.2 to American Tire Distributors Holdings, Inc.s Form 10-Q filed August 15, 2014). | |
2.8 | Asset Purchase Agreement, dated as of June 27, 2014, by and among Trican Tire Distributors Inc., Trail Tire Distributors Ltd. and its shareholders and principals (incorporated by reference to Exhibit 2.5 to American Tire Distributors Holdings, Inc.s Form 10-Q filed August 15, 2014). | |
2.9 | Asset Purchase Agreement, dated as of June 27, 2014, by and among Trican Tire Distributors Inc., Extreme Wheel Distributors Ltd. and its shareholder and principal (incorporated by reference to Exhibit 2.1 to American Tire Distributors Holdings, Inc.s Form 10-Q filed August 15, 2014). | |
3.1** | Restated Certificate of Incorporation of ATD Corporation. | |
3.2** | Amended and Restated Bylaws of ATD Corporation. | |
4.1** | Form of Stock Certificate. | |
4.2 | Senior Subordinated Notes Indenture, dated as of May 28, 2010 among American Tire Distributors, Inc., American Tire Distributors Holdings, Inc., Am-Pac Tire Dist. Inc., as Subsidiary Guarantor, and The Bank of New York Mellon Trust Company, N.A., as trustee, in respect of the 11.50% Senior Subordinated Notes due 2018 (incorporated by reference to Exhibit 4.2 to American Tire Distributors Holdings, Inc.s Form 8-K filed June 2, 2010). |
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Exhibit |
Exhibit Title | |
4.3 | Form of 11.50% Senior Subordinated Notes due 2018 (included in Exhibit 4.2). | |
4.4 | Security Agreement, dated as of May 28, 2010, among American Tire Distributors, Inc. American Tire Distributors Holdings, Inc., Am-Pac Tire Dist. Inc. and the Bank of New York Mellon Trust Company, N.A. (incorporated by reference to Exhibit 4.4 to American Tire Distributors Holdings, Inc.s Registration Statement on Form S-4 filed December 20, 2010). | |
4.5 | Lien Subordination and Intercreditor Agreement, dated as of May 28, 2010, among American Tire Distributors, Inc., American Tire Distributors Holdings, Inc., Am-Pac Tire Dist. Inc., Bank of America, N.A. and the Bank of New York Mellon Trust Company, N.A. (incorporated by reference to Exhibit 4.5 to the American Tire Distributors Holdings, Inc.s Registration Statement on Form S-4 filed December 20, 2010). | |
4.6 | Intercreditor and Collateral Agency Agreement, dated as of May 28, 2010, among American Tire Distributors, Inc., American Tire Distributors Holdings, Inc. and the Bank of New York Mellon Trust Company, N.A. (incorporated by reference to Exhibit 4.6 to American Tire Distributors Holdings, Inc.s Registration Statement on Form S-4 filed December 20, 2010). | |
4.7 | Registration Rights Agreement, dated as of May 28, 2010, among American Tire Distributors, Inc., American Tire Distributors Holdings, Inc., Am-Pac Tire Dist. Inc. and Banc of America Securities LLC, Barclays Capital Inc., RBC Capital Markets Corporation and UBS Securities LLC (incorporated by reference to Exhibit 4.7 of American Tire Distributors Holdings, Inc.s Registration Statement on Form S-4 filed December 20, 2010). | |
4.8 | Sixth Supplemental Indenture, dated as of January 31, 2014, among American Tire Distributors, Inc., American Tire Distributors Holdings, Inc., Am-Pac Tire Dist. Inc., Tire Wholesalers, Inc., and The Bank of New York Mellon Trust Company, N.A., as trustee, in respect of the 11.50% Senior Subordinated Notes due 2018 (incorporated by reference to Exhibit 4.1 to American Tire Distributors Holdings, Inc.s Form 10-Q filed on May 16, 2014). | |
4.9 | Seventh Supplemental Indenture, dated as of January 31, 2014, among American Tire Distributors, Inc., American Tire Distributors Holdings, Inc., Am-Pac Tire Dist. Inc., Tire Wholesalers, Inc., and The Bank of New York Mellon Trust Company, N.A., as trustee, in respect of the 11.50% Senior Subordinated Notes due 2018 (incorporated by reference to Exhibit 4.2 to American Tire Distributors Holdings, Inc.s Form 10-Q filed on May 16, 2014). | |
4.10** | Registration Rights Agreement, dated as of May 28, 2010, among ATD Corporation, TPG Accelerate V, L.P., TPG Accelerate VI, L.P. and the other stockholders party thereto. | |
5.1* | Opinion of Ropes & Gray LLP. | |
10.1 | Sixth Amended and Restated Credit Agreement, dated as of November 30, 2012, among American Tire Distributors, Inc., ATD Acquisition Co. V Inc., American Tire Distributors Holdings, Inc., Am-Pac Tire Dist. Inc., Firestone of Denham Springs, Inc., Tire Wholesalers, Inc., ATD Acquisition Co. IV, Lenders party thereto and Bank of America, N.A. as Administrative and Collateral Agent and Lender. | |
10.2 | First Amendment to Sixth Amended and Restated Credit Agreement, dated as of March 22, 2013, among American Tire Distributors, Inc., TriCan Tire Distributors Inc., American Tire Distributors Holdings, Inc., Am-Pac Tire Dist, Inc., Tire Wholesalers, Inc., Lenders party thereto and Bank of America, N.A. as Administrative and Collateral Agent and Lender (incorporated by reference to Exhibits 10.1 and 10.2 to American Tire Distributors Holdings, Inc.s Form 10-Q filed May 10, 2013). | |
10.3** | Second Amendment to Sixth Amended and Restated Credit Agreement, dated as of January 31, 2014, among American Tire Distributors, Inc., Am-Pac Tire Dist. Inc., Trican Tire Distributors Inc., American Tire Distributors Holdings, Inc., Tire Wholesalers, Inc., Lenders party thereto and Bank of America, N.A. as Administrative and Collateral Agent and Lender. |
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Exhibit |
Exhibit Title | |
10.4 | Amended and Restated Pledge and Security Agreement, dated as of May 28, 2010, among American Tire Distributors, Inc., American Tire Distributors Holdings, Inc., Am-Pac Tire Dist. Inc. and the Bank of New York Mellon trust Company, N.A. (incorporated by reference to Exhibit 10.3 to American Tire Distributors Holdings, Inc.s Registration Statement on Form S-4 filed December 20, 2010). | |
10.5 | Second Amended and Restated Pledge and Security Agreement, dated as of November 30, 2012, among American Tire Distributors, Inc., Am-Pac Tire Dist. Inc., American Tire Distributors Holdings, Inc., Tire Wholesalers, Inc., Firestone of Denham Springs, Inc., d/b/a Consolidated Tire and Oil, ATD Acquisition Co. IV. and Bank of America, N.A. (incorporated by reference to Exhibit 10.3 to American Tire Distributors Holdings, Inc.s Annual Report on Form 10-K filed March 11, 2013). | |
10.6 | Canadian Pledge and Security Agreement, dated as of November 30, 2012, among ATD Acquisition Co. V Inc., Triwest Trading (Canada) Ltd. and Bank of America, N.A. (incorporated by reference to Exhibit 10.4 to American Tire Distributors Holdings, Inc.s Annual Report on Form 10-K filed March 11, 2013). | |
10.7 | Credit Agreement, dated as of March 28, 2014, among American Tire Distributors Holdings, Inc., American Tire Distributors, Inc., the guarantors from time to time party thereto, Bank of America, N.A., as administrative agent, and each lender from time to time party thereto. | |
10.8** | Security Agreement, dated as of March 28, 2014, among American Tire Distributors Holdings, Inc., American Tire Distributors, Inc., the subsidiary guarantors from time to time party thereto and Bank of America, N.A., as collateral agent. | |
10.9** | First Amendment to Credit Agreement, dated as of June 16, 2014, among American Tire Distributors Holdings, Inc., American Tire Distributors, Inc., the guarantors form time to time party thereto, Bank of America, N.A., as administrative agent, and each lender from time to time party thereto. | |
10.10** | Amended and Restated Management Equity Incentive Plan. | |
10.11 | Form of Option Grant Agreement under the Amended and Restated Management Equity Incentive Plan for directors (incorporated by reference to Exhibit 10.5 to American Tire Distributors Holdings, Inc.s Registration Statement on Form S-4 filed December 20, 2010). | |
10.12 | Form of Option Grant Agreement under the Amended and Restated Management Equity Incentive Plan for certain employees (incorporated by reference to Exhibit 10.6 to American Tire Distributors Holdings, Inc.s Registration Statement on Form S-4 filed December 20, 2010) | |
10.13 | Non-Employee Director Restricted Stock Plan (incorporated by reference to Exhibit 10.7 to American Tire Distributors Holdings, Inc.s Registration Statement on Form S-4 filed December 20, 2010). | |
10.14 | Transaction and Monitoring Fee Letter Agreement, dated as of May 28, 2010, between American Tire Distributors, Inc. and TPG Capital, L.P. (incorporated by reference to Exhibit 10.9 to American Tire Distributors Holdings, Inc.s Registration Statement on Form S-4 filed December 20, 2010). | |
10.15 | Indemnification Agreement, dated as of May 28, 2010, among American Tire Distributors Holdings, Inc., American Tire Distributors, Inc., Am-Pac Tire Dist. Inc., Tire Pros Francorp and TPG Capital, L.P. (incorporated by reference to Exhibit 10.10 to American Tire Distributors Holdings, Inc.s Registration Statement on Form S-4 filed December 20, 2010). | |
10.16 | Executive Employment Agreement, dated as of March 31, 2005, between American Tire Distributors, Inc. and J. Michael Gaither (incorporated by reference to Exhibit 10.13 to American Tire Distributors Holdings, Inc.s Registration Statement on Form S-4 filed December 20, 2010). | |
10.17 | Executive Employment Agreement, dated as of March 31, 2005, between American Tire Distributors, Inc. and Phillip E. Marrett (incorporated by reference to Exhibit 10.14 to American Tire Distributors Holdings, Inc.s Registration Statement on Form S-4 filed December 20, 2010). |
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Exhibit |
Exhibit Title | |
10.18 | Executive Employment Agreement, dated as of December 6, 2005, between American Tire Distributors, Inc. and David L. Dyckman (incorporated by reference to Exhibit 10.34 to American Tire Distributors Holdings, Inc.s Annual Report Form 10-K filed March 31, 2006). | |
10.19 | Amended and Restated Employment Agreement, dated as of April 6, 2009, between American Tire Distributors, Inc. and William E. Berry (incorporated by reference to Exhibit 10.1 to American Tire Distributors Holdings, Inc.s Form 8-K filed June 3, 2009). | |
10.20 | Employment Agreement, dated as of January 23, 2012, between American Tire Distributors, Inc. and Jason T. Yaudes (incorporated by reference to Exhibit 10.1 to American Tire Distributors Holdings, Inc.s Form 8-K filed January 23, 2012). | |
10.21 | Management Stockholders Agreement, dated as of June 15, 2010, among ATD Corporation and the stockholders named therein (incorporated by reference to Exhibit 10.11 to the Registrants Registration Statement on Form S-4 filed December 20, 2010). | |
10.22** | Form of Amended and Restated Stockholders Agreement by and among ATD Corporation, TPG Accelerate V, L.P. and TPG Accelerate VI, L.P. | |
10.23** | Form of Director Indemnification Agreement. | |
10.24* | Form of ATD Corporation 2014 Omnibus Incentive Plan. | |
10.25* | ATD Corporation Cash Incentive Plan. | |
21.1** | List of subsidiaries of ATD Corporation. | |
23.1 | Consent of PricewaterhouseCoopers LLP. | |
23.2 | Consent of PricewaterhouseCoopers LLP. | |
23.3 | Consent of Plante & Moran, PLLC. | |
23.4 | Consent of Deloitte LLP. | |
23.5 | Consent of Kouri Berezan Heinrichs. | |
23.6 | Consent of Collins Barrow Edmonton LLP. | |
23.7 | Consent of Collins Barrow Edmonton LLP. | |
23.8 | Consent of Collins Barrow Edmonton LLP. | |
23.9 | Consent of Collins Barrow Edmonton LLP. | |
23.10 | Consent of Collins Barrow Edmonton LLP. | |
23.11* | Consent of Ropes & Gray LLP (included in the opinion filed as Exhibit 5.1). | |
24.1** | Powers of Attorney. |
* | To be filed by amendment. |
** | Previously filed |
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Exhibit 10.1
SIXTH AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of November 30, 2012
among
THE FINANCIAL INSTITUTIONS PARTY HERETO,
as the Lenders,
and
BANK OF AMERICA, N.A.,
as the Administrative Agent and Collateral Agent,
and
AMERICAN TIRE DISTRIBUTORS, INC.
and the other U.S. Borrowers referred to herein,
as the U.S. Borrowers,
and
ATD ACQUISITION CO. V INC., as a Canadian Borrower,
and
AMERICAN TIRE DISTRIBUTORS HOLDINGS, INC.,
as Holdings
and
The Subsidiaries of American Tire Distributors, Inc.
from time to time parties hereto
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,
WELLS FARGO CAPITAL FINANCE, LLC, and
SUNTRUST ROBINSON HUMPHREY, INC.,
as the Joint-Lead Arrangers and Joint Book Managers,
and
WELLS FARGO CAPITAL FINANCE, LLC and
SUNTRUST BANK,
as Syndication Agents
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS | ||||
SECTION 1.01 |
Defined Terms | - 2 - | ||
SECTION 1.02 |
Classification of Loans | - 58 - | ||
SECTION 1.03 |
Terms Generally | - 58 - | ||
SECTION 1.04 |
Accounting Terms; GAAP | - 58 - | ||
SECTION 1.05 |
Amendment and Restatement of Existing Credit Agreement | - 58 - | ||
SECTION 1.06 |
Interpretation (Quebec) | - 59 - | ||
SECTION 1.07 |
Currency Calculations | - 59 - | ||
ARTICLE II. THE CREDITS | ||||
SECTION 2.01 |
Revolving Commitments | - 59 - | ||
SECTION 2.02 |
Revolving Loans and Borrowings | - 60 - | ||
SECTION 2.03 |
Requests for Revolving Borrowings | - 61 - | ||
SECTION 2.04 |
Protective Advances and Overadvances | - 62 - | ||
SECTION 2.05 |
Swingline Loans | - 63 - | ||
SECTION 2.06 |
Letters of Credit | - 66 - | ||
SECTION 2.07 |
Funding of Borrowings | - 70 - | ||
SECTION 2.08 |
Type; Interest Elections | - 71 - | ||
SECTION 2.09 |
Termination and Reduction of Revolving Commitments | - 72 - | ||
SECTION 2.10 |
Repayment of Loans; Evidence of Debt | - 73 - | ||
SECTION 2.11 |
Prepayment of Loans | - 74 - | ||
SECTION 2.12 |
Fees | - 75 - | ||
SECTION 2.13 |
Interest | - 76 - | ||
SECTION 2.14 |
Alternate Rate of Interest | - 78 - | ||
SECTION 2.15 |
Increased Costs | - 78 - | ||
SECTION 2.16 |
Break Funding Payments | - 79 - | ||
SECTION 2.17 |
Taxes. | - 80 - | ||
SECTION 2.18 |
Payments Generally; Allocation of Proceeds; Sharing of Set-offs | - 82 - | ||
SECTION 2.19 |
Mitigation Obligations; Replacement of Lenders | - 84 - | ||
SECTION 2.20 |
Illegality | - 85 - | ||
SECTION 2.21 |
Cash Receipts. | - 85 - | ||
SECTION 2.22 |
Reserves; Change in Reserves; Decisions by Agent | - 87 - | ||
SECTION 2.23 |
Revolving Commitment Increases | - 87 - | ||
SECTION 2.24 |
Borrower Agent | - 90 - | ||
SECTION 2.25 |
Joint and Several Liability of the U.S. Borrowers | - 90 - | ||
SECTION 2.26 |
Loan Account; Statement of Obligations | - 92 - | ||
SECTION 2.27 |
Extensions of Revolving Loans and Revolving Commitments | - 92 - | ||
SECTION 2.28 |
Defaulting Lenders | - 95 - | ||
SECTION 2.29 |
Currency Matters | - 96 - | ||
SECTION 2.30 |
Currency Fluctuations | - 97 - | ||
SECTION 2.31 |
Obligations of the Canadian Loan Parties | - 97 - |
i
ARTICLE III. REPRESENTATIONS AND WARRANTIES | ||||||
SECTION 3.01 |
Organization; Powers | - 98 - | ||||
SECTION 3.02 |
Authorization; Enforceability | - 98 - | ||||
SECTION 3.03 |
Governmental Approvals; No Conflicts | - 98 - | ||||
SECTION 3.04 |
Financial Condition; No Material Adverse Change | - 98 - | ||||
SECTION 3.05 |
Properties | - 99 - | ||||
SECTION 3.06 |
Litigation and Environmental Matters | - 99 - | ||||
SECTION 3.07 |
Compliance with Laws, No Default | - 99 - | ||||
SECTION 3.08 |
Investment Company Status | - 100 - | ||||
SECTION 3.09 |
Taxes | - 100 - | ||||
SECTION 3.10 |
ERISA; Canadian Pension Plans | - 100 - | ||||
SECTION 3.11 |
Disclosure | - 100 - | ||||
SECTION 3.12 |
Solvency | - 101 - | ||||
SECTION 3.13 |
Insurance | - 101 - | ||||
SECTION 3.14 |
Capitalization and Subsidiaries | - 101 - | ||||
SECTION 3.15 |
Security Interest in Collateral | - 101 - | ||||
SECTION 3.16 |
Labor Disputes | - 102 - | ||||
SECTION 3.17 |
Federal Reserve Regulations | - 102 - | ||||
SECTION 3.18 |
Senior Indebtedness | - 102 - | ||||
SECTION 3.19 |
Intellectual Property | - 103 - | ||||
SECTION 3.20 |
Use of Proceeds | - 103 - | ||||
SECTION 3.21 |
Anti-Terrorism Laws | - 103 - | ||||
ARTICLE IV. CONDITIONS | ||||||
SECTION 4.01 |
Effective Date | - 103 - | ||||
SECTION 4.02 |
Each Credit Event | - 106 - | ||||
ARTICLE V. AFFIRMATIVE COVENANTS | ||||||
SECTION 5.01 |
Financial Statements; Borrowing Base and Other Information | - 107 - | ||||
SECTION 5.02 |
Notices of Material Events | - 110 - | ||||
SECTION 5.03 |
Existence; Conduct of Business | - 110 - | ||||
SECTION 5.04 |
Payment of Obligations | - 111 - | ||||
SECTION 5.05 |
Maintenance of Properties | - 111 - | ||||
SECTION 5.06 |
Books and Records; Inspection Rights; Appraisals; Field Examinations | - 111 - | ||||
SECTION 5.07 |
Reserved | - 112 - | ||||
SECTION 5.08 |
Compliance with Laws | - 112 - | ||||
SECTION 5.09 |
Use of Proceeds | - 112 - | ||||
SECTION 5.10 |
Insurance | - 112 - | ||||
SECTION 5.11 |
Additional Loan Parties; Additional Collateral; Further Assurances | - 112 - | ||||
SECTION 5.12 |
Designation of Subsidiaries | - 114 - | ||||
SECTION 5.13 |
Post-Closing Covenant Regarding Amalgamation of Canadian Borrower and Triwest | - 114 - |
ii
ARTICLE VI. NEGATIVE COVENANTS | ||||||
SECTION 6.01 |
Indebtedness | - 115 - | ||||
SECTION 6.02 |
Liens | - 120 - | ||||
SECTION 6.03 |
Fundamental Changes | - 124 - | ||||
SECTION 6.04 |
Investments, Loans, Advances, Guarantees and Acquisitions | - 125 - | ||||
SECTION 6.05 |
Asset Sales | - 129 - | ||||
SECTION 6.06 |
Sale and Lease-Back Transactions | - 130 - | ||||
SECTION 6.07 |
Accounting Changes | - 130 - | ||||
SECTION 6.08 |
Restricted Payments; Certain Payments of Indebtedness | - 130 - | ||||
SECTION 6.09 |
Transactions with Affiliates | - 134 - | ||||
SECTION 6.10 |
Restrictive Agreements | - 135 - | ||||
SECTION 6.11 |
Amendment of Material Documents | - 136 - | ||||
SECTION 6.12 |
Fixed Charge Coverage Ratio | - 136 - | ||||
SECTION 6.13 |
Canadian Pension Plans | - 136 - | ||||
ARTICLE VII. EVENTS OF DEFAULT | ||||||
SECTION 7.01 |
Events of Default | - 136 - | ||||
SECTION 7.02 |
Cure Right | - 139 - | ||||
SECTION 7.03 |
Exclusion of Immaterial Subsidiaries | - 140 - | ||||
ARTICLE VIII. THE AGENT | ||||||
ARTICLE IX. MISCELLANEOUS | ||||||
SECTION 9.01 |
Notices | - 144 - | ||||
SECTION 9.02 |
Waivers; Amendments | - 145 - | ||||
SECTION 9.03 |
Expenses; Indemnity; Damage Waiver | - 147 - | ||||
SECTION 9.04 |
Successors and Assigns | - 149 - | ||||
SECTION 9.05 |
Survival | - 153 - | ||||
SECTION 9.06 |
Counterparts; Integration; Effectiveness | - 154 - | ||||
SECTION 9.07 |
Severability | - 154 - | ||||
SECTION 9.08 |
Right of Setoff | - 154 - | ||||
SECTION 9.09 |
Governing Law; Jurisdiction; Consent to Service of Process | - 155 - | ||||
SECTION 9.10 |
WAIVER OF JURY TRIAL | - 155 - | ||||
SECTION 9.11 |
Headings | - 155 - | ||||
SECTION 9.12 |
Confidentiality | - 155 - | ||||
SECTION 9.13 |
Several Obligations; Nonreliance; Violation of Law | - 156 - | ||||
SECTION 9.14 |
USA PATRIOT Act | - 156 - | ||||
SECTION 9.15 |
Disclosure | - 157 - | ||||
SECTION 9.16 |
Appointment for Perfection | - 157 - | ||||
SECTION 9.17 |
Interest Rate Limitation | - 157 - | ||||
SECTION 9.18 |
Cumulative Effect; Conflict of Terms; Entire Agreement; Credit Inquiries; No Advisory or Fiduciary Responsibility | - 157 - | ||||
SECTION 9.19 |
Confirmation, Ratification and Affirmation by Loan Parties | - 158 - | ||||
SECTION 9.20 |
INTERCREDITOR AGREEMENT | - 159 - | ||||
SECTION 9.21 |
Judgment Currency | - 159 - | ||||
SECTION 9.22 |
Canadian Anti-Money Laundering Legislation | - 160 - |
iii
ARTICLE X. LOAN GUARANTY | ||||||
SECTION 10.01 |
Guaranty | - 160 - | ||||
SECTION 10.02 |
Guaranty of Payment | - 160 - | ||||
SECTION 10.03 |
No Discharge or Diminishment of Loan Guaranty | - 161 - | ||||
SECTION 10.04 |
Defenses Waived | - 161 - | ||||
SECTION 10.05 |
Rights of Subrogation | - 162 - | ||||
SECTION 10.06 |
Reinstatement; Stay of Acceleration | - 162 - | ||||
SECTION 10.07 |
Information | - 162 - | ||||
SECTION 10.08 |
Maximum Liability | - 162 - | ||||
SECTION 10.09 |
Contribution | - 163 - | ||||
SECTION 10.10 |
Liability Cumulative | - 164 - | ||||
SECTION 10.11 |
Termination; Release of Guarantors and Borrowers | - 164 - |
SCHEDULES: Commitment Schedule |
||||
Schedule 1.01(a) | Existing Letters of Credit | |||
Schedule 1.01(b) | Immaterial Subsidiaries | |||
Schedule 1.01(c) | Mortgaged Properties | |||
Schedule 1.01(d) | Permitted Inventory Locations | |||
Schedule 3.14 | Capitalization and Subsidiaries | |||
Schedule 4.01(b) | Local Counsel | |||
Schedule 6.01 | Existing Indebtedness | |||
Schedule 6.02 | Existing Liens | |||
Schedule 6.04 | Existing Investments | |||
Schedule 6.05 | Specified Asset Sales | |||
Schedule 6.09 | Transactions with Affiliates | |||
Schedule 6.10 | Existing Restrictions |
EXHIBITS: | ||||
Exhibit A | Form of Assignment and Assumption | |||
Exhibit B | Form of Borrowing Base Certificate | |||
Exhibit C | Form of Compliance Certificate | |||
Exhibit D | Form of Joinder Agreement | |||
Exhibit E | Form of Letter of Credit Request | |||
Exhibit F-1 | Form of Borrowing Request | |||
Exhibit F-2 | Form of Swingline Borrowing Request | |||
Exhibit G-1 | Form of Canadian Revolving Note |
|||
Exhibit G-2 | Form of U.S. Revolving Note | |||
Exhibit H | Form of Vendor Lien Subordination Agreement | |||
Exhibit I | Form of Mortgage | |||
Exhibit J | Form of Intercompany Note |
iv
This SIXTH AMENDED AND RESTATED CREDIT AGREEMENT dated as of November 30, 2012 (this Agreement), is made by and among AMERICAN TIRE DISTRIBUTORS, INC., a Delaware corporation (the Company) and successor by merger to ATD Acquisition Co. III, a Delaware corporation, and successor by merger to The Bowlus Service Company, an Ohio corporation, ATD ACQUISITION CO. V INC., a corporation organized under the laws of Canada (the Initial Canadian Borrower), AMERICAN TIRE DISTRIBUTORS HOLDINGS, INC., a Delaware corporation (Holdings), each other subsidiary of the Company from time to time party hereto, the Lenders, and BANK OF AMERICA, N.A., as administrative agent for the Lenders hereunder and as collateral agent for the Secured Parties (in such capacities, together with its successors in such capacities, the Agent).
WHEREAS, capitalized terms used and not defined in the preamble and these recitals shall have the respective meanings set forth for such terms in Section 1.01 hereof;
WHEREAS, pursuant to the Canadian Acquisition Agreement, contemporaneously with the funding of the initial Loans hereunder, the Initial Canadian Borrower will purchase the Equity Interests of Triwest (the Canadian Acquisition), and the Initial Canadian Borrower will amalgamate with Triwest (the Initial Canadian Borrower, after giving effect to the amalgamation with Triwest, the Amalgamated Company) on or after the Effective Date;
WHEREAS, the Company, certain of the other Loan Parties, certain of the Lenders party thereto, Bank of America, N.A., as administrative agent and collateral agent, and the other parties thereto are parties to that certain Fifth Amended and Restated Credit Agreement dated as of May 28, 2010 (as amended, restated, modified or supplemented prior to the date hereto, the Existing Credit Agreement);
WHEREAS, the Company has requested that, immediately upon the satisfaction in full of the applicable conditions precedent set forth in Article IV below, the Existing Credit Agreement be amended and restated as provided herein and that, from and after the Effective Date, (a) the U.S. Revolving Lenders extend credit in the form of U.S. Revolving Loans at any time and from time to time during the Availability Period, in an aggregate principal amount at any time outstanding not in excess of $850,000,000 or the aggregate amount of U.S. Revolving Commitments in effect from time to time, (b) the U.S. Swingline Lender extend credit at any time and from time to time during the Availability Period in the form of U.S. Swingline Loans, in an aggregate principal amount at any time outstanding not in excess of $85,000,000, (c) the Applicable Issuing Banks issue Letters of Credit for the account of U.S. Borrowers in an aggregate face amount at any time outstanding not in excess of $50,000,000, (d) the Canadian Revolving Lenders extend credit in the form of Canadian Revolving Loans at any time and from time to time during the Availability Period, in an aggregate principal amount at any time outstanding not in excess of the Dollar Equivalent Amount of $60,000,000 or the aggregate amount of Canadian Revolving Commitments in effect from time to time, (e) the Canadian Swingline Lender extend credit at any time and from time to time during the Availability Period in the form of Canadian Swingline Loans, in an aggregate principal amount at any time outstanding not in excess of the Dollar Equivalent Amount of $6,000,000, and (f) the Applicable Issuing Banks issue Letters of Credit for the account of a Canadian Borrower in an aggregate face amount at any time outstanding not in excess of the Dollar Equivalent Amount of $10,000,000; and
WHEREAS, the U.S. Revolving Lenders have indicated their willingness to so amend and restate the Existing Credit Agreement, and the Revolving Lenders have indicated their willingness to enter into this Agreement, and to extend such credit, and the Applicable Issuing Banks have indicated their willingness to issue Letters of Credit, in each case on the terms and subject to the conditions set forth herein.
NOW, THEREFORE, the parties hereto hereby agree to amend and restate the Existing Credit Agreement in its entirety as set forth herein as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.01 Defined Terms. As used in this Agreement, the following terms have the meanings specified below:
ABL First Lien Collateral has the meaning specified in the Intercreditor Agreement.
ABR Loan means a U.S. Revolving Loan, or portion thereof, funded in Dollars and bearing interest calculated by reference to the Alternate Base Rate.
Account means an Account, as defined in Article 9 of the UCC or in the PPSA, as applicable.
Account Debtor means any Person obligated on an Account.
ACH means automated clearing house transfers.
Acquired EBITDA means, with respect to any Acquired Entity or Business or any Converted Restricted Subsidiary (any of the foregoing, a Pro Forma Entity) for any period, the amount for such period of EBITDA of such Pro Forma Entity (determined using such definitions as if references to the Company and its Subsidiaries therein were to such Pro Forma Entity and its Subsidiaries), all as determined on a consolidated basis for such Pro Forma Entity in a manner not inconsistent with GAAP.
Acquired Entity or Business has the meaning assigned to such term in the definition of the term EBITDA.
Additional Canadian Revolving Commitment Lender has the meaning assigned to such term in Section 2.23(b).
Additional Revolving Commitment Lender has the meaning assigned to such term in Section 2.23(b).
Additional U.S. Revolving Commitment Lender has the meaning assigned to such term in Section 2.23(b).
Adjusted LIBOR Rate means, for any Interest Period, the LIBOR Rate for such Interest Period or, if the Board imposes a Reserve Percentage with respect to eurodollar deposits in dollars in the London interbank market, the rate obtained by dividing (a) the LIBOR Rate for such Interest Period by (b) 1 minus the Reserve Percentage.
Adjustment Date means (i) with respect to determinations of the Applicable Rate and the Average Historical Excess Availability, the first day of each calendar month, and (ii) with respect to determinations of the Average Revolving Loan Utilization, the first day of each January, April, July and October.
Administrative Questionnaire means an Administrative Questionnaire in a form supplied by the Agent.
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Affiliate means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.
Agent has the meaning assigned to such term in the preamble to this Agreement.
Aggregate Borrowing Base means the sum of the U.S. Borrowing Base and the Canadian Borrowing Base.
Aggregate Incremental Capacity has the meaning assigned to such term in Section 2.23(a).
Alternate Base Rate means, for any day, a rate per annum equal to the greatest of (a) the U.S. Prime Rate in effect on such day, (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%, and (c) the LIBOR Rate for an Interest Period of one month commencing on such date plus 1%; provided that, for the avoidance of doubt, for purposes of calculating the LIBOR Rate pursuant to clause (c) above, the LIBOR Rate for any day shall be based on the rate per annum determined by the Agent at approximately 11:00 a.m. (London time) on such day by reference to BBA LIBOR (as published by Reuters or other commercially available source designated by the Agent) for a period equal to one-month. Any change in the Alternate Base Rate due to a change in the U.S. Prime Rate, the Federal Funds Effective Rate or the LIBOR Rate shall be effective from and including the effective date of such change in the U.S. Prime Rate, the Federal Funds Effective Rate or the LIBOR Rate, respectively.
Amalgamated Company has the meaning assigned to such term in the recitals of this Agreement.
Anti-Terrorism Laws shall mean any Requirement of Law relating to terrorism or money laundering including Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001, the PATRIOT Act and the Proceeds of Crime Act.
Applicable Defaulting Lender means, with respect to a Borrower Group, a Lender having Borrower Group Commitments to the Borrowers within such Borrower Group that is a Defaulting Lender.
Applicable Funding Account means, with respect to the Borrowers within any Borrower Group, the Funding Account for such Borrowers.
Applicable Funding Lender means, with respect to a Borrower Group, an Extending Lender having a Borrower Group Commitment to the Borrowers within such Borrower Group.
Applicable Guaranteed Obligations means (a) with respect to the U.S. Obligations, the U.S. Guaranteed Obligations, and (b) with respect to the Canadian Obligations, the Canadian Guaranteed Obligations.
Applicable Guarantor means (a) with respect to the U.S. Obligations, the U.S. Guarantors, and (b) with respect to the Canadian Obligations, the Canadian Obligations Guarantors.
Applicable Issuing Bank means, with respect to a Borrower Group, an Issuing Bank for such Borrower Group.
- 3 -
Applicable Lenders means, with respect to a Borrower Group, Lenders having Borrower Group Commitments to the Borrowers within such Borrower Group.
Applicable Obligated Party has the meaning assigned to such term in Section 10.02.
Applicable Percentage means (a) with respect to any U.S. Revolving Lender, with respect to U.S. Revolving Loans, U.S. LC Exposure or U.S. Swingline Loans, a percentage equal to a fraction the numerator of which is such U.S. Revolving Lenders U.S. Revolving Commitment and the denominator of which is the aggregate U.S. Revolving Commitments of all U.S. Revolving Lenders (if the U.S. Revolving Commitments have terminated or expired, the Applicable Percentage of any U.S. Revolving Lender shall be determined based upon such U.S. Revolving Lenders share of the aggregate U.S. Revolving Exposures at that time), and (b) with respect to any Canadian Revolving Lender, with respect to Canadian Revolving Loans, Canadian LC Exposure or Canadian Swingline Loans, a percentage equal to a fraction the numerator of which is such Canadian Revolving Lenders Canadian Revolving Commitment and the denominator of which is the aggregate Canadian Revolving Commitments of all Canadian Revolving Lenders (if the Canadian Revolving Commitments have terminated or expired, the Applicable Percentage of any Canadian Revolving Lender shall be determined based upon such Canadian Revolving Lenders share of the Dollar Equivalent Amount of the aggregate Canadian Revolving Exposures at that time).
Applicable Rate means, for any day, with respect to any Floating Rate Loan or Interest Period Loan, the applicable rate per annum set forth below under the caption Floating Rate Spread or Interest Period Spread, as the case may be, based upon the Average Historical Excess Availability as of the most recent Adjustment Date; provided that until the first Adjustment Date occurring on or after the date that is three (3) months after the Effective Date, the Applicable Rate shall be the applicable rate per annum set forth below in Category 2:
Average Historical Excess Availability |
Floating Rate Spread |
Interest Period Spread |
||||||
Category 1 |
||||||||
Average Historical Excess Availability less than 33% of the lesser of (i) the aggregate Revolving Commitments and (ii) the Aggregate Borrowing Base |
1.00 | % | 2.00 | % | ||||
Category 2 |
||||||||
Average Historical Excess Availability greater than or equal to 33% of the lesser of (i) the aggregate Revolving Commitments and (ii) the Aggregate Borrowing Base, but less than 66% of the lesser of (i) the aggregate Revolving Commitments and (ii) the Aggregate Borrowing Base |
0.75 | % | 1.75 | % | ||||
Category 3 | ||||||||
Average Historical Excess Availability greater than or equal to 66% of the lesser of (i) the aggregate Revolving Commitments and (ii) the Aggregate Borrowing Base |
0.50 | % | 1.50 | % |
- 4 -
The Applicable Rate shall be adjusted monthly on a prospective basis on each Adjustment Date based upon the Average Historical Excess Availability in accordance with the table above; provided that (i) if an Event of Default shall have occurred and be continuing at the time any reduction in the Applicable Rate would otherwise be implemented, no such reduction shall be implemented until the date on which such Event of Default shall no longer be continuing, and (ii) if any Borrowing Base Certificate delivered pursuant to this Agreement is at any time restated or otherwise revised, or if the information set forth in any such Borrowing Base Certificate otherwise proves to be false or incorrect such that the Applicable Rate would have been higher than was otherwise in effect during any period, without constituting a waiver of any Default or Event of Default arising as a result thereof, interest due under this Agreement shall be immediately recalculated at such higher rate for any applicable periods and shall be due and payable on demand and shall be payable only to the Applicable Lenders whose Borrower Group Commitments were outstanding during such period when the Applicable Rate should have been higher (regardless of whether such Lenders remain parties to this Agreement at the time such payment is made).
Applicable Security Agreement means, with respect to the U.S. Loan Parties, the U.S. Security Agreement and, with respect to the Canadian Loan Parties, the Canadian Security Agreements.
Applicable Swingline Lender means BANA with respect to U.S. Swingline Loans and BANA (acting through its Canada branch), with respect to Canadian Swingline Loans.
Approved Fund means any Person (other than an natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course and that is administered or managed by (1) a Lender, (2) an Affiliate or branch of a Lender or (3) an entity or an Affiliate or branch of an entity that administers, advises or manages a Lender.
Assignment and Assumption means an assignment and assumption entered into by a Lender and an assignee (with the consent of any party whose consent is required by Section 9.04), and accepted by the Agent, in the form of Exhibit A or any other form approved by the Agent.
Attributable Debt in respect of a Sale and Lease Back Transaction means, as at the time of determination, the present value (discounted at the interest rate for such lease, as determined by the Company) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale and Lease Back Transaction (including any period for which such lease has been extended); provided, however, that if such Sale and Lease Back Transaction results in a Capital Lease Obligation, the amount of Indebtedness represented thereby will be determined in accordance with the definition of Capital Lease Obligation.
Availability Period means the period from and including the Effective Date to but excluding the earlier of the Maturity Date and the date of termination of the Commitments.
Availability Reserves means, without duplication of any other reserves or items that are otherwise addressed or excluded through eligibility criteria, such reserves as the Agent from time to time determines in its Permitted Discretion as being appropriate (a) to reflect any impediments to the Agents
- 5 -
ability to realize upon the Collateral consisting of Borrowing Base Assets included in either Borrowing Base, (b) to reflect claims and liabilities that the Agent determines will need to be satisfied in connection with the realization upon the Collateral consisting of Borrowing Base Assets included in either Borrowing Base, or (c) to reflect criteria, events, conditions, contingencies or risks which adversely affect any component of either Borrowing Base.
Available Revolving Commitment means, at any time, with respect to any Applicable Lender, (a) if such Applicable Lender is a U.S. Revolving Lender, the U.S. Revolving Commitment of such U.S. Revolving Lender then in effect minus the U.S. Revolving Exposure of such U.S. Revolving Lender at such time, and (b) if such Applicable Lender is a Canadian Revolving Lender, the Canadian Revolving Commitment of such Canadian Revolving Lender then in effect, minus the Canadian Revolving Exposure of such Canadian Revolving Lender at such time.
Average Historical Excess Availability means, at any Adjustment Date, the average daily Excess Availability for the one-month period immediately preceding such Adjustment Date.
Average Revolving Loan Utilization means, at any Adjustment Date, the sum of (a) the average daily aggregate U.S. Revolving Exposures (excluding any U.S. Revolving Exposure resulting from any outstanding U.S. Swingline Loans) for the three-month period immediately preceding such Adjustment Date (or, if less, the period from the Effective Date to such Adjustment Date), divided by the aggregate U.S. Revolving Commitments at such time, plus (b) the average daily aggregate Canadian Revolving Exposures (excluding any Canadian Revolving Exposures resulting from any outstanding Canadian Swingline Loans) for the three-month period immediately preceding such Adjustment Date (or, if less, the period from the Effective Date to such Adjustment Date), divided by the aggregate Canadian Revolving Commitments at such time.
BANA means Bank of America, N.A., a national banking association, acting in its individual capacity, and its successors and assigns.
BANA Account has the meaning assigned to such term in Section 2.21(c).
B/F Subordination Agreement means the Amended and Restated Subordination Agreement dated November 6, 2002, as amended and reaffirmed on December 19, 2008, December 10, 2010, and May 21, 2012, and as further amended, restated or otherwise modified from time to time thereafter, among Bridgestone/Firestone, the Agent, the Company, and the other parties thereto.
Banking Services means each and any of the following bank services provided to any Loan Party by the Agent, any Revolving Lender or any of their respective Affiliates or branches: (a) commercial credit cards, merchant card services, purchase or debit cards, (b) treasury management services (including, without limitation, controlled disbursement, ACH transactions, return items and interstate depository network services) and (c) any other demand deposit or operating account relationships or other cash management services, including under Cash Management Agreements.
Banking Services Obligations of the Loan Parties means any and all obligations of the Loan Parties, whether absolute or contingent and however and whenever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor) in connection with Banking Services.
Banking Services Reserves means all Reserves which the Agent from time to time after the occurrence and during the continuation of a Liquidity Event establishes in its Permitted Discretion as being appropriate to reflect reasonably anticipated Banking Services Obligations then provided or outstanding.
- 6 -
Bankruptcy Law means Title 11 of the United States Code, the BIA, the CCAA or any similar foreign, federal, provincial or state law for the relief of debtors as now or hereinafter in effect.
Bankruptcy Proceeding means (a) any voluntary or involuntary case or proceeding under any applicable Bankruptcy Law or any proceeding of the type specified in Section 7.01(g) or (h), in each case, with respect to Holdings, the Company, or any Material Subsidiary, (b) any other voluntary or involuntary insolvency, reorganization or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding with respect to Holdings, the Company, any Canadian Borrower or any Material Subsidiary or with respect to a material portion of their respective assets, (c) any liquidation, dissolution, reorganization or winding up of Holdings, the Company, or any Material Subsidiary whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (d) any assignment for the benefit of creditors or any other marshalling of assets and liabilities of Holdings, the Company, or any Material Subsidiary.
BBA LIBOR has the meaning assigned to such term in the definition of LIBOR Rate.
BIA means the Bankruptcy and Insolvency Act (Canada) and the regulations promulgated thereunder.
Blocked Account Agreement has the meaning assigned to such term in Section 2.21(a).
Blocked Accounts has the meaning assigned to such term in Section 2.21(a).
Board means the Board of Governors of the Federal Reserve System of the United States of America.
Borrower means a U.S. Borrower or a Canadian Borrower, as applicable.
Borrower Agent has the meaning assigned to such term in Section 2.24.
Borrower Group means a group consisting of (a) the U.S. Borrowers and each other U.S. Loan Party, or (b) the Canadian Borrowers and each other Canadian Loan Party, as applicable. For the avoidance of doubt, any Borrowings under the U.S. Commitments shall be made to the U.S. Borrowers and any Borrowings under the Canadian Commitments shall be made to a Canadian Borrower.
Borrower Group Commitments means, with respect to the Commitment of a Lender to fund Revolving Loans to the Borrowers within a Borrower Group, or to participate in Letters of Credit issued for the account of Borrowers within a Borrower Group, the amount of the Commitment of such Lender with respect to such Borrower Group as shown on the Commitment Schedule from time to time, as such Commitment may be (a) reduced from time to time pursuant to Section 2.09, (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04 and (c) increased from time to time pursuant to Section 2.23.
Borrowing means any (a) Loans of the same Class and Type made, converted or continued on the same date and, in the case of Interest Period Loans, as to which a single Interest Period is in effect, (b) Swingline Loan or (c) Protective Advance or Overadvance Loan.
- 7 -
Borrowing Base means, with respect to the U.S. Borrowers, the U.S. Borrowing Base, and, with respect to the Canadian Borrowers, the Canadian Borrowing Base.
Borrowing Base Assets means any Loan Partys Inventory and Receivables and other assets directly related thereto, including documents, instruments, general intangibles, deposit accounts and the proceeds of all of the same.
Borrowing Base Certificate means a certificate, signed and certified as accurate and complete by a Financial Officer of the Company, in substantially the form of Exhibit B or another form which is acceptable to the Agent in its reasonable discretion.
Borrowing Request means a request by the Borrower Agent for a Revolving Borrowing in accordance with Section 2.03 and substantially in the form attached hereto as Exhibit F-1, or such other form as shall be approved by the Agent.
Bridgestone/Firestone means Bridgestone/Firestone North American Tire, LLC, a Delaware limited liability company and successor by merger to Bridgestone/Firestone, Inc., an Ohio corporation.
Business Day (a) means any day that is not a Saturday, Sunday or other day on which commercial banks in New York, New York or Charlotte, North Carolina are authorized or required by law to remain closed; provided that, when used in connection with a LIBOR Rate Loan, the term Business Day shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market and (b) when used with reference to any Canadian Revolving Loan, shall also exclude a day on which banks in Toronto, Ontario, Canada are authorized or required by law to remain closed.
Calculation Date has the meaning assigned to such term in Section 2.30(a).
Canadian Acquisition has the meaning assigned to it in the recitals of this Agreement.
Canadian Acquisition Agreement means that certain Share Purchase Agreement dated as of November 30, 2012, among Seller, Selling Shareholders, the Initial Canadian Borrower, and the Company, as parent guarantor, together with all exhibits, schedules and disclosure letters thereto.
Canadian Acquisition Funds means (a) the payment of the acquisition consideration to the equity holders of the Initial Canadian Borrower under the Canadian Acquisition Agreement, (b) the payment of Transaction Expenses and (c) the Refinancing.
Canadian BA Rate means, with respect to each Interest Period for a Canadian BA Rate Loan, the rate of interest per annum equal to the average rate applicable to Canadian Dollar bankers acceptances having an identical or comparable term as the proposed Canadian BA Rate Loan displayed and identified as such on the display referred to as the CDOR Page (or any display substituted therefor) of Reuters Monitor Money Rates Service as at approximately 10:00 a.m. Toronto time on such day (or, if such day is not a Business Day, as of 10:00 a.m. Toronto time on the immediately preceding Business Day); provided that if such rate does not appear on the CDOR Page at such time on such date, the rate for such date will be the annual discount rate (rounded upward to the nearest whole multiple of 1/100 of 1%) as of 10:00 a.m. Toronto time on such day at which a Canadian chartered bank listed on Schedule 1 of the Bank Act (Canada) as selected by the Agent is then offering to purchase Canadian Dollar bankers acceptances accepted by it having such specified term (or a term as closely as possible comparable to such specified term).
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Canadian BA Rate Loan means a Canadian Revolving Loan, or portion thereof, funded in Canadian Dollars and bearing interest calculated by reference to the Canadian BA Rate.
Canadian Base Rate means for any day, the greatest of (i) the per annum rate of interest in effect for such day as publicly announced from time to time by BANA (acting through its Canada branch) in Toronto, Ontario as its base rate (the base rate being a rate set by BANA (acting through its Canada branch) based upon various factors including costs and desired return of BANA (acting through its Canada branch), general economic conditions and other factors, and used as a reference point for pricing some loans in Dollars in Canada made at its base rate, which may be priced at, above or below such announced rate), (ii) the Federal Funds Rate for such date, plus one-half of one percent (0.50%) per annum, or (iii) the LIBOR Rate for a thirty (30) day Interest Period, plus one percent (1.00%) per annum. Any change in the base rate announced by BANA (acting through its Canada branch) shall take effect at the opening of business on the day specified in the public announcement of such change. Each interest rate based upon the Canadian Base Rate hereunder, shall be adjusted simultaneously with any change in the Canadian Base Rate. In the event that BANA (acting through its Canada branch) (including any successor or assignee) does not at any time publicly announce such a base rate, the subparagraph (i) of this definition shall mean the base rate publicly announced by a Schedule I Bank under the Bank Act (Canada) for Dollar loans in Canada, as selected by the Agent.
Canadian Base Rate Loan means a Canadian Revolving Loan, or portion thereof, funded in Dollars and bearing interest calculated by reference to the Canadian Base Rate.
Canadian Borrower means, prior to the Canadian Acquisition, the Initial Canadian Borrower and after giving effect to the amalgamation with Triwest, the Amalgamated Company, and each other Canadian Subsidiary that becomes a Canadian Borrower pursuant to Section 5.11(a).
Canadian Borrowing Base means the Dollar Equivalent Amount of:
(a) during the Canadian Initial Borrowing Base Period, the Canadian Initial Borrowing Base, and
(b) at all times thereafter, (i) 85% of the Dollar Equivalent Amount of the Value of Eligible Receivables of the Canadian Loan Parties, plus (ii) the lesser of (A) 70% of the Dollar Equivalent Amount of the Value of Eligible Tire Inventory of the Canadian Loan Parties and (B) 85% of the Dollar Equivalent Amount of Net Orderly Liquidation Value of Eligible Tire Inventory of the Canadian Loan Parties, plus (iii) the lesser of (A) 50% of the Dollar Equivalent Amount of the Value of Eligible Non-Tire Inventory of the Canadian Loan Parties and (B) 85% of the Dollar Equivalent Amount of the Net Orderly Liquidation Value of Eligible Non-Tire Inventory of the Canadian Loan Parties, minus (iv) without duplication (including without duplication of clause (d) of the definition of U.S. Borrowing Base), the then amount of all Availability Reserves and other Reserves as the Agent may at any time and from time to time in the exercise of its Permitted Discretion establish or modify in accordance with the provisions of Section 2.22.
Notwithstanding the foregoing, on or before the sixtieth (60th) day following the Effective Date, a field examination and inventory appraisal with respect to Canadian Loan Parties and their Borrowing Base Assets shall be delivered to the Agent, all of which shall be in form and substance reasonably satisfactory to the Agent. If such field examination or such appraisal is not in form and substance reasonably satisfactory to the Agent, then on and after the 91st day following the Closing Date, the amount of the Canadian Borrowing Base shall be $-0-. The Canadian Borrowing Base at any time shall be determined by reference to the most recent Borrowing Base Certificate delivered to the Agent pursuant to Section
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5.01(h) and adjusted by the Agent in the exercise of its Permitted Discretion and in accordance with Section 2.22 based upon additional information, if any, received after the date of delivery of such Borrowing Base Certificate. With respect to any Borrowing Base Certificate delivered pursuant to the final proviso at the end of Section 5.01(h), the Canadian Borrowing Base shall be calculated immediately after giving effect to the applicable acquisition, subject, in each case, to the requirements of the last paragraph of Section 6.04.
Canadian Collateral means the U.S. Collateral and any and all property owned, leased or operated by a Canadian Loan Party subject to a security interest or Lien under the Collateral Documents and any and all other property of each Canadian Loan Party, now existing or hereafter acquired, that may at any time be or become subject to a security interest or Lien in favor of the Agent, on behalf of itself and the Secured Parties, to secure the Canadian Obligations; provided, however, that Canadian Collateral shall not at any time include any Margin Stock.
Canadian Commitment means a Canadian Revolving Commitment, including an Extended Canadian Revolving Commitment.
Canadian Dollars or Cdn $ means the lawful currency of Canada.
Canadian Excess Availability means, at any time, the Dollar Equivalent Amount equal to the sum of (a) the lesser of (i) the aggregate total Canadian Revolving Commitments at such time and (ii) the Canadian Borrowing Base at such time (as determined by reference to the most recent Borrowing Base Certificate delivered to the Agent pursuant to Section 5.01(h)), plus (b) the Dollar Equivalent Amount of all unrestricted cash and cash equivalents of the Canadian Loan Parties at such time (to the extent held in Qualified Accounts), minus (c) the aggregate of the Canadian Revolving Exposures (including the Dollar Equivalent Amount of the Canadian LC Exposure) of all Canadian Revolving Lenders at such time.
Canadian Guaranteed Obligations has the meaning assigned to such term in Section 10.01.
Canadian Guarantors means Triwest and each Canadian Subsidiary (other than any Excluded Subsidiary) that hereafter becomes a party to this Agreement as a Loan Party and a Guarantor pursuant to a Joinder Agreement and each Canadian Borrower to the extent of the Canadian Guaranteed Obligations of each other Canadian Borrower, and their respective successors and assigns.
Canadian Initial Borrowing Base means, at any time during the Canadian Initial Borrowing Base Period, the Dollar Equivalent Amount equal to the lesser of (a) $40,000,000 and (b) the sum of the following: (i) 60% of the net book value of the Receivables of all Canadian Loan Parties, plus (ii) 40% of the net book value of the Inventory of all Canadian Loan Parties, minus (iii) without duplication (including without duplication of clause (d) of the definition of U.S. Borrowing Base), the then amount of all Availability Reserves and other Reserves as the Agent may at any time and from time to time in the exercise of its Permitted Discretion establish or modify in accordance with the provisions of Section 2.22; provided that each of the percentages set forth in subclauses (i) and (ii) of clause (b) above shall be reduced by 5.0% on the date that occurs sixty (60) days after the Effective Date.
Canadian Initial Borrowing Base Period means the period commencing on the Effective Date and ending on the earlier of (a) the ninetieth day after the Effective Date and (b) such earlier date as the Canadian Borrowers may elect after delivery to the Agent of both a field examination and inventory appraisal with respect to the Canadian Loan Parties Borrowing Base Assets in each case in form and substance reasonably satisfactory to the Agent; provided that notwithstanding the delivery of an acceptable field examination and inventory appraisal with respect to the Canadian Loan Parties Borrowing Base Assets, the Canadian Borrowers may elect to keep the Canadian Initial Borrowing Base in effect until the ninetieth (90th) day after the Effective Date.
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Canadian LC Collateral Account has the meaning assigned to such term in Section 2.06(j).
Canadian LC Disbursement means a payment made by an Applicable Issuing Bank pursuant to a drawing on a Canadian Letter of Credit.
Canadian LC Exposure means, at any time of determination, the sum of (a) the aggregate undrawn amount of all outstanding Canadian Letters of Credit at such time plus (b) the aggregate amount of all Canadian LC Disbursements that have not yet been reimbursed by or on behalf of the Canadian Borrowers or any other Canadian Loan Party at such time, less (c) the amount then on deposit in the Canadian LC Collateral Account. The Canadian LC Exposure of any Canadian Revolving Lender at any time shall be its Applicable Percentage of the total Canadian LC Exposure at such time.
Canadian Letter of Credit means a Letter of Credit issued for the account of a Canadian Borrower under the Canadian Commitments pursuant to this Agreement.
Canadian Loan Party means a Canadian Borrower or a Canadian Guarantor.
Canadian MEPP means a Canadian Pension Plan that is either (i) a multi-employer pension plan as defined in the PBA or (ii) a plan that provides target benefits as defined in the PBA, in either case being a plan where the employers contribution obligations to such plan are set out in one or more collective agreements and are defined contribution in nature.
Canadian Obligations mean the collective reference to (a) the due and punctual payment of (i) the principal of and premium, if any, and interest at the applicable rate provided in this Agreement (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Loans made to a Canadian Borrower, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, (ii) each payment required to be made by a Canadian Borrower under this Agreement in respect of any Canadian Letter of Credit, when and as due, including payments in respect of reimbursement of disbursements, interest thereon (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) and obligations to provide cash collateral, and (iii) all other monetary obligations, including fees, costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), of a Canadian Borrower or any other Canadian Loan Party to any of the Secured Parties under this Agreement and the other Loan Documents, (b) the due and punctual performance of all covenants, agreements, obligations and liabilities of a Canadian Borrower under or pursuant to this Agreement and the other Loan Documents, (c) the due and punctual payment and performance of all the covenants, agreements, obligations and liabilities of each other Canadian Loan Party under or pursuant to this Agreement or the other Loan Documents, (d) the due and punctual payment and performance of all Secured Swap Obligations of a Canadian Loan Party and (e) the due and punctual payment and performance of all Banking Services Obligations of a Canadian Loan Party. Notwithstanding the foregoing, (i) the obligations of Holdings, the Company or any Subsidiary in respect of any Secured Swap Obligations or any Banking Services Obligations of a Canadian Loan Party shall be secured and guaranteed pursuant to the Collateral Documents and the Loan Guaranty only to the extent that, and for so long as, the other Canadian Obligations are so secured and guaranteed and (ii) any release of Collateral or Guarantors effected in the manner permitted by this Agreement and the other Loan Documents shall not require the consent of the holders of Secured Swap Obligations or the holders of Banking Services Obligations of a Canadian Loan Party.
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Canadian Obligations Guarantor Percentage has the meaning assigned to it in Section 10.09.
Canadian Obligations Guarantors means, collectively, the U.S. Loan Parties and the Canadian Guarantors.
Canadian Obligations Non-Paying Guarantor has the meaning assigned to it in Section 10.09.
Canadian Obligations Paying Guarantor has the meaning assigned to it in Section 10.09.
Canadian Overadvance means at any time the amount by which the aggregate outstanding Canadian Revolving Exposures exceed the Canadian Borrowing Base.
Canadian Overadvance Condition means and is deemed to exist any time the aggregate outstanding Canadian Revolving Exposures exceed the Canadian Borrowing Base.
Canadian Overadvance Loan means a Loan to a Canadian Borrower at a time when a Canadian Overadvance Condition exists.
Canadian Overnight Rate means the Bank of Canada overnight rate, which is the rate of interest charged by the Bank of Canada on one-day loans to financial institutions, for such day.
Canadian Pension Plan means a plan, program or arrangement which is required to be registered as a pension plan under any applicable pension benefits standards or tax statute or regulation in Canada maintained or contributed to by, or to which there is or may be an obligation to contribute by, any Loan Party in respect of its Canadian employees or former employees.
Canadian Prime Rate means, for any day, the greater of the per annum (i) rate of interest in effect for such day as publicly announced from time to time by BANA (acting through its Canada branch) in Toronto, Ontario as its prime rate (the prime rate being a rate set by BANA (acting through its Canada branch) based upon various factors, including costs and desired return of BANA (acting through its Canada branch), general economic conditions and other factors, and used as a reference point for pricing some loans in Canadian Dollars in Canada made at its prime rate, which may be priced at, above, or below such announced rate, (ii) the sum of one-half of one percent (0.50%) plus the Canadian Overnight Rate, and (iii) the sum of one percent (1.00%) plus the rate of interest per annum equal to the average rate applicable to Canadian Dollar bankers acceptances displayed and identified as such on the display referred to as the CDOR Page (or any display substituted therefor) of Reuters Monitor Money Rates Service as at approximately 10:00 a.m. Toronto time on such day (or, if such day is not a Business Day, as of 10:00 a.m. Toronto time on the immediately preceding Business Day) for a 30 day interest period as determined on such day. Any change in the prime rate announced by BANA (acting through its Canada branch) shall take effect at the opening of business on the day specified in the public announcement of such change. Each interest rate based upon the Canadian Prime Rate hereunder, shall be adjusted simultaneously with any change in the Canadian Prime Rate. In the event that BANA (acting through its Canada branch) (including any successor or assignee), does not at any time publicly announce such a prime rate, the sub-paragraph (i) of this definition of Canadian Prime Rate shall mean the prime rate publicly announced by a Schedule 1 Bank under the Bank Act (Canada) for Canadian Dollar loans in Canada, as selected by the Agent.
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Canadian Prime Rate Loan means a Canadian Revolving Loan, or portion thereof, funded in Canadian Dollars and bearing interest calculated by reference to the Canadian Prime Rate.
Canadian Protective Advance means a Protective Advance made to or for the account of a Canadian Borrower.
Canadian Qualified Lender means a financial institution that is listed on Schedule I, II or III of the Bank Act (Canada), has received an approval to have a financial establishment in Canada pursuant to Section 522.21 of the Bank Act (Canada) or is not a foreign bank for purposes of the Bank Act (Canada), and if such financial institution is not resident in Canada or is not deemed to be resident in Canada for purposes of the ITA, then such financial institution deals at arms length with each Canadian Loan Party for purposes of the ITA.
Canadian Revolving Commitment means, with respect to each Canadian Revolving Lender, the commitment of such Canadian Revolving Lender to make Canadian Revolving Loans and to acquire participations in Canadian Protective Advances, Canadian Letters of Credit and Canadian Swingline Loans hereunder, expressed as an amount representing the maximum possible aggregate amount of such Canadian Revolving Lenders Canadian Revolving Exposure hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.09, (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04 and (c) increased from time to time pursuant to Section 2.23. The initial amount of each Canadian Revolving Lenders Canadian Revolving Commitment is set forth on the Commitment Schedule, or in the Assignment and Assumption pursuant to which such Lender shall have assumed its Canadian Revolving Commitment, as applicable. The aggregate amount of the Canadian Revolving Lenders Canadian Revolving Commitments as of the Effective Date is $60,000,000.
Canadian Revolving Exposure means, with respect to any Canadian Revolving Lender at any time, the Dollar Equivalent Amount of the sum of the outstanding principal amount of such Lenders Canadian Revolving Loans and its Canadian LC Exposure and an amount equal to its Applicable Percentage of the aggregate principal amounts of Canadian Swingline Loans and Canadian Protective Advances outstanding at such time.
Canadian Revolving Lender means, as of any date of determination, a Lender with a Canadian Revolving Commitment or, if the Canadian Revolving Commitments have terminated or expired, a Lender with Canadian Revolving Exposure. Unless the context otherwise requires, the term Canadian Revolving Lenders includes the Canadian Swingline Lender.
Canadian Revolving Loan means the loans and advances made by the Canadian Revolving Lenders pursuant to this Agreement, including a Loan made pursuant to Section 2.01(a), Canadian Swingline Loans and Canadian Protective Advances.
Canadian Security Agreements means those certain general security agreements and deeds of hypothec dated on or about the date hereof, between each of the Canadian Loan Parties and the Agent.
Canadian Subsidiary means each Subsidiary of a Canadian Borrower or Triwest organized under the laws of Canada or any province or territory thereof.
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Canadian Swingline Lender means BANA (acting through its Canada branch), in its capacity as lender of Canadian Swingline Loans hereunder.
Canadian Swingline Loan means a Loan made by the Canadian Swingline Lender pursuant to Section 2.05.
Capital Expenditures means, for any period, without duplication, any expenditure for any purchase or other acquisition of any asset which would be classified as a fixed or capital asset on a consolidated balance sheet of the Company and its Subsidiaries prepared in accordance with GAAP; provided that the term Capital Expenditures shall not include (i) expenditures made in connection with the replacement, substitution, restoration or repair of assets to the extent financed from insurance proceeds or compensation awards paid on account of a Recovery Event, (ii) the purchase price of equipment that is purchased simultaneously with the trade-in of existing equipment to the extent that the gross amount of such purchase price is reduced by the credit granted by the seller of such equipment for the equipment being traded in at such time, (iii) the purchase of plant, property or equipment to the extent financed with the proceeds of sales, transfers or other dispositions that are not required to be applied to prepay Revolving Loans pursuant to Section 2.11(c), (iv) expenditures that are accounted for as capital expenditures by the Company or any Subsidiary and that actually are paid for by a Person other than the Company or any Subsidiary and for which neither the Company nor any Subsidiary has provided or is required to provide or incur, directly or indirectly, any consideration or obligation to such Person or any other Person (whether before, during or after such period, it being understood, however, that only the amount of expenditures actually provided or incurred by the Company or any Subsidiary in such period and not the amount required to be provided or incurred in any future period shall constitute Capital Expenditures in the applicable period), (v) the book value of any asset owned by the Company or any Subsidiary prior to or during such period to the extent that such book value is included as a capital expenditure during such period as a result of such Person reusing or beginning to reuse such asset during such period without a corresponding expenditure actually having been made in such period; provided that (x) any expenditure necessary in order to permit such asset to be reused shall be included as a Capital Expenditure during the period in which such expenditure actually is made and (y) such book value shall have been included in Capital Expenditures when such asset was originally acquired, (vi) any expenditures that constitute Permitted Acquisitions (or similar investments) and expenditures made in connection with the Transactions on or about the Effective Date or in connection with the amalgamation of the Initial Canadian Borrower and Triwest, (vii) any capitalized interest expense reflected as additions to property, plant or equipment in the consolidated balance sheet of the Company and the Subsidiaries for such period or (viii) any Lease Expenses.
Capital Lease Obligations of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the amount thereof accounted for as a liability determined in accordance with GAAP.
Cash Management Agreement means any agreement entered into from time to time between any Loan Party, on the one hand, and the Agent or any Lender or any of their Affiliates or branches on the other, in connection with cash management services for collections, other Banking Services and for operating, payroll and trust accounts of such Loan Party provided by such Agent, Lender or their Affiliates or branches, including ACH services, controlled disbursement services, electronic funds transfer services, information reporting services, lockbox services, stop payment services and wire transfer services.
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CCAA means the Companies Creditors Agreement Act (Canada) and the regulations promulgated thereunder.
Change in Control shall be deemed to have occurred if (a) prior to a Qualified Public Offering, the Permitted Holders (i) shall fail to have the right, directly or indirectly, by voting power, contract or otherwise, to elect or designate for election at least a majority of the Board of Directors of Holdings or (ii) shall fail to own, directly or indirectly, beneficially and of record, shares of Holdings in an amount equal to more than 50% of the amount of shares owned, directly or indirectly, by the Permitted Holders, beneficially and of record, as of the Effective Date and such ownership by the Permitted Holders shall not represent the largest single block of voting securities of Holdings held, directly or indirectly, by any Person or related group for purposes of Section 13(d) of the Exchange Act, (b) after a Qualified Public Offering, any person or group (within the meaning of Rule 13d-5 of the Exchange Act but excluding any employee benefit plan of such person and its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan), other than the Permitted Holders, TopCo, and, if applicable, any intermediate holding company parent of Holdings which is owned, directly or indirectly, by the Permitted Holders, shall beneficially own (within the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, shares representing more than 35% of the aggregate ordinary voting power represented by the issued and outstanding Equity Interests of Holdings (or the Company after a Qualified Public Offering of the Company) and the percentage of the aggregate ordinary voting power represented by such Equity Interests beneficially owned by such person or group exceeds the percentage of the aggregate ordinary voting power represented by Equity Interests of Holdings (or the Company after a Qualified Public Offering of the Company) then beneficially owned, directly or indirectly, by the Permitted Holders, unless (i) the Permitted Holders have, at such time, the right or the ability, directly or indirectly, by voting power, contract or otherwise to elect or designate for election at least a majority of the Board of Directors of Holdings (or the Company after a Qualified Public Offering of the Company) or (ii) during any period of twelve (12) consecutive months, a majority of the seats (other than vacant seats) on the board of directors of Holdings (or the Company after a Qualified Public Offering of the Company) shall be occupied by persons who were (x) members of the board of directors of Holdings on the Effective Date or nominated by the board of directors of Holdings (or of the Company after a Qualified Public Offering of the Company) or by one or more Permitted Holders or Persons nominated by one or more Permitted Holders or (y) appointed by directors so nominated, (c) any change in control (or similar event, however denominated) with respect to Holdings or the Company shall occur under and as defined in the Senior Secured Note Documents, the Senior Subordinated Note Documents or any other Subordinated Indebtedness of Holdings or its Subsidiaries constituting Material Indebtedness, or (d) at any time, Holdings shall cease to beneficially own, directly or indirectly, 100% of the issued and outstanding Equity Interests of the Company.
Change in Law means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation or application thereof by any Governmental Authority or (c) the making or issuance of any request, guideline or directive (whether or not having the force of law) by any Governmental Authority. It is understood and agreed that (i) the DoddFrank Wall Street Reform and Consumer Protection Act (Public Law 111-203, H.R. 4173), all Laws relating thereto and all interpretations and applications thereof and (ii) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States regulatory authorities, in each case pursuant to Basel III, shall, for the purpose of this Agreement, be deemed to be adopted subsequent to the date of this Agreement; provided that, it is the applicable Lenders general policy or practice to demand compensation in similar circumstances under comparable provisions of other financing agreements.
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Chattel Paper means any chattel paper, as such term is defined in the UCC (or, with respect to any chattel paper of any Canadian Loan Party, as such term is defined in the PPSA), including electronic chattel paper, now owned or hereafter acquired by any Loan Party, wherever located.
Class (a) when used in reference to any Loan to, or Borrowing by, the U.S. Borrowers, refers to whether such Loan, or the Loans comprising such Borrowing, are U.S. Revolving Loans, Extended U.S. Revolving Loans (of the same Extension Series), U.S. Swingline Loans, U.S. Protective Advances or U.S. Overadvance Loans; and when used in reference to any Commitment, refers to whether such Commitment is a U.S. Revolving Commitment or an Extended U.S. Revolving Commitment (of the same Extension Series), and (b) when used in reference to any Loan to, or Borrowing by, a Canadian Borrower, refers to whether such Loan, or the Loans comprising such Borrowing, are Canadian Revolving Loans, Extended Canadian Revolving Loans (of the same Extension Series), Canadian Swingline Loans, Canadian Protective Advances or Canadian Overadvance Loans; and when used in reference to any Commitment, refers to whether such Commitment is a Canadian Revolving Commitment or an Extended Canadian Revolving Commitment (of the same Extension Series).
Code means the Internal Revenue Code of 1986, as amended from time to time.
Collateral means the Canadian Collateral or the U.S. Collateral, as applicable.
Collateral Access Agreement has the meaning assigned to such term in the Security Agreements.
Collateral Documents means, collectively, the Security Agreements, the Mortgages and any other documents granting a Lien upon the Collateral as security for payment of the U.S. Obligations or the Canadian Obligations.
Commitment means a U.S. Commitment or a Canadian Commitment, as applicable.
Commitment Fee Rate means, a rate per annum equal to 0.25%; provided that, commencing on January 1, 2013, for any day thereafter, the applicable rate per annum set forth below based upon the Average Revolving Loan Utilization as of the most recent Adjustment Date:
Average Revolving Loan Utilization |
Commitment Fee Rate |
|||
Less than or equal to 50% |
0.375 | % | ||
Greater than 50% |
0.250 | % |
The Commitment Fee Rate shall be adjusted quarterly on a prospective basis on each Adjustment Date based upon the Average Revolving Loan Utilization in accordance with the table above; provided that if an Event of Default shall have occurred and be continuing at the time any reduction in the Commitment Fee Rate would otherwise be implemented, no such reduction shall be implemented until the date on which such Event of Default shall have been cured or waived.
Commitment Schedule means the Schedule attached hereto identified as such.
Company has the meaning assigned to such term in the preamble to this Agreement.
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Consolidated Total Indebtedness means, as at any date of determination, an amount equal to the sum of (a) the aggregate amount of all outstanding Indebtedness of the Company and its Subsidiaries on a consolidated basis consisting of Indebtedness for borrowed money, (b) obligations in respect of Capital Lease Obligations and (c) debt obligations evidenced by bonds, notes, debentures or similar instruments.
Contractual Obligation means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound other than the Obligations.
Control means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. Controlling and Controlled have meanings correlative thereto.
Controlled Investment Affiliate means, as to any Person, any other Person, which directly or indirectly is in control of, is controlled by, or is under common control with such Person and is organized by such Person (or any Person controlling such Person) primarily for making direct or indirect equity or debt investments in the Company and/or other companies.
Converted Restricted Subsidiary has the meaning assigned to such term in the definition of EBITDA.
Converted Unrestricted Subsidiary has the meaning assigned to such term in the definition of EBITDA.
Cooper Subordination Agreement means that certain Vendor Lien Subordination Agreement dated October 28, 2004, between the Agent and Cooper Tire & Rubber Company.
Cost means the cost of purchase of Inventory determined according to the accounting policies used in the preparation of the Companys audited financial statements.
Cure Amount shall have the meaning assigned to such term in Section 7.02.
Cure Right shall have the meaning assigned to such term in Section 7.02.
DDAs means any checking or other demand deposit account maintained by any Loan Party. All funds in such DDAs shall be conclusively presumed to be Collateral and proceeds of Collateral; and the Agent and the Lenders shall have no duty to inquire as to the source of the amounts on deposit in the DDAs, subject to the Security Agreements and the Intercreditor Agreement.
Default means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.
Defaulting Lender means any Applicable Lender that (a) fails to make any payment or provide funds to the Agent or any Borrower within the applicable Borrower Group as required hereunder or fails otherwise to perform its obligations under any Loan Document, and such failure is not cured within two Business Days, (b) notified the Agent or a Loan Party in writing that it does not intend to satisfy any such obligation or (c) been adjudicated as, or determined by any Governmental Authority having regulatory authority over such Person or its assets to be, insolvent or becomes the subject of a Bankruptcy Proceeding.
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Derivative Transaction means (a) an interest-rate transaction, including an interest-rate swap, basis swap, forward rate agreement, interest rate option (including a cap, collar, and floor), and any other instrument linked to interest rates that gives rise to similar credit risks (including when-issued securities and forward deposits accepted), (b) an exchange-rate transaction, including a cross-currency interest-rate swap, a forward foreign-exchange contract, a currency option, and any other instrument linked to exchange rates that gives rise to similar credit risks, (c) an equity derivative transaction, including an equity-linked swap, an equity-linked option, a forward equity-linked contract, and any other instrument linked to equities that gives rise to similar credit risk and (d) a commodity (including precious metal) derivative transaction, including a commodity-linked swap, a commodity-linked option, a forward commodity-linked contract, and any other instrument linked to commodities that gives rise to similar credit risks; provided that no phantom stock or similar plan providing for payments only on account of services provided by current or former directors, officers, employees or consultants of the Company or its subsidiaries shall be a Derivative Transaction.
Designated Disbursement Account has the meaning assigned to such term in Section 2.21(d).
Dilution Reserve means, with respect to a Borrower Group, an amount equal to the excess of (i) non-cash reductions to the U.S. Borrowers or the Canadian Loan Parties, as applicable, Receivables (on a combined basis) during a 12-month period prior to the date of determination as established by the Borrowers records or by a field examination conducted by the Agents employees or representatives, expressed as a percentage of the U.S. Borrowers or the Canadian Loan Parties, as applicable, Receivables (on a combined basis) outstanding during the same period, as the same may be adjusted by the Agent in the exercise of its Permitted Discretion, over (ii) 5%, multiplied by an amount equal to Eligible Receivables as of the date of determination.
Disqualified Equity Interests means any Equity Interest which, by its terms (or by the terms of any security or other Equity Interests into which it is convertible or for which it is exchangeable), or upon the happening of any event or condition (a) matures or is mandatorily redeemable (other than solely for Qualified Equity Interests), pursuant to a sinking fund obligation or otherwise (except as a result of a change in control or asset sale so long as any right of the holders thereof upon the occurrence of a change in control or asset sale event shall be subject to the occurrence of the Termination Date), (b) is redeemable at the option of the holder thereof (other than solely for Qualified Equity Interests), in whole or in part (except as a result of a change in control or asset sale so long as any right of the holders thereof upon the occurrence of a change in control or asset sale event shall be subject to the occurrence of the Termination Date), (c) requires the payment of any cash dividend or any other scheduled cash payment constituting a return of capital, in each case, prior to the date that is ninety-one (91) days after the earlier of the Maturity Date and the occurrence of the Termination Date or (d) is or becomes convertible into or exchangeable for Indebtedness or any other Equity Interests that would constitute Disqualified Equity Interests, in each case, prior to the date that is ninety-one (91) days after the earlier of the Maturity Date and the occurrence of the Termination Date; provided that if such Equity Interest is issued to any plan for the benefit of employees of Holdings or any of its subsidiaries or by any such plan to such employees, such Equity Interest shall not constitute Disqualified Equity Interest solely because it may be required to be repurchased by Holdings or any of its subsidiaries in order to satisfy applicable statutory or regulatory obligations.
Document has the meaning assigned to such term in Article 9 of the UCC (or, with respect to any document of title of any Canadian Loan Party, as such term is defined in the PPSA).
Dollar Equivalent Amount means on any date, with respect to any amount denominated in Dollars, such amount in Dollars, and with respect to any stated amount in a currency other than Dollars, the amount of Dollars that the Agent determines (which determination shall be conclusive and binding absent manifest error) would be necessary to be sold on such date at the applicable Exchange Rate to obtain the stated amount of the other currency.
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Dollars or $ refers to lawful money of the United States of America.
Domestic Subsidiaries means all Subsidiaries incorporated or organized under the laws of the United States of America, any State thereof or the District of Columbia.
EBITDA means, for any period, Net Income for such period, plus
(a) without duplication and to the extent already deducted (and not added back) in arriving at such Net Income, the sum of the following amounts for such period:
(i) Interest Expense for such period,
(ii) provision for taxes based on income, profits or capital, including federal, foreign, state, franchise, excise and similar taxes paid or accrued during such period (including in respect of repatriated funds),
(iii) depreciation and amortization (including amortization of intangible assets established through purchase accounting and amortization of deferred financing fees or costs),
(iv) Non-Cash Charges,
(v) extraordinary, unusual or non-recurring charges (including fees and expenses relating thereto),
(vi) cash restructuring charges, accruals or reserves (including restructuring costs related to acquisitions before and after the Effective Date) incurred during any period on or prior to the second anniversary of the Effective Date; provided that, the aggregate amount of restructuring charges, accruals or reserves incurred under this clause (vi) in such Test Period shall not exceed, when combined with the aggregate amount of cost savings added pursuant to clause (xii) below in such Test Period and the aggregate amount of any Pro Forma Adjustments made in any such Test Period, 25% of EBITDA for any such Test Period ending on or prior to November 16, 2014, and 20% of EBITDA for any Test Period thereafter (in each case, calculated without giving effect to any adjustments made pursuant to this clause (vi), clause (xii) below, or Pro Forma Adjustments),
(vii) the amount of any minority interest expense (or income (loss) allocable to non-controlling interests) consisting of Subsidiary income attributable to minority equity interests of third parties in any non-wholly-owned Subsidiary deducted (and not added back in such period to Net Income),
(viii) the amount of management, monitoring, consulting and advisory fees, (including termination and transaction fees) and related indemnities and expenses paid or accrued in such period to (or on behalf of) the Sponsor, to the extent otherwise permitted by Sections 6.09 and 6.11(c),
(ix) losses on asset sales, disposals or abandonments (other than asset sales, disposals or abandonments in the ordinary course of business),
(x) any costs or expenses incurred pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or agreement or any equity subscription or equity holder agreement, to the extent that such costs or expenses are funded with cash proceeds contributed during such period to the capital of the Company or Net Cash Proceeds of an issuance of Qualified Equity Interests,
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(xi) cash receipts (or any netting arrangements resulting in reduced cash expenditures) not representing EBITDA or Net Income in any period to the extent non-cash gains relating to such income were deducted in the calculation of EBITDA pursuant to paragraph (b) below for any previous period and not added back, and
(xii) in connection with any restructuring of Holdings and its Subsidiaries not in the ordinary course, the amount of cost savings resulting from, or expected by the Company in good faith to be realized as a result of, actions taken or committed to be taken pursuant to a factually supportable plan, in each case in connection with such restructuring prior to the time that EBITDA is to be determined for such period (which cost savings shall be added to EBITDA until fully realized and calculated on a Pro Forma Basis as though such cost savings had been realized on the first day of the relevant period), net of the amount of actual benefits realized from such actions; provided that (A) such cost savings are reasonably identifiable and factually supportable, as certified to the Agent on a Pro Forma Adjustment Certificate, (B) no cost savings shall be added pursuant to this clause (xii) to the extent duplicative of any expenses or charges relating to such cost savings that are included in clause (vi) above or in the definition of the term Pro Forma Adjustment and (C) the aggregate amount of cost savings added pursuant to this clause (xii) shall not exceed for any Test Period, (i) the actual cost savings expected in good faith to be realized as a result of such actions during such Test Period commencing with the date EBITDA is being determined (as opposed to the annualized impact of cost savings) and (ii) when combined with the aggregate amount of restructuring charges, accruals or reserves incurred under clause (vi) above in such Test Period and the aggregate amount of any Pro Forma Adjustments made in any such Test Period, 25% of EBITDA for any such Test Period ending on or prior to November 16, 2014, and 20% of EBITDA for any Test Period thereafter (in each case, calculated without giving effect to any adjustments made pursuant to clause (vi) above, this clause (xii), or Pro Forma Adjustments)),
less
(b) without duplication and to the extent included in arriving at such Net Income, the sum of the following amounts for such period:
(i) non-cash gains (excluding any non-cash gain to the extent it represents the reversal of an accrual or reserve for a potential cash item that reduced Net Income or EBITDA in any prior period),
(ii) gains on asset sales, disposals and abandonments (other than asset sales, disposals and abandonments in the ordinary course of business),
(iii) the amount of any minority interest income (or income (loss) allocable to non-controlling interests) consisting of Subsidiary loss attributable to minority equity interests of third parties in any non-wholly owned Subsidiary added (and not deducted) in such period in arriving at Net Income,
(iv) cash expenditures (or any netting arrangements resulting in increased cash expenditures) not deducted in arriving at EBITDA or Net Income in any period to the extent non-cash losses relating to such income were added in the calculation of EBITDA pursuant to paragraph (a) above for any previous period and not deducted, and
(v) extraordinary, unusual and non-recurring gains (less all fees and expenses relating thereto),
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in each case, as determined on a consolidated basis for the Company and the Subsidiaries in accordance with GAAP; provided that,
(i) to the extent included in Net Income, there shall be excluded in determining EBITDA currency translation gains and losses,
(ii) to the extent included in Net Income, there shall be excluded in determining EBITDA for any period, any adjustments resulting from the application of Statement of Financial Accounting Standards No. 133,
(iii) there shall be included in determining EBITDA for any period, without duplication, (A) the Acquired EBITDA of any Person, property, business or asset acquired by the Company or any Subsidiary during such period to the extent not subsequently sold, transferred or otherwise disposed of (but not including the Acquired EBITDA of any related Person, property, business or assets to the extent not so acquired) (each such Person, property, business or asset acquired, including pursuant to the Transactions or pursuant to a transaction consummated prior to the Effective Date, and not subsequently so disposed of, an Acquired Entity or Business) and the Acquired EBITDA of any Unrestricted Subsidiary that is converted into a Restricted Subsidiary during such period (each, a Converted Restricted Subsidiary), based on the Acquired EBITDA of such Pro Forma Entity for such period (including the portion thereof occurring prior to such acquisition or conversion) determined on a historical Pro Forma Basis and (B) an adjustment equal to the amount of the Pro Forma Adjustment for such period (including the portion thereof occurring prior to such acquisition or conversion) as specified in the Pro Forma Adjustment Certificate delivered to the Agent (for further delivery to the Lenders); and
(iv) there shall be excluded in determining EBITDA for any period the EBITDA of any Person, property, business or asset sold, transferred or otherwise disposed of, closed or classified as discontinued operations by the Company or any Restricted Subsidiary during such period (each such Person, property, business or asset so sold, transferred or otherwise disposed of, closed or classified, a Sold Entity or Business and the EBITDA associated with such Sold Entity or Business, Disposed EBITDA) and the Disposed EBITDA of any Restricted Subsidiary that is converted into an Unrestricted Subsidiary during such period (each, a Converted Unrestricted Subsidiary), based on the Disposed EBITDA of such Sold Entity or Business for such period (including the portion thereof occurring prior to such sale, transfer, disposition, closure, classification or conversion) determined on a historical Pro Forma Basis; provided that notwithstanding anything to the contrary contained herein or in any classification under GAAP of any Person, business, assets or operations in respect of which a definitive agreement for the Sold Entity or Business thereof has been entered into as discontinued operations, no pro forma effect shall be given to any discontinued operations (and the EBITDA attributable to any such Person, business, assets or operations shall not be excluded for any purposes hereunder) until such Sold Entity or Business shall have been consummated.
Effective Date means the date on which the conditions specified in Section 4.01 are satisfied (or waived in accordance with Section 9.02), which date was November 30, 2012.
Eligible Assignee means (a) a Lender, (b) a commercial bank, insurance company, or company engaged in the business of making asset-based loans or commercial loans or a commercial finance company, which Person, together with its Affiliates and branches, has a combined capital and surplus in excess of $750,000,000, (c) any Affiliate or branch of a Lender under common Control with such Lender, or (d) an Approved Fund of a Lender, and if a Canadian Revolving Lender, a Canadian Qualified Lender, unless an Event of Default shall have occurred and be continuing; provided that, in any event, Eligible Assignee shall not include (i) any natural person, (ii) any Defaulting Lender or (iii) Holdings, the Company, any other Loan Party or any Subsidiary of any of the foregoing.
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Eligible Inventory means, collectively, Eligible Tire Inventory and Eligible Non-Tire Inventory.
Eligible Non-Tire Inventory means items of Inventory (other than tires) of a Borrower or a Canadian Guarantor subject to the Lien in favor of the Agent held for sale in the ordinary course of the business of such Borrower or such Canadian Guarantor (but not including packaging or shipping materials or maintenance supplies) that meet all of the following requirements, in any case subject to the requirements of Section 2.22:
(a) such Inventory is owned by a Borrower or a Canadian Guarantor and is subject to a first priority perfected Lien in favor of the Agent;
(b) such Inventory is not subject to any other Lien other than Liens permitted by Section 6.02 so long as such Liens do not have priority over the Lien of the Agent and are junior to the Lien of the Agent;
(c) such Inventory consists of raw materials or finished goods and does not consist of work-in-process, supplies or consigned goods;
(d) such Inventory is in good condition and meets in all material respects all material standards applicable to such goods, their use or sale imposed by any Governmental Authority having regulatory authority over such matters;
(e) such Inventory is currently either usable or saleable, at prices approximating at least the cost thereof, in the normal course of the applicable Borrowers or applicable Canadian Guarantors business;
(f) such Inventory is not obsolete or returned (except Inventory that is placed back into stock in the ordinary course of business) or repossessed or used goods taken in trade;
(g) (i) such Inventory owned by a U.S. Borrower is either located within the United States at one of the Permitted Inventory Locations or is in transit within the United States from one Permitted Inventory Location to another Permitted Inventory Location for not more than seven consecutive days, and (ii) such Inventory owned by a Canadian Loan Party is either located at one of the Permitted Inventory Locations or is in transit from one Permitted Inventory Location to another Permitted Inventory Location for not more than seven consecutive days;
(h) if such Inventory is located at any location leased by a Loan Party, (i) the lessor has delivered to the Agent a Collateral Access Agreement as to such location or (ii) a Rent Reserve with respect to such location has been established by the Agent in its Permitted Discretion; and
(i) such Inventory is not subject to any warehouse receipt or negotiable Document unless in the possession of the Agent, and if such Inventory is located in any third party warehouse or is in the possession of a bailee and is not evidenced by a Document, (i) such warehouseman or bailee has delivered to the Agent a Collateral Access Agreement and such other documentation as the Agent may reasonably require or (ii) an appropriate Reserve has been established by the Agent in its Permitted Discretion.
With respect to any Inventory of a Borrower or a Canadian Guarantor within a Borrower Group that was acquired or originated by any Person acquired after the Effective Date, the Agent shall use commercially reasonable efforts, at the expense of the Borrowers within such Borrower Group, to complete diligence in respect of such Person and such Inventory, within a reasonable time following request of the Borrower Agent.
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Eligible Receivable means the unpaid portion of a Receivable payable in Dollars to a U.S. Borrower or payable in Dollars or Canadian Dollars to a Canadian Loan Party, in each case, subject to the Lien in favor of the Agent net of any returns, discounts, credits or other allowances or deductions agreed to by a Borrower or a Canadian Guarantor and net of any amounts owed by a Borrower or a Canadian Guarantor to the Account Debtor on such Receivable (including to the extent of any set-off), which Receivable meets all of the following requirements, in any case subject to the requirements of Section 2.22:
(a) such Receivable is owned by a Borrower or a Canadian Guarantor and represents a complete bona fide transaction which requires no further act under any circumstances on the part of any Borrower or any Canadian Guarantor to make such Receivable payable by the Account Debtor;
(b) such Receivable is not past due more than 60 days after its due date, which due date shall not be later than 90 days after the invoice date;
(c) such Receivable does not arise out of any transaction with any Subsidiary of a Borrower or any Canadian Guarantor;
(d) such Receivable is not owing by an Account Debtor from which an aggregate amount of more than 50% of the Receivables owing therefrom are, based on the most recent Borrowing Base Certificate, not Eligible Receivables pursuant to clause (b) above;
(e) if the Account Debtor with respect thereto is located outside of the United States of America, Canada or Puerto Rico, the goods which gave rise to such Receivable were shipped after receipt by the applicable Borrower or applicable Canadian Guarantor from the Account Debtor of an irrevocable letter of credit that has been confirmed by a financial institution reasonably acceptable to the Agent, and on terms, reasonably acceptable to the Agent, payable in the full face amount of the face value of the Receivable in Dollars or Canadian Dollars at a place of payment located within the United States or Canada and has been duly assigned to the Agent, except that up to $5,000,000 of such Receivables outstanding at any time that are otherwise Eligible Receivables, may be included in Eligible Receivables without such letter of credit supports;
(f) such Receivable is not subject to the Assignment of Claims Act of 1940, as amended from time to time, the Financial Administration Act, (Canada), as amended from time to time, or any other applicable law now or hereafter existing similar in effect thereto, unless the applicable Borrower or applicable Canadian Guarantor has assigned its right to payments of such Receivable so as to comply with the Assignment of Claims Act of 1940, as amended from time to time, the Financial Administration Act, (Canada), as amended from time to time, or any such other applicable law, or to any contractual provision accepted in writing by such Borrower or such Canadian Guarantor prohibiting its assignment or requiring notice of or consent to such assignment which notice or consent has not been made or obtained;
(g) Receivables with respect to which the representations and warranties set forth in the Applicable Security Agreement applicable to Receivables are not correct in any material respect;
(h) such Receivable is not disputed, and is not subject to a claim, counterclaim, discount, deduction, reserve, allowance, recoupment, offset or chargeback that has been asserted with respect thereto by the applicable Account Debtor (but only to the extent of such dispute, claim, counterclaim, discount, deduction, reserve, allowance, recoupment, offset or chargeback);
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(i) such Receivable is not owed by an Account Debtor that is subject to a Bankruptcy Proceeding or that is liquidating, dissolving or winding up its affairs or otherwise deemed not creditworthy by the Agent in its Permitted Discretion;
(j) the goods the sale of which gave rise to such Receivable were shipped or delivered to the Account Debtor on an absolute sale basis and not on a bill and hold sale basis, a consignment sale basis, a guaranteed sale basis, a sale or return basis or on the basis of any other similar understanding, and such goods have not been returned or rejected;
(k) such Receivable is not owing by an Account Debtor whose then-existing Eligible Receivables owing to (i) the U.S. Borrowers, based on the most recent Borrowing Base Certificate, exceed 20% of the net amount of all Eligible Receivables of the U.S. Borrowers, but such Receivable shall be ineligible only to the extent of such excess and (ii) the Canadian Loan Parties, based on the most recent Borrowing Base Certificate, exceed 20% of the net amount of all Eligible Receivables of the Canadian Loan Parties, but such Receivable shall be ineligible only to the extent of such excess;
(l) such Receivable is evidenced by a customary invoice or other customary documentation reasonably satisfactory to the Agent in its Permitted Discretion;
(m) such Receivable is a valid, legally enforceable obligation of the Account Debtor with respect thereto and is not subject to any present or contingent (and no facts exist which are the basis for any future), offset, deduction or counterclaim, dispute or other defense on the part of such Account Debtor, except that any Receivable that is subject to any offset, deduction or counterclaim shall be ineligible only to the extent of such offset, deduction or counterclaim;
(n) such Receivable does not arise under or is not related to any warranty obligation of a Borrower or a Canadian Guarantor or any charges by a Borrower or a Canadian Guarantor of fees for the time value of money;
(o) such Receivable is not evidenced by Chattel Paper or an Instrument of any kind;
(p) such Receivable is subject to a first priority perfected Lien in favor of the Agent; and
(q) such Receivable is not subject to any Lien, other than Liens permitted by Section 6.02, so long as such Liens do not have priority over the Lien of the Agent and are junior to the Lien of the Agent.
With respect to any Receivables of any Borrower or any Canadian Guarantor within a Borrower Group that were acquired or originated by any Person acquired after the Effective Date, the Agent shall use commercially reasonable efforts, at the expense of the Borrowers within such Borrower Group, to complete diligence in respect of such Person and such Receivables, within a reasonable time following request of the Borrower Agent.
Eligible Subordinated Vendor Inventory means Eligible Tire Inventory that is subject to a Subordinated Vendor Lien.
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Eligible Tire Inventory means items of Inventory of tires of a Borrower or a Canadian Guarantor subject to the Lien in favor of the Agent (including Eligible Subordinated Vendor Inventory) held for sale in the ordinary course of the business of such Borrower or such Canadian Guarantor (but not including packaging or shipping materials or maintenance supplies) that meet all of the following requirements, in any case subject to the requirements of Section 2.22:
(a) such Inventory is owned by a Borrower or a Canadian Guarantor and is subject a first priority perfected Lien in favor of the Agent;
(b) such Inventory is not subject to any other Lien other than Liens permitted by Section 6.02 so long as such Liens do not have priority over the Lien of the Agent and are junior to the Lien of the Agent;
(c) such Inventory consists of raw materials or finished goods and does not consist of work-in-process, supplies or consigned goods;
(d) such Inventory is in good condition and meets in all material respects all material standards applicable to such goods, their use or sale imposed by any Governmental Authority having regulatory authority over such matters;
(e) such Inventory is currently either usable or saleable, at prices approximating at least the cost thereof, in the normal course of the applicable Borrowers or the applicable Canadian Guarantors business;
(f) such Inventory is not obsolete or returned (except Inventory that is placed back into stock in the ordinary course of business) or repossessed or used goods taken in trade;
(g) (i) such Inventory owned by a U.S. Borrower is either located within the United States at one of the Permitted Inventory Locations or is in transit within the United States from one Permitted Inventory Location to another Permitted Inventory Location for not more than seven consecutive days, and (ii) such Inventory owned by a Canadian Loan Party is either located at one of the Permitted Inventory Locations or is in transit from one Permitted Inventory Location to another Permitted Inventory Location for not more than seven consecutive days;
(h) if such Inventory is located at any location leased by a Loan Party, (i) the lessor has delivered to the Agent a Collateral Access Agreement as to such location or (ii) a Rent Reserve with respect to such location has been established by the Agent in its Permitted Discretion; and
(i) such Inventory is not subject to any warehouse receipt or negotiable Document unless in the possession of the Agent, or if such Inventory is located in any third party warehouse or is in the possession of a bailee and is not evidenced by a Document, (i) such warehouseman or bailee has delivered to the Agent a Collateral Access Agreement and such other documentation as the Agent may reasonably require or (ii) an appropriate Reserve has been established by the Agent in its Permitted Discretion.
With respect to any Inventory of any Borrower or any Canadian Guarantor within a Borrower Group that was acquired or originated by any Person acquired after the Effective Date, the Agent shall use commercially reasonable efforts, at the expense of the Borrowers within such Borrower Group, to complete diligence in respect of such Person and such Inventory, within a reasonable time following request of the Borrower Agent.
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Environmental Laws means all applicable laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating to the protection of the environment, the preservation or reclamation of natural resources, the management, transportation, disposal, release or threatened release of any Hazardous Material or to health and safety matters (to the extent related to the exposure to any Hazardous Material).
Environmental Liability means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Company or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement in writing pursuant to which liability is assumed or imposed with respect to any of the foregoing.
Equity Interests means shares of capital stock, partnership interests, membership interests in a limited liability company or unlimited liability company, beneficial interests in a trust or other equity ownership interests in a Person, and any warrants, options or other rights entitling the holder thereof to purchase or acquire any such equity interest.
ERISA means the Employee Retirement Income Security Act of 1974, as amended from time to time.
ERISA Affiliate means any trade or business (whether or not incorporated) that, together with any Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code.
ERISA Event means (a) any Reportable Event; (b) the conditions for imposition of a lien under Section 303(k) of ERISA shall have been met with respect to any Plan; (c) a determination that any Plan is in at risk status (within the meaning of Section 303(i)(4) of ERISA); (d) the filing pursuant to Section 412(d) of the Code or Section 302(c) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (e) the incurrence by a Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (f) the receipt by a Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice of an intent to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (g) the incurrence by a Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (h) the receipt by a Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from a Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is Insolvent or in Reorganization, within the meaning of Title IV of ERISA.
Event of Default has the meaning assigned to such term in Article VII.
Excess Amount has the meaning assigned to such term in Section 2.30(c).
Excess Availability means, at any time, an amount equal to the sum of the U.S. Excess Availability and the Canadian Excess Availability.
Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder.
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Exchange Rate means on any date, (a)(i) with respect to Canadian Dollars in relation to Dollars, the exchange rate reported by Bloomberg, at which Canadian Dollars are offered on such date for Dollars as of the end of the preceding Business Day, and (ii) with respect to Dollars in relation to Canadian Dollars, the exchange rate reported by Bloomberg, at which Canadian Dollars are offered on such date for Dollars or (b) if such report is unavailable for any reason, the spot rate for the purchase of the first currency with the second currency as in effect during the preceding Business Day in the Agents principal foreign exchange trading office for the first currency.
Excluded Accounts has the meaning assigned to such term in each of the U.S. Security Agreement and the Canadian Security Agreements, as applicable.
Excluded Equity Interests shall mean (a) any Equity Interests with respect to which the Company and the Agent have reasonably determined that the cost or other consequences (including any material adverse tax consequences) of pledging such Equity Interests shall be excessive in view of the benefits to be obtained by the Secured Parties therefrom, (b) solely in the case of any pledge of Equity Interests of any Foreign Subsidiary or any Excluded Disregarded Entity to secure the U.S. Obligations, any Equity Interests that are voting Equity Interests of such Foreign Subsidiary or Excluded Disregarded Entity in excess of 65% of the outstanding voting Equity Interests of such class, (c) any Equity Interests to the extent the pledge thereof would be prohibited by any Requirement of Law, (d) the Equity Interests of any Subsidiary that is not wholly owned by the Company and its Subsidiaries at the time such Subsidiary becomes a Subsidiary (for so long as such Subsidiary remains a non-wholly owned Subsidiary), (e) the Equity Interests of any Immaterial Subsidiary or Unrestricted Subsidiary, (f) the Equity Interests of any Subsidiary of a Foreign Subsidiary (other than, with respect to any pledge of the Equity Interests of any Canadian Subsidiary to secure only the Canadian Obligations, the Equity Interests of such Canadian Subsidiary) and (g) any Equity Interests of a joint venture to the extent that the joint venture agreement applicable thereto restricts the pledge of such Equity Interests.
Excluded Subsidiary shall mean (a) any Subsidiary that is not a wholly owned Subsidiary on any date such Subsidiary would otherwise be required to become a Loan Party pursuant to the requirements of Section 5.11 (for so long as such Subsidiary remains a non-wholly owned Subsidiary), (b) any Subsidiary that is prohibited by Requirements of Law, by any Contractual Obligation existing on the Effective Date or by any Contractual Obligation existing at the time such Subsidiary becomes a Subsidiary of the Company, in each case from guaranteeing the Obligations (and for so long as such restrictions or any replacement or renewal thereof is in effect), (c) solely in the case of a guarantee of the U.S. Obligations, any Domestic Subsidiary that is (i) treated as a disregarded entity for U.S. federal income tax purposes and substantially all of its assets consist of the stock of one or more Foreign Subsidiaries that are controlled foreign corporations within the meaning of Section 957 of the Code (any such excluded Domestic Subsidiary, an Excluded Disregarded Entity) or (ii) a direct or indirect Subsidiary of a Foreign Subsidiary that is a controlled foreign corporation within the meaning of Section 957 of the Code, (d) any Immaterial Subsidiary and any Unrestricted Subsidiary, (e) any other Subsidiary with respect to which the Company and the Agent have reasonably determined that the cost or other consequences (including any material adverse tax consequences) of providing a guarantee shall be excessive in view of the benefits to be obtained by the Secured Parties therefrom, (f) each Foreign Subsidiary (other than with respect to a guarantee by a Canadian Subsidiary of the Canadian Obligations of a Canadian Subsidiary), (g) each other Domestic Subsidiary acquired pursuant to a Permitted Acquisition and financed with Indebtedness incurred pursuant to Section 6.01(j) or (k) and permitted by the proviso to subclause (z) of such Sections and each Subsidiary that guarantees such Indebtedness to the extent that, and for so long as, the financing documentation relating to such Permitted Acquisition to which such Subsidiary is a party prohibits such Subsidiary from guaranteeing the Obligations and (h) Tire Pros Francorp.
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Excluded Taxes means, with respect to the Agent, any Lender, any Issuing Bank or any other recipient of any payment to be made by or on account of any obligation of the Company or any other Loan Party hereunder, (a) Taxes imposed on or measured by net income (however denominated) franchise taxes and branch profits taxes, in each case (i) imposed by the United States of America or Canada, or any political subdivision thereof, or by the jurisdiction or any political subdivision thereof under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, or (ii) that are Other Connection Taxes, (b) other than in the case of an assignee pursuant to a request by the Borrower Agent under Section 2.19(b), any U.S. federal withholding tax that is imposed on amounts payable to a Lender at the time such Lender becomes a party to this Agreement (or designates a new lending office) or is attributable to such Lenders failure to comply with Section 2.17(e) or (f), as applicable, except to the extent that such Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Company or any other Loan Party with respect to such withholding tax pursuant to Section 2.17(a), and (c) any withholding tax that is imposed under FATCA.
Existing Class means each Class of Existing Revolving Commitments.
Existing Credit Agreement has the meaning assigned to such term in the recitals to this Agreement.
Existing Letter of Credit means any letter of credit previously issued for the account of the Company or any other Loan Party by a Lender or an Affiliate of a Lender that is (a) outstanding on the Effective Date and (b) listed on Schedule 1.01(a).
Existing Revolving Commitments has the meaning assigned to such term in Section 2.27(a).
Existing Revolving Loans has the meaning assigned to such term in Section 2.27(a).
Existing Subordination Agreements means the B/F Subordination Agreement, the Pirelli Subordination Agreement and the Cooper Subordination Agreement.
Existing Subordinated Vendors means Bridgestone/Firestone, Cooper Tire & Rubber Company and Pirelli Tire LLC.
Extended Canadian Loans/Commitments means Extended Canadian Revolving Loans and/or Extended Canadian Revolving Commitments.
Extended Canadian Revolving Commitments has the meaning assigned to such term in Section 2.27(a).
Extended Canadian Revolving Loans has the meaning assigned to such term in Section 2.27(a).
Extended Loans/Commitments means Extended Revolving Loans and/or Extended Revolving Commitments.
Extended Revolving Commitments has the meaning assigned to such term in Section 2.27(a).
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Extended Revolving Loans has the meaning assigned to such term in Section 2.27(a).
Extended U.S. Loans/Commitments means Extended U.S. Revolving Loans and/or Extended U.S. Revolving Commitments.
Extended U.S. Revolving Commitments has the meaning assigned to such term in Section 2.27(a).
Extended U.S. Revolving Loans has the meaning assigned to such term in Section 2.27(a).
Extending Lender has the meaning assigned to such term in Section 2.27(b).
Extension Agreement has the meaning assigned to such term in Section 2.27(c).
Extension Election has the meaning assigned to such term in Section 2.27(b).
Extension Request shall mean Revolving Extension Requests.
Extension Series shall mean all Extended Revolving Commitments that are established pursuant to the same Extension Agreement (or any subsequent Extension Agreement to the extent such Extension Agreement expressly provides that Extended Revolving Commitments provided for therein are intended to be a part of any previously established Extension Series) and that provide for the same interest margins and extension fees.
FATCA means Sections 1471 through 1474 of the Code, as of the Effective Date (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Code.
Federal Funds Effective Rate means, (a) the weighted average of interest rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers on the applicable Business Day (or on the preceding Business Day, if the applicable day is not a Business Day), as published by the Federal Reserve Bank of New York on the next Business Day; or (b) if no such rate is published on the next Business Day, the average rate (rounded up, if necessary, to the nearest 1/8 of 1%) charged to the Agent on the applicable day on such transactions, as determined by the Agent.
Fee Letter means the amended and restated fee letter, dated as of November 16, 2012, between the Agent, the Company and certain other parties.
Financial Officer means the chief financial officer, treasurer or controller of the Company.
First Priority Lien means any Lien on any asset of any U.S. Loan Party that is granted under the Senior Secured Notes Security Documents and that, pursuant and subject to the provisions of the Intercreditor Agreement, is senior in priority to the Liens of the Agent on the U.S. Collateral.
Fixed Charges means, with reference to any period, without duplication, the sum of (a) Interest Expense actually paid in cash for such period, plus (b) the aggregate amount of scheduled principal payments in respect of long-term Consolidated Total Indebtedness of the Company and the
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Subsidiaries made during such period (other than payments made by the Company or any Subsidiary to the Company or a Subsidiary) plus (c) any payments on account of Disqualified Equity Interests or preferred Equity Interests (whether in the nature of dividends, redemption, repurchase or otherwise) required to be made in such period, all calculated for such period for the Company and its Subsidiaries on a consolidated basis.
Fixed Charge Coverage Ratio means, at any date of determination, the ratio of:
(i)(A) EBITDA of the Company and its Subsidiaries for the most recent Test Period ended on or prior to such date of determination plus (B) only for purposes of the calculation of the Fixed Charge Coverage Ratio under, and as provided in, Section 7.02, Permitted Cure Securities minus (C) taxes based on income, profits or capital, including federal, foreign, state, franchise, excise and similar taxes (including in respect of repatriated funds), net of cash refunds received, of the Company and its Subsidiaries paid in cash during such Test Period minus (D) Unfinanced Capital Expenditures made by the Company and its Subsidiaries during such Test Period, to
(ii) Fixed Charges payable by the Company and its Subsidiaries in cash during such Test Period;
In calculating the Fixed Charge Coverage Ratio in connection with the making of any Specified Payment (other than with regard to investments in Domestic Subsidiaries (whether Restricted or Unrestricted), U.S. domestic-organized joint ventures and other U.S. domestic investments, in each case under Section 6.04(w)) at any time when Excess Availability on a Pro Forma Basis is less than 35% of the lesser of (A) the aggregate Revolving Commitments and (B) the Aggregate Borrowing Base, the amount of Fixed Charges included in clause (ii) above shall include, without duplication of any payments already constituting Fixed Charges, the amount of such Specified Payment actually made on such date of determination.
For purposes of calculating the Fixed Charge Coverage Ratio for any period ending prior to the first anniversary of the Effective Date, Interest Expense shall be an amount equal to actual Interest Expense from the Effective Date through the date of determination multiplied by a fraction the numerator of which is 365 and the denominator of which is the number of days from the Effective Date through the date of determination.
Floating Rate Loan means an ABR Loan, a Canadian Prime Rate Loan or a Canadian Base Rate Loan.
Foreign Lender means (a) in respect of a U.S. Borrower, a Lender that is not a United States person within the meaning of Section 7701(a)(30) of the Code, and (b) in respect of a Canadian Borrower, a Lender that is a non-resident person for purposes of the ITA.
Foreign Subsidiary means any Subsidiary that is not a Domestic Subsidiary.
Foreign Subsidiary Borrowing Base means, as of any date, an amount equal to the sum of (a) 85% of the aggregate book value of all accounts receivable of the applicable Foreign Subsidiary or Subsidiaries (other than the Canadian Loan Parties) and (b) 70% of the aggregate book value of all inventory owned by the applicable Foreign Subsidiary or Subsidiaries (other than the Canadian Loan Parties).
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Foreign Subsidiary Total Assets means the total assets of the Foreign Subsidiary or Subsidiaries that are not Loan Parties, as determined in accordance with GAAP in good faith by the Company, without intercompany eliminations between such Foreign Subsidiaries and the Company and its other Subsidiaries.
Funding Account has the meaning assigned to such term in Section 4.01(g).
GAAP means generally accepted accounting principles in the United States of America in effect and applicable to that accounting period in respect of which reference to GAAP is being made, subject to the provisions of Section 1.04.
Governmental Authority means the government of the United States of America, Canada, any other nation or any political subdivision thereof, whether state, provincial, territorial, municipal or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.
Guarantee of or by any Person (the Guarantor) means any obligation, contingent or otherwise, of the Guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness of any other Person (the Primary Obligor) in any manner, whether directly or indirectly, and including any obligation of the Guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the Primary Obligor so as to enable the Primary Obligor to pay such Indebtedness or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness; provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business, or customary and reasonable indemnity obligations in effect on the Effective Date or entered into in connection with any acquisition or disposition of assets permitted under this Agreement (other than such obligations with respect to Indebtedness). The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith.
Hazardous Materials means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.
Holdings has the meaning assigned to such term in the preamble to this Agreement.
Immaterial Subsidiary means, at any date of determination, any Subsidiary designated as such in writing by the Company to the Agent and that (a) contributed 5.0% or less of EBITDA for the Test Period most recently ended prior to such date of determination and (b) had consolidated assets representing 5.0% or less of the Total Assets of the Company and the Subsidiaries on the last day of the Test Period most recently ended prior to such date of determination. The Immaterial Subsidiaries as of the Effective Date are listed on Schedule 1.01(b).
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Immediate Family Members means with respect to any individual, such individuals child, stepchild, grandchild or more remote descendant, parent, stepparent, grandparent, spouse, former spouse, qualified domestic partner, sibling, mother-in-law, father-in-law, son-in-law and daughter-in-law (including adoptive relationships) and any trust, partnership or other bona fide estate-planning vehicle the only beneficiaries of which are any of the foregoing individuals or any private foundation or fund that is controlled by any of the foregoing individuals or any donor-advised fund of which any such individual is the donor.
Indebtedness of any Person means (in each case, whether such obligation is with full or limited recourse), without duplication, (a) any obligation of such Person for borrowed money, (b) any obligation of such Person evidenced by a bond, debenture, note or other similar instrument, (c) any obligation of such Person to pay the deferred purchase price of property or services, except (i) accrued expenses and trade accounts payable that arise in the ordinary course of business and (ii) any earn-out obligation until such obligation becomes a liability on the balance sheet of such Person in accordance with GAAP, (d) all Capital Lease Obligations of such Person, (e) all obligations of such Person in respect of Disqualified Equity Interests, (f) any obligation of such Person (whether or not contingent) to any other Person in respect of a letter of credit or other Guarantee issued by such other Person, (g) any Swap Obligation, except that if any Swap Agreement relating to such Swap Obligation provides for the netting of amounts payable by and to such Person thereunder or if any such agreement provides for the simultaneous payment of amounts by and to such Person, then in each such case, the amount of such obligation shall be the net amount thereof, (h) any Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) a Lien on any asset of such Person (provided that the amount of such Indebtedness shall be the lesser of the fair market value of such asset at the date of determination determined by such Person in good faith and the amount of such Indebtedness of others so secured) and (i) any Indebtedness of others Guaranteed by such Person. For all purposes hereof, the Indebtedness of any Person shall exclude purchase price holdbacks arising in the ordinary course of business in respect of a portion of the purchase price of an asset to satisfy warranties or other unperformed obligations of the seller of such asset (other than earn-out obligations).
Indemnified Taxes means Taxes other than Excluded Taxes.
Information has the meaning assigned to such term in Section 3.11(a).
Initial Canadian Borrower has the meaning assigned to such term in the preamble to this Agreement.
Insolvent with respect to any Multiemployer Plan, means the condition that such Plan is insolvent within the meaning of Section 4245 of ERISA.
Instrument shall have the meaning assigned to such term in Article 9 of the UCC or the PPSA, as applicable.
Intercompany Note means the Intercompany Subordinated Note, dated as of May 28, 2010, substantially in the form of Exhibit J hereto executed by Holdings, the Company and each other Subsidiary of Borrowers.
Intercreditor Agreement means the Lien Subordination and Intercreditor Agreement, dated as of May 28, 2010, among Holdings, the Company, the Subsidiaries party from time to time thereto, the Agent and the Noteholder Collateral Agent.
Interest Election Request means a request by the Borrower Agent to convert or continue a Borrowing in accordance with Section 2.08.
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Interest Expense means, with respect to any period, without duplication, the sum of:
(1) consolidated interest expense of the Company and its Restricted Subsidiaries for such period with respect to all outstanding Indebtedness of the Company and its Subsidiaries, to the extent such expense was deducted (and not added back) in computing Net Income (including (a) all commissions, discounts and other fees and charges owed with respect to letters of credit or bankers acceptances during such period, (b) non-cash interest payments (but excluding any non-cash interest expense attributable to the movement in the mark to market valuation of Swap Agreements or other Derivative Transactions pursuant to GAAP or Statement of Financial Accounting Standards No. 133), (c) the interest component of Capital Lease Obligations and (d) net payments, if any, made (less net payments, if any, received) pursuant to obligations under interest rate Swap Agreements with respect to Indebtedness, and excluding (i) accretion or accrual of discounted liabilities not constituting Indebtedness, (ii) any expense resulting from the discounting of any Indebtedness in connection with the application of recapitalization accounting or, if applicable, purchase accounting, (iii) all additional interest or liquidated damages then owing pursuant to any registration rights agreement and any comparable additional interest or liquidated damages with respect to other securities designed to compensate the holders thereof for a failure to publicly register such securities, (iv) amortization of deferred financing fees, debt issuance costs, commissions, fees and expenses and amortization of original issue discount resulting from the issuance of Indebtedness at less than par, (v) any expensing of commitment and other financing fees, (vi) any interest in respect of items excluded from Indebtedness in the proviso to the definition thereof, (vii) any one-time costs associated with breakage in respect of Swap Agreements for interest rates and (viii) penalties and interest relating to taxes); plus
(2) consolidated capitalized interest of the Company and its Subsidiaries for such period, whether paid or accrued; less
(3) interest income for such period.
For purposes of this definition, (x) interest on a Capital Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by such Person to be the rate of interest implicit in such Capital Lease Obligation in accordance with GAAP and (y) the Interest Expense of any Person accrued prior to the date it becomes a Subsidiary of the Company or is merged into or consolidated with the Company or any of its Subsidiaries shall be excluded.
Interest Payment Date means (a) with respect to any ABR Loan (other than a U.S. Swingline Loan), the first calendar day of each January, April, July and October and the Maturity Date, (b) with respect to any Canadian Prime Rate Loan or any Canadian Base Rate Loan (other than a Canadian Swingline Loan), the first Business Day of each January, April, July and October and the Maturity Date, (c) with respect to any Interest Period Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of an Interest Period Loan with an Interest Period of more than three months duration, each day prior to the last day of such Interest Period that occurs at intervals of three months duration after the first day of such Interest Period (or, with respect to any Canadian BA Rate Loan, if such day is not a Business Day, the next succeeding Business Day), (d) with respect to any U.S. Swingline Loan, the first calendar day of each January, April, July and October and the Maturity Date, and (e) with respect to any Canadian Swingline Loan, the first Business Day of each January, April, July and October and the Maturity Date.
Interest Period means (a) with respect to any Interest Period Loan, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months (or, to the extent available to and agreed to by each
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Lender, nine or twelve months) thereafter, as the Borrower Agent may elect; provided that (i) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day and (ii) any Interest Period that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing.
Interest Period Loan means a LIBOR Rate Loan or a Canadian BA Rate Loan.
Inventory means Inventory, as defined in the U.S. Security Agreement (or, with respect to any inventory of a Canadian Loan Party, Inventory as defined in the PPSA).
Investment Grade Securities means (a) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof (other than Permitted Investments), (b) debt securities or debt instruments with a rating of BBB- or higher by S&P or Baa3 by Moodys or the equivalent of such rating by such rating organization, or if no rating of S&Ps or Moodys then exists, the equivalent of such rating by any other nationally recognized securities rating agency, but excluding any debt securities or instruments constituting loans or advances among the Borrowers and their Subsidiaries and (c) investments in any fund that invests exclusively in investments of the type described in clauses (a) and (b) which fund may also hold immaterial amounts of cash pending investment and/or distribution.
IRS has the meaning assigned to such term in Section 2.17(e).
Issuing Bank means each of Bank of America, N.A. and any other Revolving Lender which at the request of the Borrower Agent and after notice to the Agent agrees to become an Issuing Bank and, solely with respect to any Existing Letter of Credit (and any amendment, renewal or extension thereof in accordance with this Agreement), the Lender or Affiliate of a Lender that issued such Existing Letter of Credit. Each Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates of such Issuing Bank, in which case the term Issuing Bank shall include any such Affiliate or branch with respect to Letters of Credit issued by such Affiliate or branch.
ITA means the Income Tax Act (Canada) and the regulations promulgated thereunder.
Joinder Agreement has the meaning assigned to such term in Section 5.11.
Joint Lead Arrangers means Merrill Lynch, Pierce, Fenner & Smith Incorporated, Wells Fargo Capital Finance, LLC, and SunTrust Robinson Humphrey, Inc.
LC Collateral Account has the meaning assigned to such term in Section 2.06(j).
LC Disbursement means a U.S. LC Disbursement or a Canadian LC Disbursement.
LC Exposure means the sum of the U.S. LC Exposure and the Dollar Equivalent Amount of Canadian LC Exposure.
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Lease Expense means, for any period, all rental expenses of the Company and its Subsidiaries during such period under operating leases for real or personal property (including in connection with Sale and Lease-Back Transactions), but excluding real estate taxes, insurance costs and common area maintenance charges and net of sublease income; provided that Lease Expense shall not include (a) obligations under vehicle leases entered into in the ordinary course of business, (b) all such rental expenses associated with assets acquired pursuant to the Transactions and pursuant to an acquisition (including a Permitted Acquisition) to the extent that such rental expenses relate to operating leases (i) in effect at the time of (and immediately prior to) such acquisition and (ii) related to periods prior to such acquisition, (c) Capital Lease Obligations, all as determined on a consolidated basis in accordance with GAAP and (d) the effects from applying purchase accounting.
Lenders means the Persons listed on the Commitment Schedule and any other Person that shall have become a party hereto pursuant to an Assignment and Assumption, other than any such Person that ceases to be a party hereto pursuant to an Assignment and Assumption.
Letter of Credit means any standby or commercial letter of credit issued (or, in the case of an Existing Letter of Credit, deemed to be issued) pursuant to this Agreement.
Letter of Credit Request has the meaning assigned to such term in Section 2.06(b).
LIBOR Rate means, with respect to any Interest Period, the per annum rate of interest (rounded up, if necessary, to the nearest 1/8th of 1%), determined by the Agent at approximately 11:00 a.m. (London time) two Business Days prior to commencement of such Interest Period, for a term comparable to such Interest Period, equal to (a) the British Bankers Association LIBOR Rate (BBA LIBOR), as published by Reuters (or other commercially available source designated by the Agent); or (b) if BBA LIBOR is not available for any reason, the interest rate at which Dollar deposits in the approximate amount of the LIBOR Rate Loan would be offered by the Agents London branch to major banks in the London interbank Eurodollar market.
LIBOR Rate Loan means a Revolving Loan, or portion thereof, funded in Dollars and bearing interest calculated by reference to the Adjusted LIBOR Rate.
Lien means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, deemed, statutory or constructive trust, assignment by way of security, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, trust receipt, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities; provided that in no event shall an operating lease be deemed to be a Lien.
Liquidity Event means the determination by the Agent that (a) Excess Availability is less than the greater of (1) 10.0% of the lesser of (A) the aggregate Revolving Commitments and (B) the Aggregate Borrowing Base and (2) $30,000,000, in either case for a period of five consecutive Business Days, or (b) an Event of Default has occurred; provided that the Agent has notified the Borrower Agent of either thereof. The occurrence of a Liquidity Event shall be deemed continuing (i) until such date as such Event of Default shall no longer be continuing and (ii) until such date as Excess Availability exceeds such amount for thirty (30) consecutive days, in which event a Liquidity Event shall no longer be deemed to be continuing.
Loan Account has the meaning assigned to such term in Section 2.26.
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Loan Documents means this Agreement, any promissory notes issued pursuant to the Agreement, the Fee Letter, any Letters of Credit or Letter of Credit applications, the Collateral Documents, the Perfection Certificates, and the Intercreditor Agreement.
Loan Guarantor means each Canadian Obligations Guarantor and each U.S. Guarantor.
Loan Guaranty means Article X of this Agreement.
Loan Parties means the U.S. Loan Parties and the Canadian Loan Parties.
Loans means the loans and advances made by the Lenders pursuant to this Agreement, including Revolving Loans, Swingline Loans, Protective Advances and Extended Revolving Loans.
Management Services Agreements means, collectively, (a) the transaction and monitoring fee letter agreement among the Company and the Sponsor dated as of May 28, 2010, pursuant to which the Sponsor agrees to provide certain advisory services to TopCo, Holdings and the Company in exchange for certain fees and (b) the indemnification agreement among TopCo, Holdings, the Company and the Sponsor dated as of May 28, 2010.
Management Stockholders means the management officers or employees of the Company or its Subsidiaries who are investors in Holdings, TopCo or any direct or indirect parent thereof.
Margin Stock has the meaning assigned to such term in Regulation U.
Material Adverse Effect means a material adverse effect on (a) the business, assets, operations or financial condition of the Company and the Subsidiaries, taken as a whole, (b) the ability of the Company and the other Loan Parties (taken as a whole) to perform their obligations under the Loan Documents or (c) the rights of, or remedies available to the Agent, the Issuing Banks or the Lenders under, the Loan Documents.
Material Indebtedness means Indebtedness (other than the Loans and Letters of Credit), or obligations in respect of one or more Swap Agreements, of any one or more of Holdings, the Company and its Subsidiaries in an aggregate principal amount exceeding $25,000,000. For purposes of determining Material Indebtedness, the obligations of Holdings, the Company or any Subsidiary in respect of any Swap Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that Holdings, the Company or such Subsidiary would be required to pay if such Swap Agreement were terminated at such time.
Material Subsidiary means each Subsidiary (including the Initial Canadian Borrower and subsequently the Amalgamated Company), other than an Immaterial Subsidiary.
Maturity Date means (a) in the case of the Revolving Commitments, November 16, 2017, or any earlier date on which the Revolving Commitments are reduced to zero or otherwise terminated pursuant to the terms hereof; provided that if, on March 1, 2017, either (i) more than $50,000,000 in aggregate principal amount of Senior Secured Notes remain outstanding the scheduled final maturity date of which is earlier than 91 days after November 16, 2017 or (ii) if any principal amount of Senior Secured Notes remains outstanding the scheduled maturity date of which is earlier than 91 days after November 16, 2017 and Excess Availability, calculated on a Pro Forma Basis, is less than 12.5% of the aggregate of the Revolving Commitments, then the Maturity Date for the Revolving Commitments shall be March 1, 2017, and (b) in the case of any Extension Series of Extended Revolving Commitments, the maturity date related thereto.
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Maximum Liability has the meaning assigned to such term in Section 10.08.
Moodys means Moodys Investors Service, Inc. and any successor to its rating agency business.
Mortgaged Properties means, initially, the owned real properties of the Loan Parties specified on Schedule 1.01(c), and shall include each other parcel of real property and improvements thereto with respect to which a Mortgage is granted pursuant to Section 5.11.
Mortgages means any mortgage, deed of trust, deed of immovable hypothec or other agreement entered into by the owner of a Mortgaged Property and the Agent, which conveys or evidences a Lien in favor of the Agent, for the benefit of the Secured Parties, on such Mortgaged Property, substantially in the form of Exhibit I with respect to real property located in the United States (with such changes thereto as may be necessary to account for local law matters) or otherwise in such form as agreed between the Company and the Agent, to secure the U.S. Obligations or the Canadian Obligations; provided that to the extent any real property located in Canada is required to become Mortgaged Property hereunder, such property will be pursuant to a Mortgage to be agreed reasonably satisfactory to the Agent and Company.
Multiemployer Plan means a multiemployer plan as defined in Section 3(37) or 4001(a)(3) of ERISA in respect of which a Borrower or any ERISA Affiliate is an employer (as defined in Section 3(5) of ERISA).
Net Cash Proceeds means, with respect to any sale, transfer or other disposition of assets, any Recovery Event, any incurrence or issuance of Indebtedness or any issuance of Equity Interests (each, a Proceeds Event), (a) the gross cash proceeds (including payments from time to time in respect of installment obligations, if applicable) received by or on behalf of Holdings, the Company or any of the Subsidiaries in respect of such Proceeds Event, less (b) the sum of:
(i) the amount, if any, of all taxes paid or estimated to be payable by Holdings, the Company or any of the Subsidiaries in connection with such Proceeds Event (including withholding taxes imposed on the repatriation of any such proceeds),
(ii) the amount of any reasonable reserve established in accordance with GAAP against any liabilities (other than any taxes deducted pursuant to clause (i) above) (x) associated with the assets that are the subject of such Proceeds Event and (y) retained by Holdings, the Company or any of the Subsidiaries including any pension and other post-employment benefit liabilities and liabilities related to environmental matters or against any indemnification obligations associated with such transaction; provided that the amount of any subsequent reduction of such reserve (other than in connection with a payment in respect of any such liability) shall be deemed to be Net Cash Proceeds of such Proceeds Event occurring on the date of such reduction,
(iii) in the case of any Proceeds Event constituting a sale, transfer or disposition of assets or a Recovery Event by any non-wholly owned Subsidiary, the pro rata portion of the net cash proceeds thereof (calculated without regard to this clause (iii)) attributable to minority interests and not available for distribution to or for the account of the Company or a wholly-owned Subsidiary as a result thereof, and
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(iv) reasonable and customary fees, commissions, expenses (including attorneys fees, investment banking fees, survey costs, title insurance premiums and recording charges, transfer taxes, deed or mortgage recording taxes and other customary expenses and brokerage, consultant and other customary fees), issuance costs, discounts and other costs paid by Holdings, the Company or any of the Subsidiaries, as applicable, in connection with such Proceeds Event (other than those payable to Holdings, the Company or any Subsidiary), in each case only to the extent not already deducted in arriving at the amount referred to in clause (a) above.
Net Income means, for any period, the consolidated net income (or loss) of the Company and its Subsidiaries, determined on a consolidated basis in accordance with GAAP; provided, however, that, without duplication,
(a) the cumulative effect of a change in accounting principles (effected either through cumulative effect adjustment or a retroactive application, in each case, in accordance with GAAP) and changes as a result of the adoption or modification of accounting policies during such period shall be excluded;
(b) any net after-tax effect of gains or losses attributable to asset dispositions or abandonments (including any disposal of abandoned or discontinued operations) or the sale or other disposition of any Equity Interests of any Person other than in the ordinary course of business as determined in good faith by the Company shall be excluded;
(c) the Net Income for such period of any Person that is not a Subsidiary or is an Unrestricted Subsidiary or that is accounted for by the equity method of accounting, shall be excluded; provided that Net Income of the Company shall be increased by the amount of dividends or distributions or other payments that are actually paid in cash or Permitted Investments (or to the extent converted into cash or Permitted Investments) to the Company or a Subsidiary thereof in respect of such period and the net losses of any such Person shall only be included to the extent funded with cash from the Company or any Subsidiary;
(d) effects of adjustments (including the effects of such adjustments pushed down to the Company and its Subsidiaries) in the inventory, property and equipment, software, goodwill, other intangible assets, in-process research and development, deferred revenue, debt line items and other noncash charges in the Companys consolidated financial statements pursuant to GAAP resulting from the application of recapitalization accounting or, if applicable, purchase accounting in relation to the Transactions or any consummated acquisition or the amortization or write-off of any amounts thereof, net of taxes, shall be excluded,
(e) any after-tax effect of income (loss) from the early extinguishment of Indebtedness or Swap Obligations or other Derivative Transactions shall be excluded;
(f) any impairment charge or asset write-off or write-down, including impairment charges or asset write-offs or write-downs related to intangible assets, long-lived assets, investments in debt and equity securities or as a result of a change in law or regulation, in each case, pursuant to GAAP, and the amortization of intangibles arising pursuant to GAAP shall be excluded;
(g) any non-cash compensation charge or expense, including any such charge or expense arising from the grants of stock appreciation or similar rights, stock options, restricted stock or other rights or equity incentive programs shall be excluded, and any cash charges associated with the rollover, acceleration, or payout of Equity Interests by management of the Company or any of its direct or indirect parent companies in connection with the Transactions, shall be excluded;
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(h) any fees, expenses or charges incurred during such period, or any amortization thereof for such period, in connection with any acquisition, sale or disposition, recapitalization, investment, issuance, incurrence or repayment of Indebtedness, issuance of Equity Interests, refinancing transaction or amendment or modification of any debt instrument (in each case, including any such transaction consummated prior to the Effective Date and any such transaction undertaken but not completed) and any charges or non-recurring merger costs incurred during such period as a result of any such transaction, in each case, whether or not successful, shall be excluded;
(i) accruals and reserves that are established or adjusted within twelve months after the Effective Date that are so required to be established or adjusted as a result of the Transactions (or within twelve months after the closing of any acquisition that are so required to be established as a result of such acquisition) in accordance with GAAP shall be excluded;
(j) any expenses, charges or losses that are covered by indemnification or other reimbursement provisions in connection with any investment, acquisition or any sale, conveyance, transfer or other disposition of assets permitted under this Agreement, to the extent actually reimbursed, or, so long as the Company has made a determination that a reasonable basis exists for indemnification or reimbursement and only to the extent that such amount is (i) not denied by the applicable carrier (without any right of appeal thereof) within 180 days and (ii) in fact indemnified or reimbursed within 365 days of such determination (with a deduction in the applicable future period for any amount so added back to the extent not so indemnified or reimbursed within such 365 days), shall be excluded;
(k) to the extent covered by insurance and actually reimbursed, or, so long as the Company has made a determination that there exists reasonable evidence that such amount will in fact be reimbursed by the insurer and only to the extent that such amount is in fact reimbursed within 365 days of the date of such determination (with a deduction in the applicable future period for any amount so added back to the extent not so reimbursed within such 365 day period), expenses, charges or losses with respect to liability or casualty events or business interruption shall be excluded;
(l) any net unrealized gain or loss (after any offset) resulting in such period from Swap Obligations or other Derivative Transactions and the application of Accounting Standards Codification 815 shall be excluded;
(m) any net unrealized gain or loss (after any offset) resulting in such period from currency translation and transaction gains or losses including those related to currency remeasurements of Indebtedness (including any net loss or gain resulting from Swap Obligations for currency exchange risk) and any other monetary assets and liabilities shall be excluded; and
(n) effects of adjustments to accruals and reserves during a prior period relating to any change in the methodology of calculating reserves for returns, rebates and other chargebacks (including government program rebates) shall be excluded.
In addition, to the extent not already included in the Net Income of the Company and its Subsidiaries, notwithstanding anything to the contrary in the foregoing, Net Income shall include the amount of proceeds received from business interruption insurance and reimbursements of any expenses and charges that are covered by indemnification or other reimbursement provisions in connection with any investment or any sale, conveyance, transfer or other disposition of assets permitted under this Agreement.
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Net Orderly Liquidation Value means, with respect to Inventory of any Person, the orderly liquidation value thereof, net of all costs of liquidation thereof, as based upon the most recent Inventory appraisal conducted in accordance with this Agreement and expressed as a percentage of Cost of such Inventory.
Non-Cash Charges mean (a) any impairment charge or asset write-off or write-down of intangible assets (including goodwill), long-lived assets, and investments in debt and equity securities pursuant to GAAP, (b) all losses from investments recorded using the equity method, (c) all Non-Cash Compensation Expenses, (d) the non-cash impact of purchase accounting, (e) the non-cash impact of accounting changes or restatements and (f) other non-cash charges (provided that, in each case, that if any non-cash charges represent an accrual or reserve for potential cash items in any future period, the cash payment in respect thereof in such future period shall be subtracted from EBITDA to such extent, and excluding amortization of a prepaid cash item that was paid in a prior period).
Non-Cash Compensation Expense means any non-cash expenses and costs that result from the issuance of stock-based awards, partnership interest-based awards and similar incentive-based compensation awards or arrangements.
Non-Consenting Lender has the meaning assigned to such term in Section 9.02(e).
Non-Ordinary Course Asset Disposition mean any sale, transfer or other disposition by one or more Loan Parties of Borrowing Base Assets with a Value in an aggregate amount in excess of the Dollar Equivalent Amount of $10,000,000.
Noteholder Collateral Agent has the meaning assigned to such term in the Intercreditor Agreement.
Noteholder First Lien Collateral has the meaning assigned to such term in the Intercreditor Agreement.
Obligated Party has the meaning assigned to such term in Section 10.02.
Obligations mean, collectively, the U.S. Obligations and the Canadian Obligations.
Other Connection Taxes means, with respect to the Agent, any Lender, any Issuing Bank or any other recipient of any payment to be made by or on account of any obligation of the Company or any other Loan Party hereunder, Taxes that are imposed as a result of a present or former connection between such recipient and the jurisdiction imposing such Tax (other than connections arising from such recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document).
Other Information has the meaning assigned to such term in Section 3.11(b).
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Other Taxes means any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section 2.19).
Overadvance means (a) with respect to the U.S. Borrowing Base, a U.S. Overadvance and (b) with respect to the Canadian Borrowing Base, a Canadian Overadvance.
Overadvance Condition means (a) with respect to the U.S. Borrowing Base, a U.S. Overadvance Condition and (b) with respect to the Canadian Borrowing Base, a Canadian Overadvance Condition.
Overadvance Loan means (a) with respect to the U.S. Borrowers, a U.S. Overadvance Loan, and (b) with respect to a Canadian Borrower, a Canadian Overadvance Loan.
Participant has the meaning assigned to such term in Section 9.04(c).
Participant Register has the meaning assigned to such term in Section 9.04(c).
PATRIOT ACT shall mean the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. 107-56, 115 Stat. 272 (2001).
Payment Conditions means, at any time of determination with respect to any Specified Payment, as of the date of such Specified Payment and after giving effect thereto, that (a) no Event of Default exists or has occurred and is continuing, (b) if the amount of any such Specified Payment exceeds $5,000,000, Excess Availability shall be not less than 12.5% of the lesser of (i) the Revolving Commitments and (ii) the Aggregate Borrowing Base immediately after giving effect to the making of such Specified Payment and, with respect to Specified Payments under Sections 6.08(a)(x) and 6.08(b)(vi), Excess Availability (after giving Pro Forma Effect to such Specified Payment as of such date and during the thirty (30) consecutive day period immediately preceding the making of such Specified Payment) shall not have been less than 12.5% of the lesser of (i) the Revolving Commitments and (ii) the Aggregate Borrowing Base, and (c) the Fixed Charge Coverage Ratio as of the end of the most recently ended Test Period prior to the making of such Specified Payment (after giving Pro Forma Effect to such Specified Payment as if such Specified Payment had been made as of the first day of such Test Period) shall be equal to or greater than 1.00 to 1.00, provided that, satisfaction of this clause (c) shall not be required with respect to any Specified Payment when Excess Availability (after giving Pro Forma Effect to such Specified Payment as of such date and during the thirty (30) consecutive day period immediately preceding the making of such Specified Payment) shall not have been less than 20.0% of the lesser of (i) the Revolving Commitments and (ii) the Aggregate Borrowing Base.
PBA means the Pension Benefits Act (Ontario) or similar legislation of any other Canadian federal or provincial jurisdiction, and the regulations promulgated thereunder applicable to a Canadian Pension Plan.
PBGC means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.
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Pension Event means solely with respect to Canadian Pension Plans (a) the whole or partial withdrawal of a Canadian Loan Party or any of its Subsidiaries from a Canadian Pension Plan during a plan year; or (b) the filing of a notice of proposal to terminate in whole or in part a Canadian Pension Plan or the treatment of a Canadian Pension Plan amendment as a termination or partial termination; or (c) the issuance of a notice of proposal by any Governmental Authority to terminate in whole or in part or have an administrator or like body appointed to administer a Canadian Pension Plan; or (d) any other event or condition which might constitute grounds for the termination of, winding up or partial termination or winding up or the appointment of a trustee to administer, any Canadian Pension Plan, to the extent any relevant Government Authority has so notified a Canadian Loan Party, unless such grounds are being duly contested by a Canadian Loan Party in good faith.
Perfection Certificate means, with respect to the U.S. Loan Parties, a certificate in the form of Exhibit H to the Security Agreement or any other form approved by the Agent and, with respect to the Canadian Loan Parties, a form approved by the Agent.
Permitted Acquisition means the acquisition, by merger, amalgamation, or otherwise, by the Company or any Subsidiary of assets or businesses of a Person (including assets constituting a business unit, line of business or division of such Person) or of the Equity Interests of a Person; provided that as of the date of such acquisition and after giving effect thereto, (i) no Event of Default shall exist or have occurred and be continuing or would result therefrom after giving Pro Forma Effect thereto; (ii) the acquired assets, division or Person are in the same or generally related line of business as that conducted by the Company and the Subsidiaries during the then current and most recent fiscal year or businesses reasonably related or ancillary thereto; (iii) in the event that the purchase price of the proposed acquisition is greater than $15,000,000, after giving effect to such Permitted Acquisition, Excess Availability shall not be less than 10.0% of the lesser of (x) the Revolving Commitments and (y) the Aggregate Borrowing Base as calculated after giving Pro Forma Effect to such Permitted Acquisition; provided, however, that in no event shall the number of acquisitions involving a purchase price of $15,000,000 or less exceed (two) 2 per fiscal year unless the Excess Availability threshold of this clause (iii) is also met; (iv) the Fixed Charge Coverage Ratio as of the end of the most recently ended Test Period prior to such Permitted Acquisition (after giving Pro Forma Effect to such Permitted Acquisition as if such Permitted Acquisition had been consummated as of the first day of such Test Period) shall be equal to or greater than 1.0 to 1.0, provided that, satisfaction of this clause (iv) shall not be required with respect to any Permitted Acquisition if Excess Availability (after giving Pro Forma Effect to such Permitted Acquisition as of such date) is not less than 17.5% of the lesser of (i) the Revolving Commitments and (ii) the Borrowing Base; and (v) the Company and the Subsidiaries shall comply, and (if applicable) shall cause the acquired Person to comply, with the applicable provisions of Section 5.11 and the Collateral Documents.
Permitted Cure Security means any Qualified Equity Interest of Holdings.
Permitted Discretion means the Agents commercially reasonable credit judgment in establishing Reserves and exercised in good faith in accordance with customary business practices for similar asset-based lending facilities, based upon its consideration of any factor that it reasonably believes (i) could materially adversely affect the quantity, quality, mix or value of Collateral (including any applicable laws that may inhibit collection of a Receivable), the enforceability or priority of the Agents Liens thereon, or the amount that the Agent, the Lenders or the Issuing Banks could receive in liquidation of any Collateral; (ii) that any collateral report or financial information delivered by any Loan Party is incomplete, inaccurate or misleading in any material respect; (iii) materially increases the likelihood of any Bankruptcy Proceeding involving a Loan Party; or (iv) creates or could result in an Event of Default. In exercising such judgment, the Agent may consider any factors that could materially increase the credit risk of lending to the Borrowers on the security of the Collateral.
Permitted Encumbrances means:
(a) Liens for taxes, assessments or other governmental charges not yet overdue for a period of more than thirty (30) days or not yet payable or subject to penalties for nonpayment or which are being contested in good faith by appropriate actions diligently conducted, if adequate reserves with respect thereto are maintained on the books of such Person in accordance with GAAP;
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(b) Liens imposed by law, such as carriers, warehousemens, materialmens, repairmens and mechanics Liens, in each case for sums not yet overdue for a period of more than thirty (30) days or being contested in good faith by appropriate actions if adequate reserves with respect thereto are maintained on the books of such Person in accordance with GAAP;
(c) Liens securing judgments for the payment of money not constituting an Event of Default under Section 7.01(j) so long as such Liens are adequately bonded and any appropriate legal proceedings that may have been duly initiated for the review of such judgment have not been finally terminated or the period within which such proceedings may be initiated has not expired or with respect to which execution has been stayed; and
(d) Subordinated Vendor Liens;
provided that the term Permitted Encumbrances shall not include any Lien securing Indebtedness.
Permitted Holders means the Sponsors and Management Stockholders.
Permitted Inventory Locations means, with respect to any Loan Party, each location listed on Schedule 1.01(d) for such Loan Party and from time to time (a) with respect to any U.S. Loan Party, each other location within the United States which the Company has notified the Agent is a location at which Inventory of a U.S. Loan Party is maintained and (b) with respect to the Canadian Loan Parties, each other location within a Canadian province or territory of which the Company has notified the Agent is a location at which Inventory of a Canadian Loan Party subject to Agents first priority perfected Lien (other than Permitted Encumbrances) is maintained.
Permitted Investments means (a) marketable securities issued or directly and unconditionally guaranteed as to interest and principal by the United States government, the Canadian government or any agency of the United States government or the Canadian government, in each case having maturities of not more than 12 months from the date of acquisition thereof; (b) securities issued by (i) any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof or any political subdivision of any such state or any public instrumentality thereof; or (ii) any province of Canada or any political subdivision of any such province or any public instrumentality thereof or any political subdivision of any such province or any public instrumentality thereof, in each case having maturities of not more than 12 months from the date of acquisition thereof and, at the time of acquisition, having an investment grade rating generally available from either S&P or Moodys (or, if at any time neither S&P nor Moodys shall be rating such obligations, then from another nationally recognized rating service); (c) commercial paper issued by any Revolving Lender or any bank holding company owning any Revolving Lender who is not a Defaulting Lender at the time of acquisition thereof; (d) commercial paper maturing no more than 12 months after the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 or P-1 from either S&P or Moodys (or, if at any time neither S&P nor Moodys shall be rating such obligations, an equivalent rating from another nationally recognized rating service); (e) domestic, Canadian and Eurodollar certificates of deposit or bankers acceptances issued or accepted by any Revolving Lender or by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia or the laws of Canada that is at least (i) adequately capitalized (as defined in the regulations of its primary banking regulator) and (ii) has Tier 1 capital (as defined in such regulations) of not less than $250,000,000, in each case maturing within 12 months after issuance or acceptance thereof; (f) repurchase agreements with a
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term of not more than 30 days for underlying securities of the type described in clauses (a), (b) and (e) above entered into with any bank meeting the qualifications specified in clause (e) above or securities dealers of recognized national standing; (g) marketable short-term money market and similar securities having a rating of at least A-1 or P-1 from either S&P or Moodys (or, if at any time neither S&P nor Moodys shall be rating such obligations, an equivalent rating from another nationally recognized rating service); (h) shares of investment companies that are registered under the Investment Company Act of 1940 and invest solely in one or more of the types of securities described in clauses (a) through (g) above; and (i) in the case of investments by any Foreign Subsidiary or investments made in a country outside the United States of America, other customarily utilized high-quality investments in the country where such Foreign Subsidiary is located or in which such investment is made that would customarily constitute cash equivalents.
Person means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.
Pirelli Subordination Agreement means that certain Lien Subordination Agreement dated January 13, 2003, between the Agent and Pirelli Tire LLC.
Plan means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which a Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an employer as defined in Section 3(5) of ERISA.
PPSA means the Personal Property Security Act (Ontario) and the regulations promulgated thereunder, as amended from time to time, provided if validity, perfection and effect of perfection and non-perfection of the Agents security interest in or Lien on any Collateral of any Canadian Loan Party are governed by the personal property security laws of any jurisdiction other than Ontario, PPSA shall mean those personal property security laws (including the Civil Code of Quebec) in such other jurisdiction for the purposes of the provisions hereof relating to such validity, perfection, and effect of perfection and non-perfection and for the definitions related to such provisions, as from time to time in effect.
Priority Payable Reserve means reserves established in the Permitted Discretion of the Agent for amounts secured by any Liens, choate or inchoate, which rank or are capable of ranking in priority to the Agents Liens and/or for amounts which may represent costs relating to the enforcement of the Agents Liens including, without limitation, in the Permitted Discretion of the Agent, any such amounts due and not paid for wages or vacation pay (including such amounts protected by the Wage Earner Protection Program Act (Canada), amounts due and not paid under any legislation relating to workers compensation or to employment insurance, all amounts deducted or withheld and not paid and remitted when due under the ITA, sales tax, goods and services tax, value added tax, harmonized sales tax, excise tax, tax payable pursuant to Part IX of the Excise Tax Act (Canada) or similar provincial legislation, government royalties, amounts currently or past due and not paid for realty, municipal or similar taxes (to the extent impacting personal or movable property), all amounts currently or past due and not contributed, remitted or paid to any Plan or under any Canadian Pension Plan, the PBA or any similar legislation and, with respect to any Canadian Pension Plan that provides benefits on a defined benefit basis, any Unfunded Pension Liability).
Proceeds of Crime Act means the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada) and the regulations promulgated thereunder.
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Pro Forma Adjustment means, with respect to the Acquired EBITDA of the applicable Pro Forma Entity or the EBITDA of the Company, in either case arising from any Specified Transaction, the pro forma increase or decrease in such Acquired EBITDA or such EBITDA, as the case may be, either (a) permitted to be reflected in pro forma financial information under Rule 11.02 of Regulation S-X under the Securities Act or (b) projected by the Company in good faith to result from actions taken, committed to be taken or planned to be taken pursuant to a factually supported plan entered into in connection with such Specified Transaction prior to the time in which such Acquired EBITDA or such EBITDA is required to be calculated; provided that such cost savings referred to in this clause (b) (x) are factually supportable and determined in good faith by the Company, as certified to the Agent on a Pro Forma Adjustment Certificate, (y) do not exceed the actual cost savings expected in good faith to be realized by the Company during the Test Period commencing with the date as of which EBITDA is being determined (as opposed to the annualized impact of such cost savings) and (2) the aggregate amount of Pro Forma Adjustments shall not exceed for any Test Period, when combined with the aggregate amount of restructuring charges, accruals or reserves incurred under clause (a)(vi) of the definition of EBITDA in such Test Period and the aggregate amount of cost savings added pursuant to clause (a)(xii) of the definition of EBITDA in such Test Period, 25% of EBITDA for any such Test Period ending on or prior to November 16, 2014, and 20% of EBITDA for any Test Period thereafter (in each case, calculated without giving effect to any adjustments made pursuant to such clause (a)(vi), such clause (a)(xii) or such Pro Forma Adjustments).
Pro Forma Adjustment Certificate means any certificate of a Financial Officer delivered pursuant to Section 5.01(l) or setting forth the information described in clause (iv) to Section 5.01(d).
Pro Forma Balance Sheet has the meaning assigned to such term in Section 3.04(a).
Pro Forma Balance Sheet Date has the meaning assigned to such term in Section 3.04(a).
Pro Forma Basis, Pro Forma Compliance and Pro Forma Effect means, with respect to compliance with any test or covenant hereunder, that (A) to the extent applicable, the Pro Forma Adjustment shall have been made and (B) all Specified Transactions and the following transactions in connection therewith shall be deemed to have occurred as of the first day of the applicable period of measurement in such test or covenant: (a) income statement items (whether positive or negative) attributable to the property or Person subject to such Specified Transaction, (i) in the case of a sale, transfer or other disposition of all or substantially all Equity Interests in any Subsidiary of the Company or any division, product line, or facility used for operations of the Company or any of its Subsidiaries, shall be excluded, and (ii) in the case of a Permitted Acquisition or investment described in the definition of the term Specified Transaction, shall be included, (b) any retirement or repayment of Indebtedness and (c) any Indebtedness incurred or assumed by the Company or any of the Restricted Subsidiaries in connection therewith and if such Indebtedness has a floating or formula rate, shall have an implied rate of interest for the applicable period for purposes of this definition determined by utilizing the rate that is or would be in effect with respect to such Indebtedness as at the relevant date of determination; provided that, without limiting the application of the Pro Forma Adjustment pursuant to (A) above (but without duplication thereof), the foregoing pro forma adjustments may be applied to any such test or covenant solely to the extent that such adjustments are consistent with the definition of EBITDA and give effect to events (including operating expense reductions) that are (i) (x) directly attributable to such transaction, (y) expected to have a continuing impact on the Company and the Restricted Subsidiaries and (z) factually supportable or (ii) otherwise consistent with the definition of the term Pro Forma Adjustment. For the avoidance of doubt, any pro forma basis, compliance or effect for acquisitions or dispositions will include the corresponding impact on interest, capital expenditures and, if any, other fixed charges.
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Pro Forma Entity means any Acquired Entity or Business or any Converted Restricted Subsidiary.
Projections means any projections and any forward-looking statements of the Company and the Subsidiaries furnished to the Lenders or the Agent by or on behalf of Holdings, the Company or any of the Subsidiaries prior to the Effective Date.
Protective Advance has the meaning assigned to such term in Section 2.04.
Purchasing Debt Affiliate means any Affiliate of the Company, including the Sponsor, other than Holdings, the Company, any other Loan Party and the Subsidiaries of any of the foregoing.
Qualified Accounts means any investment account of the Borrowers and the Guarantors maintained with the Agent and subject to the Agents first-priority Lien and a control agreement in favor of the Agent.
Qualified Equity Interests means any Equity Interests that are not Disqualified Equity Interests.
Qualified Public Offering means the initial underwritten public offering of common Equity Interests of Holdings or any direct or indirect parent of Holdings or the Company pursuant to an effective registration statement filed with the SEC in accordance with the Securities Act (other than a registration statement on Form S-8 or any successor form).
Real Property Collateral Requirements means, with respect to any Mortgaged Property, each of the following, in form and substance reasonably satisfactory to the Agent:
(a) a Mortgage on such Mortgaged Property;
(b) evidence that a counterpart of the Mortgage has been recorded or delivered to the appropriate title insurance company subject to arrangements reasonably satisfactory to the Agent for the prompt recording thereof;
(c) an ALTA or other mortgagees title policy or amendment thereto (or a marked unconditional binder thereof insuring the Lien of the Mortgage at ordinary rates);
(d) an opinion of counsel in the jurisdiction in which such Mortgaged Property is located as to the recordability and enforceability of the applicable Mortgage in the relevant jurisdiction; and
(e) a flood zone certificate (or the Canadian equivalent) in favor of the Agent, and, if any Mortgaged Property with improvements located thereon is being identified as being within a special flood hazard area (or the Canadian equivalent), flood insurance in an amount required by applicable law.
Receivables means Accounts.
Recovery Event has the meaning specified in Section 6.05(f).
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Refinancing means the repayment or refinancing of all third party Indebtedness for borrowed money of Triwest and its Subsidiaries existing on the Effective Date and the rollover and restatement of amounts outstanding under the Existing Credit Agreement, but excluding (a) any capital or financing leases, deferred purchase price and purchase money or vendor financing arrangements, in each case outstanding on the Effective Date and (b) other Indebtedness set forth on Schedule 6.01.
Register has the meaning assigned to such term in Section 9.04.
Regulation T means Regulation T of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof, and any successor provision thereto.
Regulation U means Regulation U of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof, and any successor provision thereto.
Regulation X means Regulation X of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof, and any successor provision thereto.
Related Parties means, with respect to any specified Person, such Persons Affiliates and the respective directors, officers, employees, agents, advisors, other representatives and controlling persons of such Person and such Persons Affiliates.
Rent Reserve means an amount approximately equal to the aggregate monthly rent payable by the Borrowers or Canadian Guarantors on all leased properties in respect of which landlords or warehousemans waivers, in form and substance reasonably acceptable to the Agent, or Collateral Access Agreements, are not in effect or such greater amount as the Agent may, in its Permitted Discretion, reasonably determine to be appropriate.
Reorganization means, with respect to any Multiemployer Plan, the condition that such plan is in reorganization within the meaning of Section 4241 of ERISA.
Report means reports prepared by the Agent or another Person showing the results of appraisals, field examinations or audits pertaining to the Loan Parties assets from information furnished by or on behalf of the Loan Parties, after the Agent has exercised its rights of inspection pursuant to this Agreement, which Reports may be distributed to the Lenders by the Agent, subject to the provisions of Section 9.12.
Reportable Event means any reportable event, as defined in Section 4043(c) of ERISA or the regulations issued thereunder, other than those events as to which the 30-day notice period referred to in Section 4043(c) of ERISA has been waived.
Required Lenders means, at any time and subject to the limitations set forth in Section 9.04(g), Revolving Lenders having Revolving Exposure and unused Revolving Commitments representing more than 50% of the sum of the total Revolving Exposure and unused Revolving Commitments at such time (and, if at any time there are seven or more Lenders hereunder, then the Required Lenders must include at least three Lenders representing such percentage of the sum of the total Revolving Exposure and unused Revolving Commitments at such time); provided that (i) the Revolving Exposure and unused Revolving Commitments of any Defaulting Lender shall be disregarded in the determination of the Required Lenders at any time and (ii) if any Extended Revolving Commitments are outstanding, such Commitments shall be included in the determination of the Required Lenders.
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Required Reserve Notice means (a) so long as no Event of Default has occurred and is continuing, at least three days advance notice to the Borrower Agent, and (b) if an Event of Default has occurred and is continuing, one days advance notice to the Borrower Agent (or no advance notice to the Borrower Agent, as may reasonably be determined to be appropriate by the Agent in its Permitted Discretion to protect the interests of the Lenders).
Requirement of Law means, as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.
Reserves means all (if any) Availability Reserves (including Dilution Reserves, Rent Reserves, Priority Payable Reserves (with respect to the Canadian Borrowing Base only), and, if a Liquidity Event exists, Banking Services Reserves and Secured Swap Reserves), and any and all other reserves which the Agent deems necessary in its Permitted Discretion, all without duplication.
Reserve Percentage means the reserve percentage (expressed as a decimal, rounded up to the nearest 1/8th of 1%) applicable to member banks under regulations issued from time to time by the Board for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as Eurocurrency liabilities).
Reset Date has the meaning assigned to such term in Section 2.30(a).
Responsible Officer of any Person means the chief executive officer, the president, any vice president, the chief operating officer or any Financial Officer of such Person and any other officer or similar official thereof responsible for the administration of the obligations of such Person in respect of this Agreement, and, as to any document delivered on the Effective Date (but subject to the express requirements set forth in Article IV), shall include any secretary or assistant secretary of a Loan Party. Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party.
Restricted Debt Payment has the meaning assigned to such term in Section 6.08(b).
Restricted Indebtedness has the meaning assigned to such term in Section 6.08(b).
Restricted Payment means any dividend or other distribution (whether in cash, securities or other property) with respect to any Equity Interests in Holdings or the Company, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such Equity Interests in Holdings or the Company or any option, warrant or other right to acquire any such Equity Interests in Holdings or the Company.
Restricted Subsidiary means any Subsidiary that is not an Unrestricted Subsidiary.
Revolving Borrowing means a request for Revolving Loans.
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Revolving Commitment Increase has the meaning assigned to such term in Section 2.23(b).
Revolving Commitment Increase Date has the meaning assigned to such term in Section 2.23(b).
Revolving Commitments means the U.S. Revolving Commitments and the Canadian Revolving Commitments.
Revolving Exposure means, with respect to any Applicable Lender that is a U.S. Revolving Lender, its U.S. Revolving Exposure and, with respect to any Applicable Lender that is a Canadian Revolving Lender, its Canadian Revolving Exposure.
Revolving Extension Request has the meaning assigned to such term in Section 2.27(a).
Revolving Lender means, as of any date of determination, a U.S. Revolving Lender or a Canadian Revolving Lender, as applicable.
Revolving Loan means a U.S. Revolving Loan or a Canadian Revolving Loan, as applicable.
S&P means Standard & Poors Financial Services LLC, a wholly-owned subsidiary of the McGraw-Hill Companies, Inc., and any successor to its rating agency business.
Sale and Lease-Back Transaction has the meaning assigned to such term in Section 6.06.
SEC means the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of its functions.
Second Priority Lien means any Lien on any asset of any U.S. Loan Party that is granted under the Senior Secured Notes Security Documents and that, pursuant and subject to the provisions of the Intercreditor Agreement, is junior in priority to the Liens of the Agent in the Collateral.
Section 2.27 Additional Agreement has the meaning assigned to such term in Section 2.27(c).
Secured Obligations means, with respect to the U.S. Loan Parties, all Obligations, and, with respect to the Canadian Loan Parties, the Canadian Obligations.
Secured Parties means (a) with respect to Liens granted to the Agent to secure all Secured Obligations, the Secured Parties, as defined in the U.S. Security Agreement, and (b) with respect to Liens granted to the Agent to secure Secured Obligations consisting of Canadian Obligations, the Secured Parties, as defined in the Canadian Security Agreements.
Secured Swap Obligations means all Swap Obligations owing to the Agent, a Joint Lead Arranger, a Revolving Lender or any Affiliate or branch thereof and with respect to which the Company (or other Loan Party) and the Revolving Lender or other Person referred to above in this definition party thereto shall have delivered (except in the case of the Agent) written notice to the Agent, at or prior to the time that the Swap Agreement relating to such obligation is entered into or, if later, the time that such Revolving Lender becomes a party to this Agreement, that such a transaction has been entered into and that it constitutes a Secured Swap Obligation entitled to the benefits of the Collateral Documents and the Intercreditor Agreement. For the avoidance of doubt, all Swap Obligations owing to the Agent shall constitute Secured Swap Obligations.
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Secured Swap Reserves means all Reserves which the Agent from time to time after the occurrence and during the continuation of a Liquidity Event establishes in its Permitted Discretion as being appropriate to reflect reasonably anticipated Secured Swap Obligations then provided or outstanding.
Securities Act means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder.
Security Agreements means, collectively, (a) the U.S. Security Agreement and (b) each Canadian Security Agreement.
Seller means 1278104 Alberta Inc., a corporation incorporated under the laws of the province of Alberta, Canada.
Selling Shareholder means each shareholder of Seller referenced in the Canadian Acquisition Agreement.
Senior Secured Leverage Ratio means, as of the date of determination, the ratio of (a) the Consolidated Total Indebtedness of the Company and its Subsidiaries as of the last day of the most recent Test Period ended on or prior to such date of determination, which Indebtedness is secured by Liens, less an amount equal to the amount of any cash and Permitted Investments of the Company and its Subsidiaries as of such date, to (b) EBITDA of the Company and its Subsidiaries for such Test Period.
Senior Secured Note Documents means the Senior Secured Note Indenture and all other instruments, agreements and other documents evidencing the Senior Secured Notes or providing for any Guarantee or other right in respect thereof.
Senior Secured Note Indenture means the indenture under which the Senior Secured Notes are issued.
Senior Secured Notes means the Companys 9 3/4% Senior Secured Fixed Rate Notes due 2017, in an initial aggregate principal amount of $250,000,000.
Senior Secured Notes Security Documents means the Noteholder Lien Security Documents (as defined in the Intercreditor Agreement).
Senior Subordinated Notes means the Companys 11.5% Senior Subordinated Notes due 2018, in an initial aggregate principal amount of $200,000,000.
Senior Subordinated Note Documents means the indenture and note purchase agreement under which the Senior Subordinated Notes are issued and/or governed and all other instruments, agreements and other documents evidencing the Senior Subordinated Notes or providing for any Guarantee or other right in respect thereof.
Settlement and Settlement Date have the meanings assigned to such terms in Section 2.05(b).
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Specified Existing Revolving Commitment Class has the meaning assigned to such term in Section 2.27.
Specified Payment means (a) any investment, loan or advance pursuant to Section 6.04(v), (b) any Restricted Payment pursuant to Section 6.08(a)(x), and (c) any Restricted Debt Payment pursuant to Section 6.08(b)(vi).
Specified Transaction means, with respect to any period, any investment (including any acquisition), sale, transfer or other disposition of assets, incurrence or repayment of Indebtedness, Restricted Payment, Subsidiary designation or other event that by the terms of the Loan Documents requires Pro Forma Compliance with a test or covenant hereunder or requires such test or covenant to be calculated on a Pro Forma Basis.
Sponsor means TPG Capital, L.P. and its Affiliates but not including, however, any portfolio companies of the foregoing.
Subordinated Indebtedness of a Person means any Indebtedness of such Person the payment of which is subordinated to payment of the Secured Obligations on terms at least as favorable to the Lenders as those contained in the Senior Subordinated Note Documents.
Subordinated Vendor Inventory Eligibility Conditions means each of the following conditions precedent, the satisfaction of each of which, as reasonably determined by the Agent, shall be a condition to the inclusion in a Borrowing Base of any Eligible Subordinated Vendor Inventory:
(i) the relevant Loan Parties shall have given the Agent at least ten (10) Business Days prior written notice of their intent to include Inventory subject to a Vendor Lien in a Borrowing Base;
(ii) the relevant Loan Parties shall have given the Agent copies of the security agreement and all related documentation delivered by or on behalf of the applicable vendor and the applicable Borrower or Canadian Guarantor at least ten (10) Business Days prior to the proposed date of inclusion of such Inventory in a Borrowing Base; and
(iii) the relevant Loan Parties and the applicable vendor shall have executed and delivered to the Agent a duly executed and completed Vendor Lien Subordination Agreement (in form substantially similar to Exhibit H or such other form as is reasonably acceptable to the Agent) at least ten (10) Business Days prior to the proposed date of inclusion of such Inventory in a Borrowing Base.
Eligible Subordinated Vendor Inventory shall be included in a Borrowing Base on the 5th Business Day after the Agents determination that each of the foregoing conditions has been satisfied. If at any time any of the foregoing conditions ceases to be satisfied, the Eligible Subordinated Vendor Inventory shall be deemed ineligible and excluded from the Borrowing Bases.
Subordinated Vendor Lien means a Vendor Lien that has been subordinated to the Lien of the Agent on the Collateral (i) in the case of the Existing Subordinated Vendors, to the extent and in the manner provided in the Existing Subordination Agreements, (ii) in the case of each other vendor, to the extent and in the manner provided in the Vendor Lien Subordination Agreement executed by such vendor and with respect to this clause (ii), subject to the satisfaction of each of the Subordinated Vendor Inventory Eligibility Conditions.
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subsidiary means, with respect to any Person (the parent) at any date, any corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent.
Subsidiary means, unless the context otherwise requires, a subsidiary of the Company. Notwithstanding the foregoing (and except for purposes of Sections 3.06, 3.09, 3.10, 3.14, 5.04, 5.08, and the definition of Unrestricted Subsidiary contained herein), an Unrestricted Subsidiary shall be deemed not to be a Subsidiary of the Company or any of its Subsidiaries for purposes of this Agreement.
Super Majority Lenders means, at any time and subject to the limitations set forth in Section 9.04(g), Revolving Lenders having Revolving Exposure and unused Revolving Commitments representing more than 66 2/3% of the sum of the total Revolving Exposure and unused Revolving Commitments at such time; provided that (i) the Revolving Exposure and unused Revolving Commitments of any Defaulting Lender shall be disregarded in the determination of the Super Majority Lenders at any time and (ii) if any Extended Revolving Commitments are outstanding, such Commitments shall be included in the determination of the Super Majority Lenders.
Swap Agreement means any agreement with respect to any Derivative Transaction between the Company or any Subsidiary and any other Person.
Swap Obligations of a Person means any and all obligations of such Person, whether absolute or contingent and however and whenever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (a) any and all Swap Agreements, and (b) any and all cancellations, buy backs, reversals, terminations or assignments of any Swap Agreement transaction.
Swingline Borrowing Request means a request by Borrower Agent for a Swingline Loan in accordance with Section 2.05 and substantially in the form attached hereto as Exhibit F-2, or such other form as shall be approved by the Agent (acting reasonably).
Swingline Exposure means, with respect to any Revolving Lender, at any time, such Revolving Lenders Applicable Percentage of the Swingline Loans outstanding at such time.
Swingline Lender means the U.S. Swingline Lender or the Canadian Swingline Lender.
Swingline Loan means a U.S. Swingline Loan or a Canadian Swingline Loan.
Taxes means any and all present or future taxes, levies, imposts, duties, deductions, charges or withholdings imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
Termination Date means the date on which all Obligations are indefeasibly paid in full in cash (other than Secured Swap Obligations, Banking Services Obligations and any contingent or inchoate obligations not then due and payable) and the Commitments and all Letters of Credit are terminated (other than Letters of Credit that have been cash collateralized on terms set forth in Section 2.06(j) or back-stopped following the termination of the Commitments).
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Test Period means, for any determination under this Agreement, the four consecutive fiscal quarters of the Company then last ended and for which financial statements have been delivered to the Agent pursuant to Section 5.01(a) or Section 5.01(b), as applicable.
Title Insurance Company means the title insurance company providing the Title Insurance Policies.
Title Insurance Policies means the lenders title insurance policies issued to Agent with respect to the Mortgaged Properties.
TopCo means Accelerate Holdings Corp. a Delaware corporation.
Total Assets means the total assets of the Company and its Subsidiaries, determined on a consolidated basis in accordance with GAAP, as shown on the most recent balance sheet of the Company or such other Person as may be expressly stated.
Transaction Expenses means any fees or expenses incurred or paid by or on behalf of the Sponsor, TopCo, Holdings, the Company or any of their respective Subsidiaries or Affiliates in connection with the Transactions and the transactions contemplated hereby and thereby.
Transactions means, collectively, (a) the Canadian Acquisition and the payment of the Canadian Acquisition Funds, (b) the Refinancing, (c) the amendment and restatement of the Existing Credit Agreement and other Loan Documents and the funding of the Revolving Loans on the Effective Date and the use of the proceeds thereof, (d) the consummation of any other transactions connected with the foregoing and (e) the payment of Transaction Expenses.
Trigger Event means, at any time, that Excess Availability is less than the greater of (a) $25,000,000 and (b) 10.0% of the lesser of (i) the aggregate Revolving Commitments and (ii) the Aggregate Borrowing Base. Upon the occurrence of any Trigger Event, such Trigger Event shall be deemed to be continuing notwithstanding that Excess Availability may thereafter exceed the amount set forth in the preceding sentence unless and until Excess Availability exceeds such amount for thirty (30) consecutive days, in which event a Trigger Event shall no longer be deemed to be continuing.
Triwest means Triwest Trading (Canada) Ltd., a corporation organized under the laws of Canada.
Triwest Loan has the meaning ascribed to such term in Section 5.11(b)(iii).
Type, when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to (a) in the case of Loans to the U.S. Borrowers, the Adjusted LIBOR Rate or the Alternate Base Rate, (b) in the case of Loans to the Canadian Borrowers denominated in Dollars, the Adjusted LIBOR Rate or the Canadian Base Rate, and (c) in the case of Loans to the Canadian Borrowers denominated in Canadian Dollars, the Canadian BA Rate or the Canadian Prime Rate.
UCC means the Uniform Commercial Code as in effect from time to time in the State of New York or any other state the laws of which are required to be applied in connection with the issue of perfection of security interests.
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Unfinanced Capital Expenditures means, with respect to any Person and for any period, Capital Expenditures made by such Person during such period and not financed from any Net Cash Proceeds or Revolving Loans.
Uncontrolled Cash means all amounts from time to time on deposit in the Designated Disbursement Account.
Unfunded Pension Liability means the excess of a Plans benefit liabilities under Section 4001(a)(16) of ERISA or other applicable law, over the current value of that Plans assets, determined in accordance with the assumptions used for funding the Plan pursuant to Section 412 of the Code or other applicable laws for the applicable plan year and includes, with respect to any Canadian Pension Plan which provides benefits on a defined benefit basis, any unfunded liability, solvency deficiency or wind up deficiency as determined for the purposes of the PBA.
Unrestricted Subsidiary means any Subsidiary of the Company designated by the Company after the Effective Date as an Unrestricted Subsidiary hereunder by written notice to the Agent in accordance with Section 5.12.
Unsubordinated Vendor Debt means Vendor Debt that is not Subordinated Indebtedness.
U.S. Borrower means any of the Company, Am-Pac Tire Dist. Inc., a California corporation, and each other Domestic Subsidiary of the Company that becomes a U.S. Borrower pursuant to Section 5.11(a).
U.S. Borrower Percentage has the meaning assigned to such term in Section 2.25(f).
U.S. Borrowers Maximum Liability has the meaning assigned to such term in Section 2.25(e).
U.S. Borrowing Base means, at any time, (a) 85% of the Value of Eligible Receivables of the U.S. Borrowers, plus (b) the lesser of (i) 70% of the Value of Eligible Tire Inventory of the U.S. Borrowers and (ii) 85% of Net Orderly Liquidation Value of Eligible Tire Inventory of the U.S. Borrowers, plus (c) the lesser of (i) 50% of the Value of Eligible Non-Tire Inventory of the U.S. Borrowers and (ii) 85% of the Net Orderly Liquidation Value of Eligible Non-Tire Inventory of the U.S. Borrowers, minus (d) without duplication (including without duplication of clause (d) of the definition of Canadian Borrowing Base), the then amount of all Availability Reserves and other Reserves as the Agent may at any time and from time to time in the exercise of its Permitted Discretion establish or modify in accordance with the provisions of Section 2.22. The U.S. Borrowing Base at any time shall be determined by reference to the most recent Borrowing Base Certificate delivered to the Agent pursuant to Section 5.01(h) and adjusted by the Agent in the exercise of its Permitted Discretion and in accordance with Section 2.22 based upon additional information, if any, received after the date of delivery of such Borrowing Base Certificate. With respect to any Borrowing Base Certificate delivered pursuant to the final proviso at the end of Section 5.01(h), the U.S. Borrowing Base shall be calculated immediately after giving effect to the applicable acquisition, subject, in each case, to the requirements of the last paragraph of Section 6.04.
U.S. Collateral means any and all property owned, leased or operated by a Person subject to a security interest or Lien under the Collateral Documents and any and all other property of any Loan Party, now existing or hereafter acquired, that may at any time be or become subject to a security interest or Lien in favor of the Agent, on behalf of itself and the Secured Parties, to secure the U.S. Obligations or Canadian Obligations, as applicable; provided however that U.S. Collateral shall not at any time include any Margin Stock.
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U.S. Commitment means a U.S. Revolving Commitment, including an Extended U.S. Revolving Commitment.
U.S. Excess Availability means, at any time, an amount equal to the sum of (a) the lesser of (i) the aggregate total U.S. Revolving Commitments at such time and (ii) the U.S. Borrowing Base at such time (as determined by reference to the most recent Borrowing Base Certificate delivered to the Agent pursuant to Section 5.01(h)), plus (b) all unrestricted cash and cash equivalents of the U.S. Loan Parties at such time (to the extent held in Qualified Accounts), minus (c) the aggregate U.S. Revolving Exposures (including the U.S. LC Exposure) of all U.S. Revolving Lenders at such time.
U.S. Guaranteed Obligations has the meaning assigned to such term in Section 10.01.
U.S. Guarantor Percentage has the meaning assigned to such term in Section 10.01.
U.S. Guarantors means Holdings, ATD Acquisition Co. IV, a Delaware corporation, Firestone of Denham Springs, Inc., d/b/a Consolidated Tire and Oil, a Louisiana corporation, Tire Wholesalers, Inc., a Washington corporation and each other Domestic Subsidiary (other than any Excluded Subsidiary) that hereafter becomes a party to this Agreement as a Loan Party and a Guarantor pursuant to a Joinder Agreement, and their respective successors and assigns.
U.S. LC Collateral Account has the meaning assigned to such term in Section 2.06(j).
U.S. LC Disbursement means a payment made by an Applicable Issuing Bank pursuant to a drawing on a U.S. Letter of Credit.
U.S. LC Exposure means, at any time of determination, the sum of (a) the aggregate undrawn amount of all outstanding U.S. Letters of Credit at such time plus (b) the aggregate amount of all U.S. LC Disbursements that have not yet been reimbursed by or on behalf of the Company or any other U.S. Loan Party at such time, less (c) the amount then on deposit in the U.S. LC Collateral Account. The U.S. LC Exposure of any U.S. Revolving Lender at any time shall be its Applicable Percentage of the total U.S. LC Exposure at such time.
U.S. Letter of Credit means a Letter of Credit issued for the account of a U.S. Borrower.
U.S. Loan Party means a U.S. Borrower or a U.S. Guarantor.
U.S. Non-Paying Borrower has the meaning assigned to such term in Section 2.25(f).
U.S. Non-Paying Guarantor has the meaning assigned to such term in Section 10.09.
U.S. Obligations mean the collective reference to (a) the due and punctual payment of (i) the principal of and premium, if any, and interest at the applicable rate provided in this Agreement (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Loans made to the U.S. Borrowers, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, (ii) each payment required to be made by a U.S. Borrower under this Agreement in respect of any U.S. Letter of Credit, when and as due, including payments in respect of
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reimbursement of disbursements, interest thereon (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) and obligations to provide cash collateral, and (iii) all other monetary obligations, including fees, costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), of a U.S. Borrower or any other U.S. Loan Party to any of the Secured Parties under this Agreement and the other Loan Documents, (b) the due and punctual performance of all covenants, agreements, obligations and liabilities of the U.S. Borrowers under or pursuant to this Agreement and the other Loan Documents, (c) the due and punctual payment and performance of all the covenants, agreements, obligations and liabilities of each other U.S. Loan Party under or pursuant to this Agreement or the other Loan Documents, (d) the due and punctual payment and performance of all Secured Swap Obligations of a U.S. Loan Party and (e) the due and punctual payment and performance of all Banking Services Obligations of a U.S. Loan Party. Notwithstanding the foregoing, (i) the obligations of Holdings, the Company or any Subsidiary in respect of any Secured Swap Obligations or any Banking Services Obligations of a U.S. Loan Party shall be secured and guaranteed pursuant to the Collateral Documents and the Loan Guaranty only to the extent that, and for so long as, the other U.S. Obligations are so secured and guaranteed and (ii) any release of U.S. Collateral or Guarantors effected in the manner permitted by this Agreement and the other Loan Documents shall not require the consent of the holders of Secured Swap Obligations or the holders of Banking Services Obligations of a U.S. Loan Party.
U.S. Obligations Paying Borrower has the meaning assigned to such term in Section 2.25(f).
U.S. Obligations Paying Guarantor has the meaning assigned to such term in Section 10.09.
U.S. Overadvance means at any time the amount by which the aggregate outstanding U.S. Revolving Exposures exceed the U.S. Borrowing Base.
U.S. Overadvance Condition means and is deemed to exist any time the aggregate outstanding U.S. Revolving Exposures exceed the U.S. Borrowing Base.
U.S. Overadvance Loan means an ABR Loan made to a U.S. Borrower at a time when a U.S. Overadvance Condition exists.
U.S. Prime Rate means the rate of interest announced by the Agent from time to time as its prime rate. Such rate is set by the Agent on the basis of various factors, including its costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above or below such rate. Any change in such rate announced by the Agent shall take effect at the opening of business on the day specified in the public announcement of such change.
U.S. Protective Advance means a Protective Advance made to or for the account of a U.S. Borrower.
U.S. Revolving Commitment means, with respect to each U.S. Revolving Lender, the commitment of such U.S. Revolving Lender to make U.S. Revolving Loans and to acquire participations in U.S. Protective Advances, U.S. Letters of Credit and U.S. Swingline Loans hereunder, expressed as an amount representing the maximum possible aggregate amount of such U.S. Revolving Lenders U.S. Revolving Exposure hereunder, as such commitment may be (a) reduced from time to time pursuant to
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Section 2.09, (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.04 and (c) increased from time to time pursuant to Section 2.23. The initial amount of each U.S. Revolving Lenders U.S. Revolving Commitment is set forth on the Commitment Schedule, or in the Assignment and Assumption pursuant to which such Lender shall have assumed its U.S. Revolving Commitment, as applicable. The aggregate amount of the U.S. Revolving Lenders U.S. Revolving Commitments as of the Effective Date is $850,000,000.
U.S. Revolving Exposure means, with respect to any U.S. Revolving Lender at any time, the sum of the outstanding principal amount of such Lenders U.S. Revolving Loans and its U.S. LC Exposure and an amount equal to its Applicable Percentage of the aggregate principal amounts of U.S. Swingline Loans and U.S. Protective Advances outstanding at such time.
U.S. Revolving Lender means, as of any date of determination, a Lender with a U.S. Revolving Commitment or, if the U.S. Revolving Commitments have terminated or expired, a Lender with U.S. Revolving Exposure. Unless the context otherwise requires, the term U.S. Revolving Lenders includes the U.S. Swingline Lender.
U.S. Revolving Loan means the loans and advances made by the U.S. Revolving Lenders pursuant to this Agreement, including a Loan made pursuant to Section 2.01(a), U.S. Swingline Loans and U.S. Protective Advances.
U.S. Security Agreement means that certain Second Amended and Restated Pledge and Security Agreement dated as of the date hereof, between the U.S. Loan Parties and the Agent.
U.S. Swingline Lender means BANA, in its capacity as lender of U.S. Swingline Loans hereunder.
U.S. Swingline Loan means a Loan made by the U.S. Swingline Lender pursuant to Section 2.05.
Value with reference to the value of Eligible Tire Inventory or Eligible Non-Tire Inventory, as the case may be, on any date, means value determined on the basis of the lower of cost or market value of such Eligible Tire Inventory or Eligible Non-Tire Inventory, as the case may be, with the cost thereof calculated on a FIFO (or first in, first out) accounting basis as determined in accordance with GAAP, and with reference to Eligible Receivables, the book value thereof determined in accordance with GAAP.
Vendor Debt means any Indebtedness of the Company or any Subsidiary to any vendor of tires.
Vendor Lien means a Lien created in favor of a vendor of tires to a Borrower or a Canadian Guarantor, that encumbers exclusively all or any of such vendors branded tire inventory and does not encumber any proceeds thereof or any other Collateral.
Vendor Lien Subordination Agreement means an agreement substantially in the form of Exhibit H hereto (or such other form as is reasonably satisfactory to the Agent (it being understood that the Existing Subordination Agreements are acceptable to the Agent)) whereby, among other things, a vendor of tires subordinates its Vendor Lien to the Lien of the Agent on the Collateral.
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Withdrawal Liability means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
Withholding Agent means any Borrower or the Agent.
SECTION 1.02 Classification of Loans. For purposes of this Agreement, Loans may be classified and referred to by Class (e.g., a Revolving Loan) or by Type (e.g., a LIBOR Rate Loan) or by Class and Type (e.g., a LIBOR Rate Loan that is a Revolving Loan).
SECTION 1.03 Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words include, includes and including shall be deemed to be followed by the phrase without limitation. The word will shall be construed to have the same meaning and effect as the word shall. Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, restated, amended and restated, extended, supplemented or otherwise modified (subject to any restrictions on such amendments, restatements, amendment and restatements, extensions, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Persons successors and permitted assigns, (c) the words herein, hereof and hereunder, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words asset and property shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.
SECTION 1.04 Accounting Terms; GAAP. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that, if the Company notifies the Agent that the Company requests an amendment to any provision hereof to eliminate the effect of any change occurring after the Effective Date in GAAP or in the application thereof on the operation of such provision (or if the Agent notifies the Company that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance with the provisions of Section 9.02.
SECTION 1.05 Amendment and Restatement of Existing Credit Agreement. This Agreement amends and restates the Existing Credit Agreement, and on and after the date hereof, each reference in any Loan Document to the Credit Agreement, therein, thereof, thereunder or words of similar import when referring to the Existing Credit Agreement shall mean, and shall hereafter be a reference to, the Existing Credit Agreement, as amended and restated by this Agreement. Each Loan Party hereby acknowledges and agrees, as of the date hereof, for itself and for each of its Subsidiaries, that it does not have any claims, offsets, counterclaims, cross-complaints, defenses or demands of any kind or nature whatsoever under or relating to the Existing Credit Agreement, the other Loan Documents (as defined in the Existing Credit Agreement) or any of the obligations existing thereunder that could be asserted to reduce or eliminate all or any part of the obligation of any Loan Party to pay any amounts owed thereunder, or to assert any claim for affirmative relief or damages against any lender party thereto. Nothing contained herein is intended to be or operate as a novation or an accord and satisfaction of the Existing Credit Agreement or the Secured Obligations evidenced or secured thereby or provided for thereunder.
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SECTION 1.06 Interpretation (Quebec). For purposes of any Collateral located in the Province of Quebec or charged by any deed of hypothec (or any other Loan Document) and for all other purposes pursuant to which the interpretation or construction of a Loan Document may be subject to the laws of the Province of Quebec or a court or tribunal exercising jurisdiction in the Province of Quebec, (a) personal property shall be deemed to include movable property, (b) real property shall be deemed to include immovable property, (c) tangible property shall be deemed to include corporeal property, (d) intangible property shall be deemed to include incorporeal property, (e) security interest, mortgage and lien shall be deemed to include a hypothec, prior claim and a resolutory clause, (f) all references to filing, registering or recording under the UCC or the PPSA shall be deemed to include publication under the Civil Code of Quebec, (g) all references to perfection of or perfected Liens shall be deemed to include a reference to an opposable or set up Liens as against third parties, (h) any right of offset, right of setoff or similar expression shall be deemed to include a right of compensation, (i) goods shall be deemed to include corporeal movable property other than chattel paper, documents of title, instruments, money and securities, (j) an agent shall be deemed to include a mandatary, (k) construction liens shall be deemed to include legal hypothecs, (l) joint and several shall be deemed to include solidary, (m) gross negligence or willful misconduct shall be deemed to be intentional or gross fault, (n) beneficial ownership shall be deemed to include ownership on behalf of another as mandatary, (o) easement shall be deemed to include servitude, (p) priority shall be deemed to include prior claim, (q) survey shall be deemed to include certificate of location and plan, and (r) fee simple title shall be deemed to include absolute ownership. The parties hereto confirm that it is their wish that this Agreement and any other document executed in connection with the transactions contemplated herein be drawn up in the English language only (except if another language is required under any applicable law) and that all other documents contemplated thereunder or relating thereto, including notices, may also be drawn up in the English language only. Les parties aux présentes confirment que cest leur volonté que cette convention et les autres documents de crédit soient rédigés en langue anglaise seulement et que tous les documents, y compris tous avis, envisagés par cette convention et les autres documents peuvent être rédigés en la langue anglaise seulement (sauf si une autre langue est requise en vertu dune loi applicable).
SECTION 1.07 Currency Calculations. Unless expressly provided otherwise, all references in the Loan Documents to Loans, Letters of Credit, Obligations, Commitments, Borrowing Base components and other amounts shall be denominated in Dollars. The Dollar Equivalent Amount of any amounts denominated or reported under a Loan Document in a currency other than Dollars shall be determined by the Agent on a daily basis, based on the current Exchange Rate. Borrowers shall report Value and other Borrowing Base components to the Agent in the currency invoiced by the Loan Parties or shown in the Loan Parties financial records, and unless expressly provided otherwise, herein shall deliver financial statements and calculate financial covenants in Dollars. Notwithstanding anything herein to the contrary, if any Obligation is funded and expressly denominated in a currency other than Dollars, the Loan Parties shall repay such Obligation in such other currency.
ARTICLE II.
THE CREDITS
SECTION 2.01 Revolving Commitments . (a) Subject to the terms and conditions set forth herein, each U.S. Revolving Lender agrees, severally and not jointly, to make U.S. Revolving Loans to the U.S. Borrowers from time to time during the Availability Period in an aggregate principal amount that will not result in (i) such U.S. Revolving Lenders U.S. Revolving Exposure exceeding such U.S. Revolving Lenders U.S. Revolving Commitment, or (ii) the total U.S. Revolving Exposures exceeding the lesser of (x) the sum of the total U.S. Revolving Commitments and (y) the U.S. Borrowing Base (subject to the Agents authority, in its sole discretion, to make U.S. Protective Advances and U.S. Overadvances pursuant to the terms of Section 2.04). Within the foregoing limits and subject to the terms and conditions set forth herein, the U.S. Borrowers may borrow, repay and reborrow U.S. Revolving Loans.
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(b) Subject to the terms and conditions set forth herein, each Canadian Revolving Lender agrees, severally and not jointly, to make Canadian Revolving Loans to a Canadian Borrower from time to time during the Availability Period in an aggregate principal amount that will not result in (i) such Canadian Revolving Lenders Canadian Revolving Exposure exceeding such Canadian Revolving Lenders Canadian Revolving Commitment, or (ii) the total Canadian Revolving Exposures exceeding the lesser of (x) the sum of the total Canadian Revolving Commitments and (y) the Canadian Borrowing Base (subject to the Agents authority, in its sole discretion, to make Canadian Protective Advances and Canadian Overadvances pursuant to the terms of Section 2.04). Within the foregoing limits and subject to the terms and conditions set forth herein, a Canadian Borrower may borrow, repay and reborrow Canadian Revolving Loans.
SECTION 2.02 Revolving Loans and Borrowings
(a) Each U.S. Revolving Loan (other than a U.S. Swingline Loan or a U.S. Protective Advance) shall be made as part of a Borrowing consisting of Loans of the same Class and Type made by the U.S. Revolving Lenders ratably in accordance with their respective U.S. Commitments of the applicable Class. Each Canadian Revolving Loan (other than a Canadian Swingline Loan or a Canadian Protective Advance) shall be made as part of a Borrowing consisting of Loans of the same Class and Type made by the Canadian Revolving Lenders ratably in accordance with their respective Canadian Commitments of the applicable Class. Any Protective Advance and any Swingline Loan shall be made in accordance with the procedures set forth in Sections 2.04 and 2.05, respectively.
(b) Subject to Section 2.14, each Revolving Borrowing shall be comprised entirely of (i) in the case of Revolving Loans to the U.S. Borrowers, ABR Loans or LIBOR Rate Loans, (ii) in the case of Revolving Loans to a Canadian Borrower denominated in Dollars, Canadian Base Rate Loans or LIBOR Rate Loans, and (iii) in the case of Revolving Loans to a Canadian Borrower denominated in Canadian Dollars, Canadian Prime Rate Loans or Canadian BA Rate Loans, in each case, as the Borrower Agent may request in accordance herewith. Each Swingline Loan and each Protective Advance (x) made for the account of the U.S. Borrowers shall be an ABR Loan, (y) made to or for the account of a Canadian Borrower in Dollars shall be a Canadian Base Rate Loan, and (z) made to or for the account of a Canadian Borrower in Canadian Dollars shall be a Canadian Prime Rate Loan. Each Revolving Lender at its option may make any Interest Period Loan by causing any domestic or foreign branch or Affiliate of such Revolving Lender to make such Revolving Loan; provided that (i) any exercise of such option shall not affect the obligation of the Borrowers within a Borrowing Group to repay such Revolving Loan made to such Borrower Group in accordance with the terms of this Agreement and (ii) in exercising such option, such Revolving Lender shall use reasonable efforts to minimize any increase in the Adjusted LIBOR Rate or the Canadian BA Rate or increased costs to the Borrowers resulting therefrom (which obligation of such Lender shall not require it to take, or refrain from taking, actions that it determines would result in increased costs for which it will not be compensated hereunder or that it otherwise determines would be disadvantageous to it and in the event of such request for costs for which compensation is provided under this Agreement, the provisions of Section 2.15 shall apply).
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(c) At the commencement of each Interest Period for any Revolving Borrowing that is an Interest Period Loan, such Revolving Borrowing shall comprise an aggregate principal amount that is an integral multiple of (i) $500,000 and not less than $1,000,000 in the case of LIBOR Rate Loans or (ii) Cdn $500,000 and not less than Cdn $1,000,000 in the case of Canadian BA Rate Loans. Each Revolving Borrowing that is an ABR Loan or a Canadian Base Rate Loan when made shall be in a minimum principal amount of $500,000 and each Revolving Borrowing that is a Canadian Prime Rate Loan when made shall be in a minimum principal amount of Cdn $500,000; provided that a Floating Rate Loan to a Borrower within a Borrower Group may be made in a lesser aggregate amount that is equal to the entire unused balance of the total Revolving Commitments of such Borrower Group or that is required to finance the reimbursement of an LC Disbursement with respect to such Borrower Group as contemplated by Section 2.06(e). Revolving Borrowings of more than one Type and Class may be outstanding at the same time; provided that there shall not at any time be more than a total of, with respect to LIBOR Rate Loans, ten different Interest Periods in effect at any time outstanding, and with respect to Canadian BA Rate Loans, five different Interest Periods in effect at any time outstanding.
(d) Notwithstanding any other provision of this Agreement, the Borrower Agent shall not be entitled to request, or to elect to convert or continue, any Revolving Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date.
SECTION 2.03 Requests for Revolving Borrowings. To request a Revolving Borrowing, the Borrower Agent shall notify the Agent of such request either in writing by delivery of a Borrowing Request (by hand or facsimile) signed by the Borrower Agent (a) in the case of an Interest Period Loan other than a Canadian BA Rate Loan, not later than 12:00 noon, New York City time, two (2) Business Days before the date of the proposed Borrowing, (b) in the case of a Canadian BA Rate Loan, not later than 12:00 noon, Toronto, Ontario time, three (3) Business Days before the date of the proposed Borrowing, or (c) in the case of a Floating Rate Loan (including any such notice of a Floating Rate Loan to finance the reimbursement of an LC Disbursement as contemplated by Section 2.06(e)), not later than 12:00 noon, New York City time, or with respect to Canadian Prime Rate Loans or Canadian Base Rate Loans, 12:00 noon, Toronto, Ontario time, on the date of the proposed Borrowing. Each such written Borrowing Request shall specify the following information in compliance with Section 2.01:
(i) the aggregate amount of the requested Revolving Borrowing;
(ii) the currency in which such Loans are to be denominated (and if not specified, it shall be deemed a request for (A) ABR Loans in Dollars if on behalf of a U.S. Borrower, and (B) Canadian Prime Rate Loans in Canadian Dollars if on behalf of a Canadian Borrower);
(iii) whether the Revolving Borrowing requested is to be a Floating Rate Loan or an Interest Period Loan (and if not specified, the Revolving Borrowing requested shall be deemed a request for (A) ABR Loans if requested for or on behalf of a U.S. Borrower, and (B) Canadian Prime Rate Loans if requested for and on behalf of a Canadian Borrower, unless the request specifies such Loans are to be denominated in Dollars in which case it shall be deemed a request for Canadian Base Rate Loans);
(iv) the date of such Revolving Borrowing, which shall be a Business Day;
(v) in the case of Interest Period Loans, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term Interest Period (and, if not specified, the Interest Period requested shall be deemed a request for an Interest Period Loan with an Interest Period of one months duration);
(vi) the location and number of the applicable Borrowers account to which funds are to be disbursed; and
(vii) the identity of the Borrower of such Revolving Borrowing.
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Promptly following receipt of a Borrowing Request in accordance with this Section, the Agent shall advise each Applicable Lender of the details thereof and of the amount of such Applicable Lenders Loan to be made as part of the requested Borrowing.
SECTION 2.04 Protective Advances and Overadvances. (a) Subject to the limitations set forth below (and notwithstanding anything to the contrary in Section 4.02), the Agent is authorized by the Borrowers and the Revolving Lenders, from time to time in the Agents sole discretion (but shall have absolutely no obligation), to make Loans to the Borrowers of a Borrower Group, on behalf of all Applicable Lenders with respect to such Borrower Group whether or not any condition precedent set forth in Section 4.02 has been satisfied or waived, including the failure to comply with the conditions set forth in Section 2.01, which the Agent, in its Permitted Discretion, deems necessary or desirable (x) to preserve or protect the Collateral, or any portion thereof, (y) to enhance the likelihood of, or maximize the amount of, repayment of the Loans and other Obligations, or (z) to pay any other amount chargeable to or required to be paid by the Borrowers within such Borrower Group pursuant to the terms of this Agreement, including payments of reimbursable expenses (including costs, fees, and expenses as described in Section 9.03) and other sums payable by the Borrowers within such Borrower Group under the Loan Documents (each such Loan made to the U.S. Borrowers, a U.S. Protective Advance; each such Loan made to a Canadian Borrower, a Canadian Protective Advance; and U.S. Protective Advances and Canadian Protective Advances, Protective Advances and each a Protective Advance). Any U.S. Protective Advance may be made in a principal amount that would cause the aggregate U.S. Revolving Exposure to exceed the U.S. Borrowing Base; provided that no U.S. Protective Advance may be made to the extent that, after giving effect to such U.S. Protective Advance (together with the outstanding principal amount of all other U.S. Protective Advances), the aggregate principal amount of U.S. Protective Advances outstanding hereunder would exceed, as determined on the date of such proposed U.S. Protective Advance, and is not known by the Agent to exceed, together with U.S. Overadvances described in Section 2.04(c), 10% of the U.S. Revolving Commitments at such time, or to exist for more than thirty (30) consecutive Business Days or more than forty-five (45) Business Days in any twelve month period, and provided further that, the aggregate amount of outstanding U.S. Protective Advances plus any U.S. Overadvances described in Section 2.04(c) plus the aggregate of all other U.S. Revolving Exposure shall not exceed the aggregate total U.S. Commitments. Any Canadian Protective Advance may be made in a principal amount that would cause the aggregate Canadian Revolving Exposure to exceed the Canadian Borrowing Base; provided that no Canadian Protective Advance may be made to the extent that, after giving effect to such Canadian Protective Advance (together with the outstanding principal amount of all other Canadian Protective Advances), the aggregate Dollar Equivalent Amount of principal amount of Canadian Protective Advances outstanding hereunder would exceed, as determined on the date of such proposed Canadian Protective Advance, and is not known by the Agent to exceed, together with Canadian Overadvances described in Section 2.04(c), 10% of the Canadian Revolving Commitments at such time, or to exist for more than thirty (30) consecutive Business Days or more than forty-five (45) Business Days in any twelve month period, and provided further that, the aggregate Dollar Equivalent Amount of outstanding Canadian Protective Advances plus Dollar Equivalent Amount of any Canadian Overadvances described in Section 2.04(c) plus the aggregate Dollar Equivalent Amount of all other Canadian Revolving Exposure shall not exceed the aggregate total Canadian Commitments. Protective Advances may be made even if the conditions precedent set forth in Section 4.02 have not been satisfied or waived. The Agent agrees to use reasonable efforts to deliver prompt notice to the Applicable Lenders with respect to a Borrower Group of any Protective Advance or Overadvance made by it to a Borrower within such Borrower Group. The U.S. Protective Advances shall be secured by the Agents Liens on the U.S. Collateral securing payment of the U.S. Obligations and shall constitute ABR Loans and U.S. Obligations hereunder. The Canadian Protective Advances shall be made by the Agent through its Canada branch and shall be secured by the Agents Liens on the Collateral
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securing payment of the Canadian Obligations and shall constitute Canadian Prime Rate Loans, if funded in Canadian Dollars, or Canadian Base Rate Loans, if funded in Dollars, and Canadian Obligations hereunder. The Agents authorization to make Protective Advances may be revoked at any time by the Required Lenders. Any such revocation must be in writing and shall become effective prospectively upon the Agents receipt thereof. The making of a Protective Advance on any one occasion shall not obligate any Agent to make any Protective Advance on any other occasion. At any time that the conditions precedent set forth in Section 4.02 have been satisfied or waived, the Agent may request the Applicable Lenders with respect to a Borrower Group to make a Revolving Loan to repay a Protective Advance made by the Agent to a Borrower within such Borrower Group. At any other time, the Agent may require the Applicable Lenders with respect to such Borrower Group to fund their risk participations described in Section 2.04(b).
(b) Upon the making of a Protective Advance by the Agent (whether before or after the occurrence of a Default) to a Borrower within such Borrower Group, each Applicable Lender with respect to such Borrower Group shall be deemed, without further action by any party hereto, unconditionally and irrevocably to have purchased from the Agent without recourse or warranty, an undivided interest and participation in such Protective Advance in proportion to its Applicable Percentage. From and after the date, if any, on which any Applicable Lender with respect to a Borrower Group is required to fund its participation in any Protective Advance to a Borrower within such Borrower Group purchased hereunder, the Agent shall promptly distribute to such Applicable Lender, such Applicable Lenders Applicable Percentage of all payments of principal and interest and all proceeds of Collateral received by the Agent in respect of such Protective Advance.
(c) Notwithstanding anything to the contrary contained elsewhere in this Section 2.04 or this Agreement or the other Loan Documents and whether or not a Default or Event of Default exists at the time, the Agent may require all Applicable Lenders with respect to a Borrower Group to honor requests or deemed requests by the Borrowers within such Borrower Group for Revolving Loans at a time that an Overadvance Condition with respect to such Borrower Group exists or which would result in an Overadvance Condition with respect to such Borrower Group and (i) each U.S. Revolving Lender shall be obligated to continue to make its Applicable Percentage of any such U.S. Overadvance Loan up to a maximum amount outstanding equal to its U.S. Revolving Commitment, so long as such U.S. Overadvance is not known by the Agent to exceed, together with U.S. Protective Advances described in Section 2.04(a), 10% of the U.S. Revolving Commitments at such time or to exist for more than thirty (30) consecutive Business Days or more than forty-five (45) Business Days in any twelve month period and (ii) each Canadian Revolving Lender shall be obligated to continue to make its Applicable Percentage of any such Canadian Overadvance Loan up to a maximum amount outstanding equal to its Canadian Revolving Commitment so long as such Canadian Overadvance is not known by the Agent to exceed, together with Canadian Protective Advances described in Section 2.04(a), 10% of the Canadian Revolving Commitments at such time or to exist for more than thirty (30) consecutive Business Days or more than forty-five (45) Business Days in any twelve month period.
SECTION 2.05 Swingline Loans. (a) Subject to the terms and conditions set forth herein, the Applicable Swingline Lender with respect to a Borrower Group may in its discretion, and in reliance upon the agreements of the Applicable Lenders with respect to such Borrower Group set forth in this Section 2.05, make available Swingline Loans to the Borrowers within such Borrower Group from time to time during the Availability Period in an aggregate principal amount at any time outstanding that will not result in (i) the aggregate principal amount of outstanding U.S. Swingline Loans exceeding $85,000,000, (ii) the aggregate Dollar Equivalent Amount of principal amount of outstanding Canadian Swingline Loans exceeding $6,000,000, (iii) the total U.S. Revolving Exposures exceeding the lesser of the total U.S. Revolving Commitments and the U.S. Borrowing Base, or (iv) the total Canadian Revolving Exposures exceeding the lesser of the total Canadian Revolving Commitments and the
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Canadian Borrowing Base; provided that no Applicable Swingline Lender shall be required to make a Swingline Loan to refinance an outstanding Swingline Loan. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrowers within each Borrower Group may borrow, prepay and reborrow Swingline Loans. To request a Swingline Loan for a Borrower within a Borrower Group, the Borrower Agent shall notify the Agent of such request by telephone (confirmed by a Swingline Borrowing Request), not later than 1:00 p.m., New York City time, or, with respect to Canadian Swingline Loans, 1:00 p.m., Toronto, Ontario time, on the day of a proposed Swingline Loan to such Borrower. Each such notice shall be irrevocable and shall specify the requested date (which shall be a Business Day), amount and currency (which shall be Dollars in the case of any Swingline Loan made to a U.S. Borrower or Dollars or Canadian Dollars in the case of a Swingline Loan made to a Canadian Borrower) of the requested Swingline Loan. The Agent will promptly advise the Applicable Swingline Lender of any such notice received from the Borrower Agent. The Applicable Swingline Lender shall make each Swingline Loan available to the Borrowers within a Borrower Group by means of a credit to the Applicable Funding Account of such Borrower Group or otherwise in accordance with the instructions of the Borrower Agent (including, in the case of a Swingline Loan made to finance the reimbursement of an LC Disbursement as provided in Section 2.06(e), by remittance to the Applicable Issuing Bank, and in the case of repayment of another Loan or fees or expenses as provided by Section 2.18(c), by remittance to the Agent to be distributed to the Lenders) on the requested date of such Swingline Loan.
(b) To facilitate administration of the Revolving Loans, the Revolving Lenders and the Agent agree (which agreement is solely among them, and not for the benefit of or enforceable by any Borrower) that in order to facilitate the administration of this Agreement and the other Loan Documents, settlement among them as to the Revolving Loans and the Swingline Loans and the Protective Advances shall take place on a periodic basis in accordance with this clause (b). The Agent shall request settlement (a Settlement) with the Applicable Lenders on at least a weekly basis, or on a more frequent basis if so determined by the Agent, (A) on behalf of the Applicable Swingline Lender, with respect to each outstanding Swingline Loan to a Borrower within the applicable Borrower Group and (B) with respect to collections received from such Borrower Group, in each case, by notifying the Applicable Lenders of such requested Settlement by telecopy, telephone, or other similar form of transmission, of such requested Settlement, no later than 2:30 p.m. New York City time, or with respect to Canadian Lenders, 2:30 p.m. Toronto, Ontario time, on the date of such requested Settlement (the Settlement Date). Each Applicable Lender (other than the Applicable Swingline Lender, in the case of Swingline Loans to the Borrowers within a Borrower Group) shall make the amount of such Applicable Lenders Applicable Percentage of the outstanding principal amount of the Swingline Loans to such Borrowers within such Borrower Group with respect to which Settlement is requested available to the Agent, to such account of the Agent as the Agent may designate, not later than 3:30 p.m., New York City time, or with respect to Canadian Lenders, 3:30 p.m. Toronto, Ontario time, on the Settlement Date applicable thereto, which may occur before or after the occurrence or during the continuation of a Default or an Event of Default and whether or not the applicable conditions precedent set forth in Article IV have then been satisfied without regard to the any minimum amount specified therein. Such amounts made available to the Agent shall be applied against the amounts of the applicable Swingline Loan and, together with the portion of such Swingline Loan representing the Applicable Swingline Lenders pro rata share thereof, shall constitute Revolving Loans of the Applicable Lenders. If any such amount is not made available to the Agent by any Applicable Lender on the Settlement Date applicable thereto, the Agent shall, on behalf of the Applicable Swingline Lender with respect to each outstanding Swingline Loan to a Borrower within the applicable Borrower Group, be entitled to recover such amount on demand from such Applicable Lender together with interest thereon at, with respect to U.S. Swingline Loans, the Federal Funds Effective Rate, and with respect to Canadian Swingline Loans, the Canadian Overnight Rate, in each case, for the first three days from and after the Settlement Date and thereafter at the interest rate then applicable to Floating Rate Loans to such Borrower Group in the applicable currency in which such Swingline Loan is denominated. Between Settlement Dates the Agent may pay over to the Applicable Swingline Lender any payments received by the Agent,
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which in accordance with the terms of this Agreement would be applied to the reduction of the Revolving Loans of the Borrowers within the Borrower Group for which such Applicable Swingline Lender is the Applicable Swingline Lender, for application to the Applicable Swingline Lenders Revolving Loans or Swingline Loans to such Borrower Group. If, as of any Settlement Date, collections received since the then immediately preceding Settlement Date have been applied to the Applicable Swingline Lenders Revolving Loans to such Borrower Group, the Applicable Swingline Lender shall pay to the Agent for the accounts of the Applicable Lenders, to be applied to the outstanding Revolving Loans of such Applicable Lenders to such Borrower Group, an amount such that each Applicable Lender shall, upon receipt of such amount, have, as of such Settlement Date, its Applicable Percentage of the Revolving Loans to such Borrower Group. During the period between Settlement Dates, the Applicable Swingline Lender with respect to Swingline Loans to the Borrowers within such Borrower Group, the Agent with respect to Protective Advances to such Borrower Group and each Applicable Lender with respect to its Revolving Loans to such Borrower Group shall be entitled to interest thereon at the applicable rate or rates payable under this Agreement.
(c) In addition, the Applicable Swingline Lender may by written notice given to the Agent not later than 1:00 p.m., New York City time, or, with respect to Canadian Swingline Loans, 1:00 p.m., Toronto, Ontario time, on any Business Day require the Applicable Lenders to acquire participations on such Business Day in all or a portion of the Swingline Loans outstanding that were made to the Borrowers within the Borrower Group with respect to which such Applicable Lenders issued Commitments. Such notice shall specify the aggregate amount of Swingline Loans to such Borrower Group in which the Applicable Lenders will participate. Promptly upon receipt of such notice, the Agent will give notice thereof to each Applicable Lender, specifying in such notice such Applicable Lenders Applicable Percentage of such Swingline Loan or Loans to such Borrower Group. Each Applicable Lender hereby absolutely and unconditionally agrees, upon receipt of notice as provided above, to pay to the Agent, for the account of the Applicable Swingline Lender, such Applicable Lenders Applicable Percentage of such Swingline Loan or Loans to such Borrower Group. Each Applicable Lender acknowledges and agrees that its obligation to acquire participations in Swingline Loans made to the Borrowers within the Borrower Group with respect to which such Applicable Lender has issued a Commitment pursuant to this paragraph is absolute and unconditional and shall not be affected by any circumstance whatsoever, including the occurrence and continuance of a Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. Each Applicable Lender shall comply with its obligation under this paragraph by wire transfer of immediately available funds, in the same manner as provided in Section 2.07 with respect to Loans made by such Applicable Lender (and Section 2.07 shall apply, mutatis mutandis, to the payment obligations of the Applicable Lenders), and the Agent shall promptly pay to the Applicable Swingline Lender the amounts so received by it from the Applicable Lenders. The Agent shall notify the Borrower Agent of any participations in any Swingline Loan acquired pursuant to this paragraph. Any amounts received by the Applicable Swingline Lender from the Borrowers with the applicable Borrower Group (or other party on behalf of any such Borrower) in respect of a Swingline Loan after receipt by the Applicable Swingline Lender of the proceeds of a sale of participations therein shall be promptly remitted to the Agent; any such amounts received by the Agent shall be promptly remitted by the Agent to the Applicable Lenders that shall have made their payments pursuant to this paragraph and to the Applicable Swingline Lender, as their interests may appear; provided that any such payment so remitted shall be repaid to the Applicable Swingline Lender or the Agent, as applicable, if and to the extent such payment is required to be refunded to any Borrower with such Borrower Group for any reason. The purchase of participations in a Swingline Loan made to a Borrower within a Borrower Group pursuant to this paragraph shall not relieve the Borrowers within such Borrower Group of any default in the payment thereof.
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SECTION 2.06 Letters of Credit. (a) General. On and after the Effective Date, each Existing Letter of Credit shall be deemed to be a U.S. Letter of Credit issued hereunder for all purposes of this Agreement and the other Loan Documents and for purposes hereof will be deemed to have been issued on the Effective Date. Subject to the terms and conditions set forth herein, (i) each Applicable Issuing Bank with respect to a Borrower Group agrees, in reliance upon the agreements of the other Applicable Lenders to such Borrower Group set forth in this Section 2.06, (A) from time to time on any Business Day during the period from the Effective Date to but not including the 5th Business Day, prior to the Maturity Date, upon the request of the Borrower Agent, to issue Letters of Credit denominated in Dollars only (or, in the case of Letters of Credit issued under the Canadian Commitments, Dollars or Canadian Dollars, as requested by a Canadian Borrower) and issued on sight basis only for the account of one or more of the Borrowers of such Borrower Group (or any other Subsidiary of the Company so long as the Company is a joint and several co-applicant, and references to the Company or a Borrower in this Section 2.06 shall be deemed to include reference to such Subsidiary) and to amend or renew Letters of Credit previously issued by it, in accordance with Section 2.06(b), and (B) to honor drafts under the Letters of Credit, and (ii) the Applicable Lenders severally agree to participate in the Letters of Credit issued pursuant to Section 2.06(d) for the account of the Borrowers within such Borrower Group (including, with respect to U.S. Revolving Lenders, those Letters of Credit with respect to which the Company is the co-applicant with a Subsidiary of the Company). Subject to the terms and conditions hereof, the Borrowers ability to obtain Letters of Credit shall be fully revolving, and accordingly the Borrowers may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit that have expired or that have been drawn upon and reimbursed.
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions. To request the issuance of a Letter of Credit (or the amendment, renewal or extension of an outstanding Letter of Credit), the Borrower Agent shall hand deliver or facsimile (or transmit by electronic communication, if arrangements for doing so have been approved by the Applicable Issuing Bank) to the Applicable Issuing Bank and the Agent, at least two (2) Business Days, in advance of the requested date of issuance (or such shorter period as is acceptable to the applicable Issuing Bank), a request to issue in the form of Exhibit E attached hereto (each a Letter of Credit Request). To request an amendment, extension or renewal of a Letter of Credit, the Borrower Agent shall submit such a request on its letterhead, addressed to the Applicable Issuing Bank (with a copy to the Agent) at least two (2) Business Days, in advance of the requested date of amendment, extension or renewal, identifying the Letter of Credit to be amended, renewed or extended, and specifying the proposed date (which shall be a Business Day) and other details of the amendment, extension or renewal. Requests for issuance, amendment, renewal or extension must be accompanied by such other information as shall be necessary to issue, amend, renew or extend such Letter of Credit. If requested by the Applicable Issuing Bank, the Borrower Agent also shall submit a letter of credit application on such Issuing Banks standard form in connection with any request for a Letter of Credit. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by the Borrower Agent to, or entered into by the Borrower Agent or any Borrower within a Borrower Group with, the Applicable Issuing Bank relating to any Letter of Credit issued for the account of a Borrower within such Borrower Group, the terms and conditions of this Agreement shall control. A Letter of Credit shall be issued, amended, renewed or extended if (and on issuance, amendment, renewal or extension of each Letter of Credit the applicable Borrower shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension (i) the U.S. Exposure shall not exceed $50,000,000, (ii) the Dollar Equivalent Amount of Canadian LC Exposure shall not exceed $10,000,000, (iii) the total U.S. Revolving Exposures shall not exceed the lesser of the total U.S. Revolving Commitments and the U.S. Borrowing Base, and (iv) the total Canadian Revolving Exposures shall not exceed the lesser of the total Canadian Revolving Commitments and the Canadian Borrowing Base. Promptly after the delivery of any Letter of Credit or any amendment to a Letter of Credit to an advising bank with respect thereto or to the beneficiary thereof,
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the Applicable Issuing Bank will also deliver to the Borrower Agent and the Agent a true and complete copy of such Letter of Credit or amendment. Upon receipt of such Letter of Credit or amendment, the Agent shall notify the Applicable Lenders, in writing, of such Letter of Credit or amendment, and if so requested by an Applicable Lender the Agent will provide such Applicable Lender with a copy of such Letter of Credit or amendment. With respect to commercial Letters of Credit, each Applicable Issuing Bank shall, on the first Business Day of each week, submit to the Agent, by facsimile, a report detailing the daily aggregate total of commercial Letters of Credit issued by such Applicable Issuing Bank for the previous calendar week.
(c) Expiration Date. Each standby Letter of Credit shall expire not later than the earlier of (i) the date one year after the date of the issuance of such Letter of Credit and (ii) the date that is five (5) Business Days prior to the Maturity Date; provided that any standby Letter of Credit may provide for the automatic extension thereof for any number of additional periods each of up to one year in duration (none of which, in any event, shall extend beyond the date referred to in clause (ii) of this paragraph (c)). Each commercial Letter of Credit shall expire on the earlier of (i) 180 days after the date of the issuance of such Letter of Credit and (ii) the date that is thirty (30) days prior to the Maturity Date.
(d) Participations. By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) for the account of a Borrower within a Borrower Group and without any further action on the part of the Applicable Issuing Bank or the Applicable Lenders, the Applicable Issuing Bank hereby grants to each Applicable Lender, and each Applicable Lender hereby acquires from such Applicable Issuing Bank, a participation in such Letter of Credit equal to such Applicable Lenders Applicable Percentage of the aggregate amount available to be drawn under such Letter of Credit. In consideration and in furtherance of the foregoing, each Applicable Lender hereby absolutely and unconditionally agrees to pay to the Agent, for the account of the Applicable Issuing Bank, such Applicable Lenders Applicable Percentage of each LC Disbursement made by such Applicable Issuing Bank and not reimbursed by the Borrowers within the applicable Borrower Group on the date due as provided in paragraph (e) of this Section 2.06, or of any reimbursement payment required to be refunded to any Borrower within such Borrower Group for any reason. Each Applicable Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit issued for the account of a Borrower within a Borrower Group is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Letter of Credit or the occurrence and continuance of a Default or reduction or termination of the Commitments to such Borrower Group, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever.
(e) Reimbursement. If the Applicable Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit issued for the account of a Borrower within a Borrower Group (including, with respect to U.S. Borrowers, those Letters of Credit with respect to which the Company is the co-applicant with a Subsidiary of the Company), the Borrowers within such Borrower Group shall reimburse such LC Disbursement by paying to the Agent an amount equal to such LC Disbursement not later than 12:00 noon, New York City time, or with respect to Canadian LC Disbursements, 12:00 noon Toronto, Ontario time, on the Business Day immediately following the date the Borrower Agent receives notice of such LC Disbursement under paragraph (g) of this Section 2.06; provided that the Borrower Agent may, subject to the conditions to borrowing set forth herein, request in accordance with Section 2.03 or 2.05 that such payment (i) owing by the U.S. Borrowers be financed with an ABR Loan or U.S. Swingline Loan or (ii) owing by a Canadian Borrower be financed with a Canadian Base Rate Loan or Canadian Swingline Loan (if the Letter of Credit drawn upon was denominated in Dollars) or Canadian Prime Rate Loan or Canadian Swingline Loan (if the Letter of Credit drawn upon was denominated in Canadian Dollars), in each case, in an equivalent amount and, to the extent so financed, the obligation of the Borrowers within the applicable Borrower Group to make such payment
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shall be discharged and replaced by the resulting Floating Rate Loan or Swingline Loan. If the Borrowers within a Borrower Group fail to make such payment when due, the Agent shall notify each Applicable Lender of the applicable LC Disbursement, the payment then due from the Borrowers within such Borrower Group in respect thereof and such Lenders Applicable Percentage thereof. Promptly following receipt of such notice, each Applicable Lender shall pay to the Agent its Applicable Percentage of the payment then due from the Borrowers within the applicable Borrower Group, in the same manner as provided in Section 2.07 with respect to Loans made by such Applicable Lender (and Section 2.07 shall apply, mutatis mutandis, to the payment obligations of the Applicable Lenders), and the Agent shall promptly pay to the Applicable Issuing Bank the amounts so received by it from the Applicable Lenders. Promptly following receipt by the Agent of any payment from the Borrowers within a Borrower Group pursuant to this paragraph, the Agent shall distribute such payment to the Applicable Issuing Bank or, to the extent that Applicable Lenders have made payments pursuant to this paragraph to reimburse such Applicable Issuing Bank, then to such Applicable Lenders and such Applicable Issuing Bank as their interests may appear.
(f) Obligations Absolute. The obligation of the Borrowers within each Borrower Group to reimburse LC Disbursements with respect to Letters of Credit issued for the account of such Borrower Group (including, with respect to U.S. Borrowers, those Letters of Credit with respect to which the Company is the co-applicant with a Subsidiary of the Company) as provided in paragraph (e) of this Section 2.06 shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit or this Agreement, or any term or provision therein, (ii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by the Applicable Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit, or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, any Borrowers obligations hereunder. Neither the Agent, the Applicable Lenders nor any Applicable Issuing Bank, nor any of their Related Parties, shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of such Applicable Issuing Bank; provided that the foregoing shall not be construed to excuse such Applicable Issuing Bank from liability to the Borrowers within a Borrower Group to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by each Borrower to the extent permitted by applicable law) suffered by any Borrower within such Borrower Group that are caused by such Applicable Issuing Banks failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross negligence or willful misconduct on the part of the Applicable Issuing Bank (as finally determined by a court of competent jurisdiction), such Applicable Issuing Bank shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented which appear on their face to be in substantial compliance with the terms of a Letter of Credit, the Applicable Issuing Bank may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit.
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(g) Disbursement Procedures. The Applicable Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit issued by such Applicable Issuing Base. Such Applicable Issuing Bank shall promptly notify the Agent and the Borrower Agent by telephone (confirmed by facsimile) of such demand for payment and whether such Applicable Issuing Bank has made or will make an LC Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve the Borrowers within the applicable Borrower Group of their obligation to reimburse such Applicable Issuing Bank and the Applicable Lenders with respect to any such LC Disbursement.
(h) Interim Interest. If an Applicable Issuing Bank shall make any LC Disbursement in respect of any Letter of Credit issued for the account of a Borrower within a Borrower Group (including, with respect to U.S. Borrowers, those Letters of Credit with respect to which the Company is the co-applicant with a Subsidiary of the Company), then, unless the Borrowers within such Borrower Group shall reimburse such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that the Borrowers within such Borrower Group reimburse such LC Disbursement, at the rate per annum then applicable to ABR Loans that are Revolving Loans (in the case of any such Letter of Credit issued for the account of a U.S. Borrower), Canadian Base Rate Loans that are Revolving Loans (in the case of any such Letter of Credit denominated in Dollars that is issued for the account of a Canadian Borrower) or Canadian Prime Rate Loans that are Revolving Loans (in the case of any such Letter of Credit denominated in Canadian Dollars that issued for the account of a Canadian Borrower); provided that, if the Borrowers within a Borrower Group fail to reimburse such LC Disbursement when due pursuant to paragraph (e) of this Section, then Section 2.13(f) shall apply. Interest accrued pursuant to this paragraph shall be for the account of the applicable Issuing Bank, except that interest accrued on and after the date of payment by any Applicable Lender pursuant to paragraph (e) of this Section to reimburse such Applicable Issuing Bank shall be for the account of such Applicable Lender to the extent of such payment.
(i) Replacement of an Issuing Bank. An Issuing Bank may be replaced at the written request of the Borrower Agent and without the consent of the Agent at any time by written agreement among the Borrower Agent, the replaced Issuing Bank and the successor Issuing Bank, and acknowledged by the Agent. The Agent shall notify the Applicable Lenders of any such replacement of an Applicable Issuing Bank. At the time any such replacement shall become effective, the Borrowers within the applicable Borrower Group shall pay all unpaid fees accrued for the account of the replaced Issuing Bank pursuant to Section 2.12(b). From and after the effective date of any such replacement, (i) the successor Issuing Bank shall have all the rights and obligations of the replaced Issuing Bank under this Agreement with respect to Letters of Credit to be issued thereafter and (ii) references herein to the term Issuing Bank shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor and all previous Issuing Banks, as the context shall require. After the replacement of an Issuing Bank hereunder, the replaced Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement with respect to Letters of Credit issued by it prior to such replacement, but shall not be required to issue additional Letters of Credit.
(j) Cash Collateralization. If (A) any Event of Default shall occur and be continuing, (B) an Overadvance Condition shall at any time exist, (C) the Maturity Date shall occur or (D) if and to the extent required in accordance with the provisions of Section 2.28, on the Business Day that the Borrower Agent receives notice from the Agent or the Required Lenders (or, if the maturity of the Loans has been accelerated, the Applicable Lenders with LC Exposure representing greater than 50% of the total LC Exposure) demanding the deposit of cash collateral pursuant to this paragraph, upon such demand, the Borrowers within each Borrower Group (or in the case of clause (B), the Borrowers within the Borrower Group with respect to which an Overadvance Condition exists) shall deposit, in an account
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with the Agent, in the name of the Agent and for the benefit of the Applicable Lenders (a LC Collateral Account and the LC Collateral Account funded by the U.S. Borrowers, the U.S. LC Collateral Account and the LC Collateral Account funded by a Canadian Borrower , the Canadian LC Collateral Account), an amount in cash equal to 103% of the LC Exposure of such Borrower Group as of such date; provided that the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to any Borrower described in clause (g) or (h) of Article VII. Such deposit made by U.S. Borrowers shall be held by the Agent as collateral for the payment and performance of the Obligations in accordance with the provisions of this paragraph (j). Such deposit made by a Canadian Borrower shall be held by the Agent as collateral for the payment and performance of the Canadian Obligations in accordance with the provisions of this paragraph (j). The Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account and each Borrower within a Borrower Group hereby grants the Agent a security interest in the LC Collateral Account funded by such Borrower Group. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of the Agent and at the risk and expense of the Borrowers within the applicable Borrower Group that funded such LC Collateral Account, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be applied by the Agent to reimburse the Applicable Issuing Bank for LC Disbursements for which it has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrowers within the applicable Borrower Group for the LC Exposure to such Borrower Group at such time or, if the maturity of the Loans has been accelerated (but subject to the consent of Applicable Lenders with LC Exposure to such Borrower Group representing greater than 50% of the total LC Exposure to such Borrower Group), be applied to satisfy other Obligations (or, in the case of the Canadian LC Collateral Account, the Canadian Obligations). If the Borrowers within a Borrower Group are required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (together with all interest and other earnings with respect thereto, to the extent not applied as aforesaid) shall be returned promptly to the Borrowers within such Borrower Group but in no event later than three (3) Business Days after such Event of Default has been cured or waived. If Borrowers within a Borrower Group fail to provide any cash collateral as required by this Section 2.06(j), the Applicable Lenders may (and, upon direction of the Agent, shall) advance, as Revolving Loans, the amount of the cash collateral required (whether or not the Commitments have terminated, a Protective Advance or Overadvance exists or the conditions in Article IV are satisfied).
SECTION 2.07 Funding of Borrowings. (a) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 1:00 p.m., New York City time, or with respect to Canadian Revolving Loans, 1:00 p.m., Toronto, Ontario time, to the account of the Agent most recently designated by it for such purpose by notice to the Lenders in an amount equal to such Lenders Applicable Percentage; provided that, Swingline Loans shall be made as provided in Section 2.05. The Agent will make such Loans available to the Borrowers within the applicable Borrower Group by promptly crediting the amounts so received, in like funds, to the Applicable Funding Account or as otherwise directed by the Borrower Agent; provided that Floating Rate Loans made to finance the reimbursement of (i) an LC Disbursement as provided in Section 2.06(e) shall be remitted by the Agent to the Applicable Issuing Bank and (ii) a Protective Advance shall be retained by the Agent to be applied as contemplated by Section 2.04 (and the Agent shall, upon the request of the Borrower Agent, deliver to the Borrower Agent a reasonably detailed accounting of such application).
(b) Unless the Agent shall have received notice from an Applicable Lender prior to the proposed date of any Borrowing by a Borrower within a Borrower Group that such Lender will not make available to the Agent such Lenders share of such Borrowing, the Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and
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may, in reliance upon such assumption, make available to the Borrowers within such Borrower Group a corresponding amount. In such event, if an Applicable Lender has not in fact made its share of the applicable Borrowing available to the Agent, then the Applicable Lender and the Borrowers within the applicable Borrower Group severally agree to pay to the Agent forthwith on demand (without duplication) such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrowers within such Borrower Group to but excluding the date of payment to the Agent, at (i) in the case of such Lender, the greater of, with respect to a U.S. Revolving Loan, the Federal Funds Effective Rate, or, with respect to a Canadian Revolving Loan, the Canadian Overnight Rate, and, in each case, a rate determined by the Agent in accordance with banking industry rules on interbank compensation or (ii) in the case of the Borrowers within a Borrower Group, the interest rate applicable to Floating Rate Loans to such Borrowers in the applicable currency. If such Lender pays such amount to the Agent, then such amount shall constitute such Lenders Loan included in such Borrowing. Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill its Commitment or to prejudice any rights which the Agent or any Borrower within a Borrower Group or any Loan Party may have against any Lender as a result of any default by such Lender hereunder.
SECTION 2.08 Type; Interest Elections. (a) Each Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of an Interest Period Loan, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower Agent may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of an Interest Period Loan, may elect Interest Periods therefor, all as provided in this Section 2.08. The Borrower Agent may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Applicable Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. This Section 2.08 shall not apply to Swingline Loans or Protective Advances, which may not be converted or continued.
(b) To make an election pursuant to this Section, the Borrower Agent shall notify the Agent of such election by telephone by the time that a Borrowing Request would be required under Section 2.03 if the Borrower Agent were requesting a Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be confirmed promptly by hand delivery or facsimile to the Agent of a written Interest Election Request in a form approved by the Agent and signed by the Borrower Agent.
(c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.02:
(i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing);
(ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be a Floating Rate Loan or an Interest Period Loan; and
(iv) if the resulting Borrowing is an Interest Period Loan, the Type, and the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term Interest Period.
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If any such Interest Election Request requests an Interest Period Loan but does not specify an Interest Period, then the Borrower Agent shall be deemed to have selected an Interest Period of one months duration.
(d) Promptly following receipt of an Interest Election Request, the Agent shall advise each Applicable Lender of the details thereof and of such Applicable Lenders portion of each resulting Borrowing.
(e) If the Borrower Agent fails to deliver a timely Interest Election Request with respect to an Interest Period Loan prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to a Floating Rate Loan in the same currency. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Agent, at the request of the Required Lenders, so notifies the Borrower Agent, then, so long as an Event of Default is continuing (i) no outstanding Borrowing with respect to Revolving Loans may be converted to or continued as an Interest Period Loan and (ii) unless repaid, each Interest Period Loan shall be converted to a Floating Rate Loan in the same currency at the end of the then-current Interest Period applicable thereto.
(f) The conversion of any Borrowing pursuant to this Section 2.08 shall not be, and shall not be deemed to be, a discharge, rescission, extinguishment, novation or substitution of the Borrowing and following such conversion, the Borrowing shall continue to be the same obligation and not a new obligation.
SECTION 2.09 Termination and Reduction of Revolving Commitments. (a) Unless previously terminated, all Revolving Commitments shall terminate on the Maturity Date applicable to them and each Extension Series of Extended Revolving Commitments shall terminate on the Maturity Date applicable to such Series.
(b) Upon delivering the notice required by Section 2.09(d), the Borrower Agent may at any time terminate the Revolving Commitments upon (i) the payment in full of all outstanding Revolving Loans, together with accrued and unpaid interest thereon, (ii) the cancellation and return of all outstanding Letters of Credit (or alternatively, with respect to each such Letter of Credit, the furnishing to the Agent of a cash deposit (or at the discretion of the Agent a back up standby letter of credit reasonably satisfactory to the Agent) equal to 103% of the LC Exposure as of such date) and (iii) the payment in full of all accrued and unpaid fees and all reimbursable expenses then due and payable under the Loan Documents.
(c) Upon delivering the notice required by Section 2.09(d), the Borrower Agent may from time to time reduce the Revolving Commitments of any Class; provided that (i) each reduction of the Revolving Commitments of a Class shall be in an amount that is an integral multiple of $500,000 and not less than $1,000,000, (ii) the Borrower Agent shall not reduce the Revolving Commitments of any Class if, after giving effect to any concurrent prepayment of the Revolving Loans of such Class in accordance with Section 2.10, the sum of (A) in the case of the U.S. Revolving Commitments, the U.S. Revolving Exposures would exceed the lesser of the total U.S. Revolving Commitments and the U.S. Borrowing Base or (B) in the case of the Canadian Revolving Commitments, the Canadian Revolving Exposures would exceed the lesser of the total Canadian Revolving Commitments and the Canadian Borrowing Base, and (iii) any such reduction shall apply proportionately and permanently to reduce the Revolving Commitments of each of the Applicable Lenders within such Class, except that, notwithstanding the foregoing, in connection with the establishment on any date of any Extended Revolving Commitments pursuant to Section 2.27 to the Borrowers within a Borrower Group, the Revolving Commitments of any one or more the Applicable Lenders providing any such Extended
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Revolving Commitments on such date shall be reduced in an amount equal to the amount of the Revolving Commitments so extended on such date (provided that (x) after giving effect to any such reduction and to the repayment of any Revolving Loans made on such date, the U.S. Revolving Exposure of any such U.S. Revolving Lender does not exceed the lesser of the U.S. Revolving Commitment thereof and its Applicable Percentage of the U.S. Borrowing Base (such U.S. Revolving Exposure, U.S. Revolving Commitment and Applicable Percentage being determined in each case, for the avoidance of doubt, exclusive of such Lenders Extended Revolving Commitment and any exposure in respect thereof), (y) after giving effect to any such reduction and to the repayment of any Revolving Loans made on such date, the Canadian Revolving Exposure of any such Canadian Revolving Lender does not exceed the lesser of the Canadian Revolving Commitment thereof and its Applicable Percentage of the Canadian Borrowing Base (such Canadian Revolving Exposure, Canadian Revolving Commitment and Applicable Percentage being determined in each case, for the avoidance of doubt, exclusive of such Lenders Extended Revolving Commitment and any exposure in respect thereof), and (z) for the avoidance of doubt, any such repayment of Revolving Loans contemplated by the preceding clauses shall be made in compliance with the requirements of Section 2.18 with respect to the ratable allocation of payments hereunder, with such allocation being determined after giving effect to any exchange pursuant to Section 2.27 of Revolving Commitments and Revolving Loans into Extended Revolving Commitments and Extended Revolving Loans, respectively, and prior to any reduction being made to the Revolving Commitment of any other Lender).
(d) The Borrower Agent shall notify the Agent of any election to terminate or reduce the Revolving Commitments to the Borrowers of any Class under paragraph (b) or (c) of this Section at least three (3) Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the Agent shall advise the Applicable Lenders of the contents thereof. Any termination or reduction of the Revolving Commitments pursuant to this Section 2.09 shall be permanent.
SECTION 2.10 Repayment of Loans; Evidence of Debt. (a) Each Borrower within a Borrower Group hereby unconditionally promises to pay (i) to the Agent for the account of each Applicable Lender the then unpaid principal amount of each Revolving Loan made by such Applicable Lender on the Maturity Date, (ii) to the Agent the then unpaid amount of each Protective Advance made to or for the account of the Borrowers within such Borrower Group on the earlier of the Maturity Date and demand by the Agent, (iii) to the Applicable Swingline Lender the then unpaid principal amount of each Swingline Loan made by such Applicable Swingline Lender on the Maturity Date and (iv) to the Agent for the account of each Applicable Extending Lender of each Extension Series made available to the Borrowers within such Borrower Group, the then unpaid principal amount of each Extended Revolving Loan of such Extension Series on the maturity date for such Extension Series; provided that on each date that a Revolving Loan to a Borrower within a Borrower Group is made while any Swingline Loan or Protective Advance made to the Borrowers within such Borrower Group is outstanding, the Borrowers within such Borrower Group shall repay all such Swingline Loans and Protective Advances with the proceeds of such Revolving Loan then outstanding.
(b) At all times after the occurrence and during the continuance of a Liquidity Event and notification thereof by the Agent to the Borrower Agent (subject to the provisions of Section 2.18(b) and to the terms of the Security Agreement), on each Business Day, at or before 1:00 p.m., New York City time, or with respect to Canadian Revolving Loans, 1:00 p.m. Toronto, Ontario time, the Agent shall apply all immediately available funds credited to the BANA Account of a Borrower Group or such other account of such Borrower Group directed by the Agent pursuant to Section 2.21(b), first to pay any fees or expense reimbursements then due to the Agent, the Applicable Issuing Banks and the Applicable Lenders (other than in connection with Banking Services or Secured Swap Obligations), pro rata, second to pay interest due and payable in respect of any Revolving Loans (including Swingline Loans) made to
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the Borrowers within such Borrower Group and any Protective Advances made to the Borrowers within such Borrower Group that may be outstanding, pro rata, third to prepay the principal of any Protective Advances made to the Borrowers within such Borrower Group that may be outstanding, pro rata, and fourth to prepay the principal of the Revolving Loans (including Swingline Loans) made to the Borrowers within such Borrower Group and to cash collateralize outstanding LC Exposure of the Applicable Issuing Bank and Applicable Lenders with respect to such Borrower Group, pro rata. It being understood that in no event shall any of the Canadian Loan Parties make any payment hereunder or under any other Loan Document on account of any U.S. Obligations.
(c) Each Applicable Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrowers within a Borrower Group to such Applicable Lender resulting from each Loan made by such Lender to any Borrower within such Borrower Group, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.
(d) The Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder to a Borrower within a Borrower Group, the Class and Type thereof and the Interest Period (if any) applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrowers within such Borrower Group to each Applicable Lender hereunder and (iii) the amount of any sum received by the Agent hereunder for the account of the Applicable Lenders and each Applicable Lenders share thereof.
(e) The entries made in the accounts maintained pursuant to paragraph (c) or (d) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Applicable Lender or the Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrowers within a Borrower Group to repay the Loans made to the Borrowers within such Borrower Group in accordance with the terms of this Agreement.
(f) Any Applicable Lender may request that Revolving Loans made by it to the Borrowers within a Borrower Group be evidenced by a promissory note. In such event, the Borrowers within such Borrower Group shall prepare, execute and deliver to such Applicable Lender a promissory note payable to such Applicable Lender and its registered assigns and in substantially the form of Exhibit G-1 hereto, in the case of any promissory note issued to a Canadian Lender, and Exhibit G-2, in the case of any promissory note issued to a U.S. Lender.
SECTION 2.11 Prepayment of Loans. (a) Upon prior notice in accordance with paragraph (d) of this Section 2.11, the Borrowers within a Borrower Group shall have the right at any time and from time to time to prepay any Revolving Borrowing owing by such Borrowers in whole or in part without premium or penalty (but subject to Section 2.16).
(b) Except for U.S. Protective Advances and U.S. Overadvance Loans permitted under Section 2.04, in the event and on each Business Day on which the total U.S. Revolving Exposure exceeds the lesser of (i) the aggregate U.S. Revolving Commitments and (ii) the U.S. Borrowing Base, the U.S. Borrowers shall promptly prepay first, any outstanding U.S. Swingline Loans in an amount equal to such excess U.S. Swingline Loans, second, if any excess remains after prepaying all U.S. Swingline Loans, any outstanding U.S. Revolving Loans in an amount equal to any remaining excess and third, if any excess remains after prepaying all U.S. Swingline Loans and all U.S. Revolving Loans, depositing an amount in cash in an amount equal to any remaining excess in the U.S. LC Collateral Account. Except for Canadian Protective Advances and Canadian Overadvance Loans permitted under Section 2.04, in the event and on each Business Day on which the total Canadian Revolving Exposure exceeds the lesser of
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(i) the aggregate Canadian Revolving Commitments and (ii) the Canadian Borrowing Base, the Canadian Borrowers shall promptly prepay first, any outstanding Canadian Swingline Loans in an amount equal to such excess Canadian Swingline Loans, second, if any excess remains after prepaying all Canadian Swingline Loans, any outstanding Canadian Revolving Loans in an amount equal to any remaining excess and third, if any excess remains after prepaying all Canadian Swingline Loans and all Canadian Revolving Loans, depositing an amount in cash in an amount equal to any remaining excess in the Canadian LC Collateral Account.
(c) On each occasion that a Non-Ordinary Course Asset Disposition or Recovery Event occurs with respect to any Borrower Group when (i) with respect to U.S. Borrowers, U.S. Excess Availability is less than 12.5% of the lesser of (A) the U.S. Revolving Commitments and (B) the U.S. Borrowing Base, or (ii) with respect to the Canadian Borrowers, Canadian Excess Availability is less than 12.5% of the lesser of (A) the Canadian Revolving Commitments and (B) the Canadian Borrowing Base, then, in either case, , the Borrowers within such Borrower Group shall promptly prepay after receipt of any Net Cash Proceeds therefrom, first, any outstanding Swingline Loans owing by such Borrowers, in an amount equal to such Net Cash Proceeds, second, if any Net Cash Proceeds remain after prepaying all Swingline Loans owing by such Borrowers, any outstanding Revolving Loans owing by such Borrowers in an amount equal to any remaining Net Cash Proceeds, and third, if any Net Cash Proceeds remain after prepaying all Swingline Loans and all Revolving Loans owing by such Borrowers, depositing an amount in cash equal to any remaining Net Cash Proceeds in the LC Collateral Account of such Borrowers.
(d) The Borrower Agent shall notify the Agent (and, in the case of prepayment of a Swingline Loan, the Applicable Swingline Lender) by telephone (confirmed by facsimile) of any prepayment hereunder (i) in the case of prepayment of an Interest Period Loan, not later than 12:00 noon, New York City time, or with respect to Canadian BA Rate Loans, 12:00 noon, Toronto, Ontario time, three (3) Business Days before the date of prepayment, (ii) in the case of prepayment of a Floating Rate Loan, not later than 10:00 a.m., New York City time, or with respect to Canadian Prime Rate Loans or Canadian Base Rate Loans, 10:00 a.m., Toronto, Ontario time, on the day of prepayment, or (iii) in the case of prepayment of a Swingline Loan, not later than 12:00 noon, New York City time, or with respect to Canadian Swingline Loans, 12:00 noon, Toronto, Ontario time, on the date of prepayment. Each such notice shall specify the prepayment date, the Borrower Group obligated thereon and the principal amount of each Borrowing or portion thereof to be prepaid. Promptly following receipt of any such notice relating to a Borrowing, the Agent shall advise the Applicable Lenders of the contents thereof. Each partial prepayment of any Borrowing shall be in an amount that would be permitted in the case of an advance of a Borrowing of the same Type as provided in Section 2.02. Each prepayment of a Borrowing of the Borrowers within a Borrower Group shall be applied ratably to the Loans of such Borrower Group included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.13.
SECTION 2.12 Fees. (a) The Borrowers within each Borrower Group agree to pay to the Agent for the account of each Applicable Lender a commitment fee, which shall accrue at the Commitment Fee Rate on the average daily amount of the Available Revolving Commitment of such Applicable Lender during the period from and including the Effective Date to but excluding the date on which the Applicable Lenders Revolving Commitments to such Borrowers terminate. Accrued commitment fees owing by (i) a Canadian Borrower shall be payable in arrears on the first Business Day of each January, April, July and October and on the date on which the Canadian Revolving Commitments to such Borrower terminate, commencing on the first such date to occur after the date hereof, and (ii) U.S. Borrowers shall be payable in arrears on the first calendar day of each January, April, July and October and on the date on which the U.S. Revolving Commitments to such Borrowers terminate, commencing on the first such date to occur after the date hereof. All commitment fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). For purposes of calculating the commitment fees only, no portion of the Revolving Commitments to such Borrowers shall be deemed utilized as a result of outstanding Swingline Loans owing by such Borrowers.
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(b) The Borrowers within each Borrower Group agree to pay (i) to the Agent for the account of each Applicable Lender a participation fee with respect to its participations in Letters of Credit issued for the account of a Borrower within such Borrower Group (including, in the case of U.S. Revolving Lenders any Letter of Credit with respect to which the Company is a co-applicant with a Subsidiary of the Company), which shall accrue at the same Applicable Rate used to determine the interest rate applicable to Interest Period Loans on the daily amount of such Applicable Lenders LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements made for the account of any such Borrower), during the period from and including the Effective Date to but excluding the later of the date on which such Applicable Lenders Revolving Commitment terminates and the date on which such Applicable Lender ceases to have any LC Exposure, and (ii) to each Applicable Issuing Bank, for its own account, a fronting fee, in respect of each Letter of Credit issued by such Applicable Issuing Bank for the period from the date of issuance of such Letter of Credit through the expiration date of such Letter of Credit (or if terminated on an earlier date to the termination date of such Letter of Credit), computed at a rate equal to 0.125% per annum or such other percentage per annum to be agreed upon between the Borrower Agent and such Applicable Issuing Bank of the daily stated amount of such Letter of Credit, as well as such Applicable Issuing Banks standard fees with respect to the issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder; provided that no fronting fee payable pursuant to this clause (ii) shall be less than the Dollar Equivalent Amount of $500.00 per annum. Participation fees and fronting fees accrued through and including the last day of each March, June, September and December shall be payable by (i) the Canadian Borrowers on the first Business Day of each January, April, July and October, and (ii) U.S. Borrowers on the first calendar day of each January, April, July and October, in each case, commencing on the first such date to occur after the Effective Date; provided that all such fees shall be payable on the date on which the Revolving Commitments of the Borrowers within the applicable Borrower Group terminate and any such fees accruing after the date on which such Commitments terminate shall be payable on demand. Any other fees payable to any Applicable Issuing Bank pursuant to this paragraph shall be payable within 10 days after demand. All participation fees and fronting fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed.
(c) The Borrowers within each Borrower Group agree to pay to the Agent, for its own account, such agency fees as may be separately agreed upon by the Company and the Agent with respect to such Borrower Group, including pursuant to the Fee Letter, payable in the amounts and at the times so agreed.
(d) All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Agent (or to the Applicable Issuing Bank, in the case of fees payable to it) for distribution, in the case of commitment fees and participation fees, to the Lenders. Fees paid shall not be refundable under any circumstances.
SECTION 2.13 Interest. (a) The Revolving Loans that are ABR Loans (including each U.S. Swingline Loan and each U.S. Protective Advance) shall bear interest at the Alternate Base Rate plus the Applicable Rate.
(b) The Revolving Loans that are LIBOR Rate Loans shall bear interest at the Adjusted LIBOR Rate for the Interest Period in effect for such Borrowing plus the Applicable Rate.
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(c) The Revolving Loans that are Canadian Base Rate Loans (including each Canadian Swingline Loan denominated in Dollars and each Canadian Protective Advance denominated in Dollars) shall bear interest at the Canadian Base Rate plus the Applicable Rate.
(d) The Revolving Loans that are Canadian Prime Rate Loans (including each Canadian Swingline Loan denominated in Canadian Dollars and each Canadian Protective Advance denominated in Canadian Dollars) shall bear interest at the Canadian Prime Rate plus the Applicable Rate.
(e) The Revolving Loans that are Canadian BA Rate Loans shall bear interest at the Canadian BA Rate for the Interest Period in effect for such Borrowing plus the Applicable Rate.
(f) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by the Borrowers within a Borrower Group hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of overdue principal of any Loan, 2% plus the rate otherwise applicable to such Loan as provided in the preceding paragraphs of this Section or (ii) in the case of any other amount (A) owed by the U.S. Borrowers, 2% plus the rate applicable to ABR Loans as provided in paragraph (a) of this Section, (B) owed by the Canadian Borrowers in Dollars, 2% plus the rate applicable to Canadian Base Rate Loans, or (C) owed by the Canadian Borrowers in Canadian Dollars, 2% plus the rate applicable to Canadian Prime Rate Loans.
(g) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan and upon termination of the applicable Commitments; provided that (i) interest accrued pursuant to paragraph (f) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of a Floating Rate Loan prior to the end of the Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Interest Period Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion.
(h) All interest and fees hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate at times when the Alternate Base Rate is based on the U.S. Prime Rate, the Canadian Base Rate, the Canadian Prime Rate, and the Canadian BA Rate shall be computed on the basis of a year of 365 days, and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). For the purposes of the Interest Act (Canada), (i) whenever any interest under this Agreement is calculated using a rate based on a year of 360 days or any other period of time that is less than a calendar year, the rate determined pursuant to such calculation, when expressed as an annual rate, is equivalent to (x) the applicable rate based on the number of days in the calendar year, (y) multiplied by the actual number of days in the calendar year in which the period for which such interest is payable (or compounded) ends, and (z) divided by 360, or such other period of time that is less than the calendar year, (ii) the principle of deemed reinvestment of interest does not apply to any interest calculation under this Agreement, and (iii) the rates of interest stipulated in this Agreement are intended to be nominal rates and not effective rates or yields.
(i) The applicable Alternate Base Rate, Adjusted LIBOR Rate, LIBOR Rate, Canadian BA Rate, Canadian Base Rate and Canadian Prime Rate shall be determined by the Agent, and such determination shall be conclusive absent manifest error.
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SECTION 2.14 Alternate Rate of Interest. If prior to the commencement of any Interest Period for an Interest Period Loan:
(i) the Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBOR Rate, the LIBOR Rate, or the Canadian BA Rate, as applicable, for such Interest Period; or
(ii) the Agent is advised by the Required Lenders that the Adjusted LIBOR Rate, the LIBOR Rate, or the Canadian BA Rate, as applicable, for such Interest Period will not adequately and fairly reflect the cost to such Lenders of making or maintaining their Loans included in such Borrowing for such Interest Period; then the Agent shall promptly give notice thereof to the Borrower Agent and the Applicable Lenders by telephone or facsimile as promptly as practicable thereafter and, until the Agent notifies the Borrower Agent and the Applicable Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a LIBOR Rate Loan or a Canadian BA Rate Loan, as applicable, shall be ineffective and such Borrowing shall be converted to a Floating Rate Loan in the same currency on the last day of the Interest Period applicable thereof, and (ii) if any Borrowing Request requests an Interest Period Loan, such Borrowing shall be made as a Floating Rate Loan in the same currency.
SECTION 2.15 Increased Costs. (a) If any Change in Law shall impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Applicable Lender (except any such reserve requirement reflected in the Adjusted LIBOR Rate) or Applicable Issuing Bank; or impose on any Applicable Lender or Applicable Issuing Bank or the London interbank market any other condition affecting this Agreement or Interest Period Loans made by such Applicable Lender or any Letter of Credit or participation therein; and the result of any of the foregoing shall be to increase the cost to such Applicable Lender of making or maintaining any Interest Period Loan (or of maintaining its obligation to make any such Loan) or to increase the cost to such Applicable Lender or Applicable Issuing Bank of participating in, issuing or maintaining any Letter of Credit or to reduce the amount of any sum received or receivable by such Applicable Lender or Applicable Issuing Bank hereunder (whether of principal, interest or otherwise), then, following delivery of the certificate contemplated by paragraph (c) of this Section, the Borrowers within the applicable Borrower Group will pay to such Applicable Lender or Applicable Issuing Bank, as applicable, such additional amount or amounts as will compensate such Applicable Lender or Applicable Issuing Bank, as applicable, for such additional costs incurred or reduction suffered (except for any Taxes, which shall be dealt with exclusively pursuant to Section 2.17).
(b) If any Applicable Lender or Applicable Issuing Bank determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on such Applicable Lenders or Applicable Issuing Banks capital or on the capital of such Applicable Lenders or Applicable Issuing Banks holding company, if any, as a consequence of this Agreement or the Loans made by, or participations in Letters of Credit held by, such Applicable Lender, or the Letters of Credit issued by such Applicable Issuing Bank, to a level below that which such Applicable Lender or such Applicable Issuing Bank or such Applicable Lenders or such Applicable Issuing Banks holding company could have achieved but for such Change in Law other than due to Taxes, which shall be dealt with exclusively pursuant to Section 2.17 (taking into consideration such Applicable Lenders or such Applicable Issuing Banks policies and the policies of such Applicable Lenders or such Applicable Issuing Banks holding company with respect to capital adequacy), then from time to time following delivery of the certificate contemplated by paragraph (c) of this Section the Borrowers within the applicable Borrower Group will pay to such Applicable Lender or such Applicable Issuing Bank, as applicable, such additional amount or amounts as will compensate such Applicable Lender or such Applicable Issuing Bank or such Applicable Lenders or such Applicable Issuing Banks holding company for any such reduction suffered.
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(c) A certificate of an Applicable Lender or an Applicable Issuing Bank setting forth the amount or amounts necessary to compensate such Applicable Lender or Applicable Issuing Bank or its holding company, as applicable, as specified in paragraph (a) or (b) of this Section and setting forth in reasonable detail the manner in which such amount or amounts was determined shall be delivered to the Borrower Agent and shall be conclusive absent manifest error. The Borrowers within the applicable Borrower Group shall pay such Applicable Lender or Applicable Issuing Bank, as applicable, the amount shown as due on any such certificate within 10 days after receipt thereof.
(d) Failure or delay on the part of any Applicable Lender or Applicable Issuing Bank to demand compensation pursuant to this Section shall not constitute a waiver of such Applicable Lenders or Applicable Issuing Banks right to demand such compensation; provided that the Borrowers within the applicable Borrower Group shall not be required to compensate an Applicable Lender or an Applicable Issuing Bank pursuant to this Section for any increased costs or reductions incurred more than 180 days prior to the date that such Applicable Lender or Applicable Issuing Bank, as applicable, notifies the Borrower Agent of the Change in Law giving rise to such increased costs or reductions and of such Applicable Lenders or Applicable Issuing Banks intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof.
SECTION 2.16 Break Funding Payments. In the event of (a) the payment of any principal of any Interest Period Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Interest Period Loan other than on the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Interest Period Loan on the date specified in any notice delivered pursuant hereto (regardless of whether such notice may be revoked under Section 2.09(d) and is revoked in accordance therewith), or (d) the assignment of any Interest Period Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower Agent pursuant to Section 2.19 or 9.02(e), then, in any such event, the Borrowers within the affected Borrower Group shall compensate each Applicable Lender for the loss, cost and expense attributable to such event. In the case of an Interest Period Loan, such loss, cost or expense to any Applicable Lender shall be deemed to be the amount determined by such Applicable Lender to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount of such Loan had such event not occurred, at the Adjusted LIBOR Rate or Canadian BA Rate, as applicable, that would have been applicable to such Loan, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan), over (ii) the amount of interest which would accrue on such principal amount for such period at the interest rate which such Applicable Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and period from other banks in the eurodollar market. A certificate of any Applicable Lender setting forth any amount or amounts that such Applicable Lender is entitled to receive pursuant to this Section and the basis therefor and setting forth in reasonable detail the manner in which such amount or amounts was determined shall be delivered to the Borrower Agent and shall be conclusive absent manifest error. The Borrowers within the effected Borrower Group shall pay such Applicable Lender the amount shown as due on any such certificate within 10 days after receipt thereof.
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SECTION 2.17 Taxes.
(a) Any and all payments by or on account of any obligation of any Loan Party hereunder or any other Loan Document shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if a Loan Party shall be required to deduct, withhold, or remit any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions or remittances applicable to additional sums payable under this Section) the Agent, Applicable Lender or any Applicable Issuing Bank (as applicable) receives an amount equal to the sum it would have received had no such deductions or remittances, been made, (ii) such Loan Party shall make such deductions and remittances, and (iii) such Loan Party shall timely pay and remit the full amount deducted to the relevant Governmental Authority in accordance with applicable law. If at any time a Loan Party is required by applicable law to make any deduction, remittance or withholding from any sum payable hereunder, such Loan Party shall promptly notify the Applicable Lender, Agent or Applicable Issuing Bank upon becoming aware of the same. In addition, each Applicable Lender, Agent or Applicable Issuing Bank shall promptly notify a Loan Party upon becoming aware of any circumstances as a result of which a Loan Party is or would be required to make any deduction, remittance, or withholding from any sum payable hereunder.
(b) In addition, the Loan Parties within each Borrower Group shall pay any Other Taxes with respect to the Loans and Commitments to the Borrowers within such Borrower Group and this Agreement as it relates to such Borrower Group to the relevant Governmental Authority in accordance with applicable law.
(c) Each Loan Party within a Borrower Group shall indemnify the Agent, each Applicable Lender and each Applicable Issuing Bank, within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Agent, such Applicable Lender or such Applicable Issuing Bank, as applicable, on or with respect to any payment by or on account of any obligation of such Loan Party hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower Agent by an Applicable Lender or an Applicable Issuing Bank, or by the Agent on its own behalf or on behalf of an Applicable Lender, or an Applicable Issuing Bank, shall be conclusive absent manifest error.
(d) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by a Loan Party to a Governmental Authority, such Loan Party shall deliver to the Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Agent.
(e) Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which a Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Borrower Agent (with a copy to the Agent), at the time or times prescribed by applicable law, such properly completed and executed documentation prescribed by applicable law or reasonably requested by the Borrower Agent as will permit such payments to be made without withholding or at a reduced rate (including any documentation necessary to prevent withholding under Sections 1471 or 1472 of the Code). In particular, on or prior to the date which is ten (10) Business Days after the Effective Date, each Foreign Lender in respect of a U.S. Borrower shall deliver to the Borrower Agent (with a copy to the Agent) two duly signed, properly completed copies of Internal Revenue Service (IRS) Form W-8BEN or any successor thereto (relating to such Foreign Lender and entitling it to an exemption from, or reduction of, United States withholding tax on payments to be made to such Foreign Lender by any
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Borrower or any other Loan Party pursuant to this Agreement or any other Loan Document), IRS Form W-8ECI or any successor thereto (relating to payments to be made to such Foreign Lender by any Borrower or any other Loan Party pursuant to this Agreement or any other Loan Document), IRS Form W-8IMY (and any applicable underlying IRS Forms) or such other evidence reasonably satisfactory to the Borrower Agent and the Agent that such Foreign Lender is entitled to an exemption from, or reduction of, United States withholding tax, including any exemption pursuant to Section 871(h) or 881(c) of the Code, and in the case of a Foreign Lender claiming such an exemption under Section 881(c) of the Code, a certificate that establishes in writing to the Borrower Agent and the Agent that such Foreign Lender is not (i) a bank as defined in Section 881(c)(3)(A) of the Code, (ii) a 10-percent shareholder within the meaning of Section 871(h)(3)(B) of the Code, or (iii) a controlled foreign corporation related to a Borrower with the meaning of Section 864(d)(4) of the Code. Thereafter and from time to time, each such Foreign Lender shall (A) promptly so long as it is eligible to do so submit to the Borrower Agent (with a copy to the Agent) such additional duly completed and signed copies of one or more of such forms or certificates (or such successor forms or certificates as shall be adopted from time to time by the relevant United States taxing authorities) as may then be available under then current United States laws and regulations to avoid, or such evidence as is reasonably satisfactory to the Borrower Agent and the Agent of any available exemption from, or reduction of, United States withholding taxes in respect of all payments to be made to such Foreign Lender by any Borrower or other Loan Party pursuant to this Agreement, or any other Loan Document, in each case, (1) on or before the date that any such form, certificate or other evidence expires or becomes obsolete, (2) after the occurrence of any event requiring a change in the most recent form, certificate or evidence previously delivered by it to the Borrower Agent and (3) from time to time thereafter if reasonably requested by the Borrower Agent or the Agent, and (B) promptly notify the Borrower Agent and the Agent of any change in circumstances which would modify or render invalid any claimed exemption or reduction. For the avoidance of doubt, if, as a result of a Change in Law, a Foreign Lender is no longer legally able to provide documentation with respect to an exemption from or a reduction of withholding tax, such Foreign Lender will be treated as complying with this Section 2.17(e) and such inability will not affect the Foreign Lenders rights under Section 2.17(a). If a payment made to a Lender under this Agreement would be subject to U.S. Federal withholding Tax imposed by FATCA, such Lender shall deliver to the Withholding Agent, at the time or times prescribed by law and at such time or times reasonably requested by the Withholding Agent, such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Withholding Agent as may be necessary for the Withholding Agent to comply with its obligations under FATCA, to determine that such Lender has complied with such Lenders obligations under FATCA, applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable) or to determine the amount to deduct and withhold from such payment. Solely for purposes of this paragraph (e), FATCA shall include any amendments made to FATCA after the Effective Date.
(f) Each Lender, Agent or Issuing Bank that is a United States person within the meaning of Section 7701(a)(30) of the Code, agrees to complete and deliver to the Borrower Agent a statement signed by an authorized signatory of the Lender to the effect that it is a United States person together with a duly completed and executed copy of IRS Form W-9 or successor form and any documentation necessary to prevent withholding under Sections 1471 or 1472 of the Code, to the extent applicable.
(g) If the Agent, a Lender, or an Issuing Bank determines, in good faith in its reasonable sole discretion, that it has received a refund of any Indemnified Taxes or Other Taxes as to which it has been indemnified by a Loan Party or with respect to which such Loan Party has paid additional amounts pursuant to this Section 2.17, it shall pay over such refund to such Loan Party (but only to the extent of indemnity payments made, or additional amounts paid, by such Loan Party under this Section 2.17 with respect to the Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket
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expenses of the Agent or such Lender (including any Taxes imposed with respect to such refund) as is determined by the Agent or such Lender in good faith in its sole discretion, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided that such Loan Party, upon the request of the Agent or such Lender, agrees to repay as soon as reasonably practicable the amount paid over to such Loan Party (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Agent or such Lender in the event the Agent or such Lender is required to repay such refund to such Governmental Authority. This Section shall not be construed to require the Agent or any Lender to make available its tax returns (or any other information relating to its taxes which it deems confidential) to such Loan Party or any other Person.
(h) If the Borrower Agent determines in good faith that a reasonable basis exists for contesting any Indemnified Taxes or Other Taxes for which additional amounts have been paid under this Section 2.17, the Applicable Lender, Agent or Applicable Issuing Bank shall cooperate with the Borrower Agent in challenging such Indemnified Taxes or Other Taxes, at the expense of the Borrowers within the applicable Borrower Group, if so requested by the Borrower Agent in writing.
SECTION 2.18 Payments Generally; Allocation of Proceeds; Sharing of Set-offs. (a) Unless otherwise specified, each Borrower shall make each payment required to be made by it hereunder (whether of principal, interest, fees or reimbursement of LC Disbursements, or of amounts payable under Section 2.15, 2.16 or 2.17, or otherwise) prior to 2:00 p.m., New York City time, or with respect to Canadian LC Disbursements, 2:00 p.m., Toronto, Ontario time, on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Agent to the applicable account designated to the Borrower Agent by the Agent, except payments to be made directly to the Applicable Issuing Bank or the Applicable Swingline Lender as expressly provided herein and except that payments pursuant to Sections 2.15, 2.16, 2.17 and 9.03 shall be made directly to the Persons entitled thereto. The Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. Except to the extent otherwise provided herein, if any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. Any payment required to be made by the Agent hereunder shall be deemed to have been made by the time required if the Agent shall, at or before such time, have taken the necessary steps to make such payment in accordance with the regulations or operating procedures of the clearing or settlement system used by the Agent to make such payment. At all times that the circumstances specified in Section 2.21(d) are in effect, solely for purposes of determining the amount of Revolving Loans available for borrowing purposes, checks and cash or other immediately available funds from collections of items of payment and proceeds of any Collateral shall be applied in whole or in part against the applicable Obligations, on the day of receipt, subject to actual collection.
(b) (i) Subject in all respects to the provisions of the Intercreditor Agreement, all proceeds of U.S. Collateral received by the Agent after an Event of Default has occurred and is continuing shall upon election by the Agent or at the direction of the Required Lenders be applied, first, to, ratably, pay any fees, indemnities, or expense reimbursements then due to the Agent or any U.S. Issuing Bank from the U.S. Borrowers (other than in connection with Banking Services or Secured Swap Obligations), second, ratably, to pay any fees or expense reimbursements then due to the U.S. Revolving Lenders (other than in connection with Banking Services or Secured Swap Obligations), third, to pay interest due and payable in respect of any U.S. Revolving Loans from the U.S. Borrowers (including any U.S. Swingline Loans) and any U.S. Protective Advances, ratably, fourth, to pay the principal of the U.S. Protective Advances, fifth, to prepay principal on the U.S. Revolving Loans (other than the U.S.
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Protective Advances) and unreimbursed U.S. LC Disbursements, ratably, sixth, to pay an amount to the Agent equal to 103% of the U.S. LC Exposure on such date, to be held in the U.S. LC Collateral Account as cash collateral for such Obligations, seventh, to pay any amounts owing with respect to Banking Services and Secured Swap Obligations that are U.S. Obligations, ratably, eighth, to the payment of any other U.S. Obligation due to the Agent or any U.S. Revolving Lender, ninth, to the Canadian Obligations in the order provided in Section 2.18(b)(ii), tenth, as provided for under the Intercreditor Agreement and eleventh, to the U.S. Borrowers or as the Borrower Agent shall direct.
(ii) All proceeds of Canadian Collateral received by the Agent after an Event of Default has occurred and is continuing shall upon election by the Agent or at the direction of the Required Lenders be applied, first, to, ratably, pay any fees, indemnities, or expense reimbursements then due to the Agent or any Canadian Issuing Bank from the Canadian Loan Parties (other than in connection with Banking Services or Secured Swap Obligations), second, ratably, to pay any fees or expense reimbursements then due to the Canadian Revolving Lenders from the Canadian Loan Parties (other than in connection with Banking Services or Secured Swap Obligations), third, to pay interest due and payable in respect of any Canadian Revolving Loans (including any Canadian Swingline Loans) and any Canadian Protective Advances, ratably, fourth, to pay the principal of the Canadian Protective Advances, fifth, to prepay principal on the Canadian Revolving Loans (other than the Canadian Protective Advances) and unreimbursed Canadian LC Disbursements, ratably, sixth, to pay an amount to the Agent equal to 103% of the Canadian LC Exposure on such date, to be held in the Canadian LC Collateral Account as cash collateral for such Obligations, seventh, to pay any amounts owing with respect to Banking Services and Secured Swap Obligations that are Canadian Obligations, ratably, eighth, to the payment of any other Canadian Obligation due to the Agent or any Canadian Revolving Lender from any Canadian Loan Party, and ninth, to the Canadian Borrowers or as the Borrower Agent shall direct.
(c) If any Applicable Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Revolving Loans or participations in LC Disbursements, Swingline Loans or Protective Advances with respect to the applicable Borrower Group resulting in such Applicable Lender receiving payment of a greater proportion of the aggregate amount of its Revolving Loans and participations in LC Disbursements, Swingline Loans or Protective Advances owing by the Borrowers within such Borrower Group and accrued interest thereon than the proportion received by any other Applicable Lender to the Borrowers within such Borrower Group, then the Applicable Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Revolving Loans and participations in LC Disbursements, Swingline Loans and Protective Advances owing by the Borrowers within such Borrower Group that are held by the other Applicable Lenders at such time outstanding to the extent necessary so that the benefit of all such payments shall be shared by the Applicable Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Revolving Loans and participations in LC Disbursements, Swingline Loans and Protective Advances owing by the Borrowers within such Borrower Group; provided that (A) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (B) the provisions of this paragraph shall not be construed to apply to any payment made by any Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by an Applicable Lender as consideration for the assignment of or sale of a participation in any of its Revolving Loans or participations in LC Disbursements, Swingline Loans or Protective Advances to any assignee or participant. Each Borrower within a Borrower Group consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Applicable Lender acquiring a participation pursuant to the foregoing arrangements may exercise against such Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Applicable Lender were a direct creditor of such Borrower in the amount of such participation.
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(d) Unless the Agent shall have received notice from the Borrower Agent prior to the date on which any payment is due to the Agent for the account of the Applicable Lenders or the Applicable Issuing Bank hereunder that the Borrowers within the applicable Borrower Group will not make such payment, the Agent may assume that the Borrowers within such Borrower Group have made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Applicable Lenders or the Applicable Issuing Bank, as applicable, the amount due. In such event, if the Borrowers within such Borrower Group have not in fact made such payment, then each of the Applicable Lenders or the Applicable Issuing Bank, as applicable, severally agrees to repay to the Agent forthwith on demand the amount so distributed to such Applicable Lender or Applicable Issuing Bank with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Agent, at the greater of, with respect to a U.S. Revolving Loan, the Federal Funds Effective Rate, or, with respect to a Canadian Revolving Loan, the Canadian Overnight Rate, and, in each case, a rate determined by the Agent in accordance with banking industry rules on interbank compensation.
(e) If any Applicable Lender shall fail to make any payment required to be made by it pursuant to Sections 2.04(b), 2.05(b), 2.05(c), 2.06(d) or (e), 2.07(b), 2.18(c) or 9.03(c), then the Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Agent for the account of such Applicable Lender to satisfy such Applicable Lenders obligations under such Sections until all such unsatisfied obligations are fully paid.
(f) Anything contained herein to the contrary notwithstanding, the Agent may (but shall not be required to), in its discretion, retain any payments or other funds received by the Agent that are otherwise to be provided to an Applicable Defaulting Lender hereunder, and may apply such funds to such Applicable Defaulting Lenders defaulted obligations or readvance such funds to the Borrowers within the applicable Borrower Group in connection with the funding of any Revolving Loan to such Borrowers or issuance of any Letters of Credit for the account of such Borrowers hereunder, including cash collateralization thereof, in accordance with this Agreement.
SECTION 2.19 Mitigation Obligations; Replacement of Lenders. (a) If any Applicable Lender requests compensation under Section 2.15, or if any Borrower within a Borrower Group is required to pay any additional amount to any Applicable Lender or any Governmental Authority for the account of any Applicable Lender pursuant to Section 2.17, then such Applicable Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans to the Borrowers within such Borrower Group hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the reasonable judgment of such Applicable Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.15 or 2.17, as applicable, in the future and (ii) would not subject such Applicable Lender to any material unreimbursed cost or expense and would not otherwise be disadvantageous to such Applicable Lender in any material respect. The Borrowers within the applicable Borrower Group hereby agree to pay all reasonable costs and expenses incurred by any Applicable Lender in connection with any such designation or assignment.
(b) If any Applicable Lender requests compensation under Section 2.15, or if any Borrower within a Borrower Group is required to pay any additional amount to any Applicable Lender or any Governmental Authority for the account of any Applicable Lender pursuant to Section 2.17, or if any Applicable Lender is an Applicable Defaulting Lender, then the Borrower Agent may, at its sole expense and effort, upon notice to such Applicable Lender and the Agent, replace such Applicable Lender by requiring such Applicable Lender to assign and delegate (and such Applicable Lender shall be obligated to assign and delegate), without recourse (in accordance with and subject to the restrictions contained in Section 9.04), all its interests, rights and obligations under this Agreement to an assignee that shall
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assume such obligations (which assignee may be another Lender, if such Lender accepts such assignment); provided that (i) the Borrower Agent shall have received the prior written consent of the Agent and each Applicable Issuing Bank, which consent in each case shall not unreasonably be withheld, (ii) such Applicable Lender shall have received payment of an amount equal to the outstanding principal of its Loans and participations in LC Disbursements, Swingline Loans and Protective Advances owing by the Borrowers within such Borrower Group, accrued interest thereon, accrued fees and all other amounts payable to it hereunder with respect to such Borrower Group, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrowers within such Borrower Group (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.15 or payments required to be made pursuant to Section 2.17, such assignment will result in a reduction in such compensation or payments. The Agent is irrevocably appointed as attorney-in-fact to execute any Assignment and Assumption(s) if the Applicable Defaulting Lender fails to execute the same. A Lender (other than a Defaulting Lender) shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower Agent to require such assignment and delegation cease to apply. Nothing in this Section 2.19 shall be deemed to prejudice any rights that any Borrower within a Borrower Group or any Applicable Issuing Bank may have against any Applicable Lender that is an Applicable Defaulting Lender.
SECTION 2.20 Illegality. If any Applicable Lender reasonably determines that any Change in Law has made it unlawful, or that any Governmental Authority has asserted after the Effective Date that it is unlawful, for such Applicable Lender or its applicable lending office to make or maintain any Interest Period Loans, then, on notice thereof by such Applicable Lender to the Borrower Agent through the Agent, any obligations of such Applicable Lender to make or continue Interest Period Loans or to convert Floating Rate Loans to Interest Period Loans shall be suspended until such Applicable Lender notifies the Agent and the Borrower Agent that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, the Borrower Agent shall upon demand from such Applicable Lender (with a copy to the Agent), either convert all Interest Period Loans of such Lender to Floating Rate Loans in the same currency, either on the last day of the Interest Period therefor, if such Applicable Lender may lawfully continue to maintain such Interest Period Loans to such day, or immediately, if such Applicable Lender may not lawfully continue to maintain such Loans. Upon any such prepayment or conversion, the Borrowers within the applicable Borrower Group shall also pay accrued interest on the amount so prepaid or converted. Each Applicable Lender agrees to designate a different lending office if such designation will avoid the need for such notice and will not, in the determination of such Applicable Lender, otherwise be disadvantageous to it.
SECTION 2.21 Cash Receipts. (a) Each U.S. Loan Party has entered into, and each Canadian Loan Party shall, within ninety (90) days after the Effective Date (or such later date approved by the Agent in its reasonable discretion), enter into, a control agreement (each, a Blocked Account Agreement), in form reasonably satisfactory to the Agent, with the Agent and any bank with which such Loan Party maintains a DDA (other than an Excluded Account) (collectively, the Blocked Accounts). Each Loan Party acknowledges and agrees that each Blocked Account shall operate solely as a collections account and that such Loan Party shall maintain a separate disbursement account for the disbursement of monies to third parties in the ordinary course of their business and other similar disbursement activities, including the presentment of checks and any ACH transfers.
(b) Each U.S. Loan Party agrees that it will cause all proceeds of the ABL First Lien Collateral (other than the Uncontrolled Cash) and for any Canadian Loan Parties, the equivalent portion of the Canadian Collateral to ABL First Lien Collateral (other than Uncontrolled Cash) to be deposited into a Blocked Account, which deposits may be made through a remote scanning process for purposes of depositing payment items into the Blocked Accounts from time to time. Each Loan Party agrees that it will promptly cause all such payment items to be scanned and deposited into Blocked Accounts and will provide copies at the Agents reasonable written request of any and all agreements entered into by a Loan Party with any third party that provides the scanning equipment or the services to reconcile the invoices with any scanned payment items.
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(c) Each Blocked Account Agreement shall require, after the occurrence and during the continuance of an Event of Default or other Liquidity Event (and delivery of notice thereof from the Agent to the Borrower Agent and the other parties to such instrument or agreement) the ACH or wire transfer no less frequently than once per Business Day (unless the Termination Date shall have occurred), of all available cash balances and cash receipts, including the then contents or then entire ledger balance of each Blocked Account (net of such minimum balance, not to exceed the Dollar Equivalent Amount of $250,000 as may be required to be maintained in the subject Blocked Account by the bank at which such Blocked Account is maintained and other than any Uncontrolled Cash), to an account maintained for each Borrower Group by the Agent at BANA (each a BANA Account) or such other account as directed by the Agent. Subject to the terms of the applicable Security Agreement, all amounts received in a BANA Account or such other account shall be applied (and allocated) by the Agent in accordance with Section 2.10(b); provided that if the circumstances described in Section 2.18(b) are applicable, all such amounts shall be applied in accordance with such Section 2.18(b).
(d) If, at any time after the occurrence and during the continuance of an Event of Default or other Liquidity Event, any cash or cash equivalents owned by any Loan Party (other than (i) an amount not to exceed $10,000,000 in the aggregate that is on deposit in segregated DDAs which the Borrower Agent designates in writing to the Agent as being the uncontrolled cash account (the Designated Disbursement Account), which funds shall not be funded from, or when withdrawn from the Designated Disbursement Account, shall not be replenished by, funds constituting proceeds of the ABL First Lien Collateral or, for any Canadian Loan Parties, the equivalent portion of the Canadian Collateral to ABL First Lien Collateral so long as such Event of Default or other Liquidity Event continues, (ii) de minimus cash or cash equivalents from time to time inadvertently misapplied by any Loan Party and (iii) payroll, trust and tax withholding accounts (other than Excluded Accounts) funded in the ordinary course of business and required by applicable law) are deposited to any account, or held or invested in any manner, otherwise than in a Blocked Account subject to a Blocked Account Agreement, the Agent shall be entitled to require the applicable Loan Party within a Borrower Group to close such account and have all funds therein transferred to a Blocked Account of such Borrower Group, and to cause all future deposits to be made to a Blocked Account of such Borrower Group.
(e) The Loan Parties may close DDAs or Blocked Accounts and/or open new DDAs or Blocked Accounts, subject to the contemporaneous execution and delivery to the Agent of a Blocked Account Agreement consistent with the provisions of this Section 2.21 and otherwise reasonably satisfactory to the Agent.
(f) Subject to clause (h) below, the BANA Account for each Borrower Group shall at all times be under the sole dominion and control of the Agent. Each Loan Party within a Borrower Group hereby acknowledges and agrees that, except to the extent otherwise provided in the Security Agreement, (i) such Loan Party has no right of withdrawal from the BANA Account for such Borrower Group, (ii) the funds on deposit in such BANA Account shall at all times continue to be collateral security for all of the applicable Obligations, and (iii) the funds on deposit in such BANA Account shall be applied as provided in this Agreement and, with respect to the U.S. Collateral, the Intercreditor Agreement. In the event that, notwithstanding the provisions of this Section 2.21, any Loan Party within a Borrower Group receives or otherwise has dominion and control of any proceeds or collections required to be transferred to the BANA Account for such Borrower Group pursuant to Section 2.21(c), such proceeds and collections shall be held in trust by such Loan Party for the Agent, shall not be commingled with any of such Loan Partys other funds or deposited in any account of such Loan Party and shall promptly be deposited into such BANA Account or dealt with in such other fashion as such Loan Party may be instructed by the Agent.
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(g) So long as (i) no Event of Default has occurred and is continuing, and (ii) no other Liquidity Event as to which the Agent has notified the Borrower Agent has occurred and is continuing, the Loan Parties within each Borrower Group may direct, and shall have sole control over, the manner of disposition of funds in the Blocked Accounts of such Borrower Group.
(h) Any amounts held or received in a BANA Account for any Borrower Group (including all interest and other earnings with respect thereto, if any) at any time (x) after the Termination Date or (y) all Events of Default and other Liquidity Events have been cured shall (subject in the case of clause (x), to the provisions of the Intercreditor Agreement with respect to the U.S. Collateral) be remitted to the operating account of a Borrower within such Borrower Group as specified by the Borrower Agent.
SECTION 2.22 Reserves; Change in Reserves; Decisions by Agent. (a) The Agent may at any time and from time to time in the exercise of its Permitted Discretion establish and increase or decrease Reserves; provided that, as a condition to the establishment of any new category of Reserves, or any increase in Reserves resulting from a change in the manner of determination thereof, any Required Reserve Notice shall have been given to the Borrower Agent. The amount of any Reserve established by the Agent shall have a reasonable relationship to the event, condition or other matter that is the basis for the Reserve. Upon delivery of such notice, the Agent shall be available to discuss the proposed Reserve or increase, and the Borrowers may take such action as may be required so that the event, condition or matter that is the basis for such Reserve or increase no longer exists, in a manner and to the extent reasonably satisfactory to the Agent in the exercise of its Permitted Discretion. In no event shall such notice and opportunity limit the right of the Agent to establish or change such Reserve, unless the Agent shall have determined in its Permitted Discretion that the event, condition or other matter that is the basis for such new Reserve or such change no longer exists or has otherwise been adequately addressed by the Borrowers. Notwithstanding anything herein to the contrary, (i) Reserves shall not duplicate eligibility criteria contained in the definition of Eligible Receivable, Eligible Tire Inventory or Eligible Non-Tire Inventory and vice versa, or reserves or criteria deducted in computing the cost or market value or Value of any Eligible Receivable, any Eligible Tire Inventory or any Eligible Non-Tire Inventory or the Net Orderly Liquidation Value of any Eligible Tire Inventory or any Eligible Non-Tire Inventory and vice versa, and (ii) Reserves deducted in computing the Canadian Borrowing Base shall not be duplicative of Reserves deducted in computing the U.S. Borrowing Base and vice versa.
SECTION 2.23 Revolving Commitment Increases. (a) So long as no Default or Event of Default then exists, or would result therefrom, the Borrower Agent shall have the right at any time, and from time to time, to request one or more increases in the amount of the total Commitments in an aggregate amount not to exceed $200,000,000 (up to $50,000,000 of which may be allocated to Canadian Revolving Commitment Increases) or, if less, the amount by which $1,110,000,000 exceeds the total Commitments then in effect (such amount, the Aggregate Incremental Capacity). Anything contained herein to the contrary notwithstanding, (i) the aggregate amount of Commitments and, without duplication, Loans outstanding hereunder at any time, including the aggregate amount of Revolving Commitment Increases, shall not exceed $1,110,000,000 at any time, (ii) the aggregate amount of U.S. Commitments and, without duplication, U.S. Revolving Loans outstanding hereunder at any time, including the aggregate amount of U.S. Revolving Commitment Increases, shall not exceed $1,050,000,000 at any time, and (iii) the aggregate amount of Canadian Commitments and, without duplication, the Dollar Equivalent Amount of Canadian Revolving Loans outstanding hereunder at any time, including the aggregate amount of Canadian Revolving Commitment Increases, shall not exceed $110,000,000 at any time.
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(b) Revolving Commitment Increases. (i) The Agent or any other Person may arrange for existing Applicable Lenders to the Borrowers within any Borrower Group to increase their Revolving Commitments to the Borrowers within such Borrower Group or for other Persons to become Applicable Lenders to the Borrowers within such Borrower Group hereunder and to issue revolving commitments in an amount equal to the amount of the increase in the aggregate total of Revolving Commitments requested by the Borrower Agent for the Borrowers within such Borrower Group (each such increase by either means, a Revolving Commitment Increase, each such Revolving Commitment Increase issued to U.S. Borrowers, a U.S. Revolving Commitment Increase and each such Revolving Commitment Increase issued to the Canadian Borrowers, a Canadian Revolving Commitment Increase, and each such Person issuing, or Applicable Lender increasing, its Revolving Commitment, an Additional Revolving Commitment Lender, and each such Additional Revolving Commitment Lender to U.S. Borrowers, an Additional U.S. Revolving Commitment Lender and each such Additional Revolving Commitment Lender to the Canadian Borrowers, an Additional Canadian Revolving Lender); provided, however, that (A) no Revolving Lender shall be obligated to provide a Revolving Commitment Increase as a result of any such request by the Borrower Agent, provided that the Borrower Agent shall not be obligated to provide any existing Revolving Lender with the opportunity to provide a Revolving Commitment Increase and (B) any Additional Revolving Commitment Lender that is not an existing Revolving Lender shall be an Eligible Assignee and shall be subject to the approval of the Agent, each Issuing Bank and the Borrower Agent (each such consent not to be unreasonably withheld). Each Revolving Commitment Increase shall be in a minimum aggregate amount of at least $20,000,000 and in integral multiples of $1,000,000 in excess thereof. Each Revolving Commitment Increase shall be subject to the terms and conditions set forth in this Section 2.23(b) and any Revolving Loans pursuant to such Revolving Commitment Increase or new Revolving Commitments shall be on the same terms and conditions as all other Revolving Loans, except with respect to any fees payable in connection therewith as may be separately agreed among the Borrower Agent and the Additional Revolving Commitment Lenders.
(ii) No Revolving Commitment Increase shall become effective unless and until each of the following conditions have been satisfied:
(A) the Borrower Agent, the Agent, and any Additional Revolving Commitment Lender shall have executed and delivered a customary joinder to the Loan Documents;
(B) the Borrowers within the Borrower Group that are receiving such Revolving Commitment Increase shall have paid such fees and other compensation as the Borrower Agent and each such Additional Revolving Commitment Lender may agree;
(C) the Borrower Agent shall have delivered to the Agent and the Revolving Lenders an opinion or opinions, in form and substance reasonably satisfactory to the Agent, from counsel to the Borrowers reasonably satisfactory to the Agent (it being agreed that the counsel that delivers the legal opinions on the Effective Date shall be satisfactory to the Agent) and dated such date;
(D) to the extent requested by any Additional Revolving Commitment Lender that has issued an Additional Revolving Commitment to the Borrowers within a Borrower Group, a promissory note will be issued, at the expense of the Borrowers within such Borrower Group, to such Additional Revolving Commitment Lender, to be in conformity with the requirements of Section 2.10 (with appropriate modification) to the extent necessary to reflect the new Revolving Commitment of such Additional Revolving Commitment Lender; and
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(E) the Borrower Agent shall have delivered to the Agent (1) the resolutions adopted by each Loan Party approving or consenting to such Revolving Commitment Increase and (2) a certificate of a Responsible Officer of the Company to the effect that, after giving effect to the requested Revolving Commitment Increase, (x) no Event of Default shall have occurred and be continuing and (y) the representations and warranties of the Loan Parties set forth in this Agreement and in each of the other Loan Documents shall be true and correct in all material respects (or, in the case of any representations and warranties qualified by materiality or Material Adverse Effect, in all respects) on and as of the date of such Revolving Credit Increase, as applicable, with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties shall be true and correct in all material respects (or, in the case of any representations and warranties qualified by materiality or Material Adverse Effect, in all respects) as of such earlier date).
(iii) The Agent shall promptly notify each Lender as to the effectiveness of each Revolving Commitment Increase (with each date of such effectiveness being referred to herein as a Revolving Commitment Increase Date), and at such time (A) the aggregate total Revolving Commitments and the aggregate total Commitments under, and for all purposes of, this Agreement shall be increased by the aggregate amount of such Revolving Commitment Increase, (B) in the case of any U.S. Revolving Commitment Increase, the aggregate total U.S. Revolving Commitments and the aggregate total U.S. Commitments under, and for all purposes of, this Agreement shall be increased by the aggregate amount of such U.S. Revolving Commitment Increase, (C) in the case of any Canadian Revolving Commitment Increase, the aggregate total Canadian Revolving Commitments and the aggregate total Canadian Commitments under, and for all purposes of, this Agreement shall be increased by the aggregate amount of such Canadian Revolving Commitment Increase, (D) the Commitment Schedule shall be deemed modified, without further action, to reflect the revised Revolving Commitments of the Lenders, and (E) this Agreement shall be deemed amended, without further action, to the extent necessary to reflect such increased aggregate total Commitments.
(iv) In connection with Revolving Commitment Increases to the Borrowers within a Borrower Group hereunder, the Applicable Lenders and the Borrowers within such Borrower Group agree that, notwithstanding anything to the contrary in this Agreement, (A) the Borrowers within such Borrower Group shall, in coordination with the Agent, (1) repay outstanding Revolving Loans of certain Applicable Lenders, and obtain Revolving Loans from certain other Applicable Lenders (including the Additional Revolving Commitment Lenders to such Borrower Group), or (2) take such other actions as reasonably may be required by the Agent, in each case to the extent necessary so that all of the Applicable Lenders effectively participate in each of the outstanding Revolving Loans to such Borrower Group pro rata on the basis of their Applicable Percentages (determined after giving effect to any increase in the aggregate total Revolving Commitments pursuant to this Section 2.23); and (B) the Borrowers within such Borrower Group shall pay to the Applicable Lenders any costs of the type referred to in Section 2.16 in connection with any repayment and/or prepayment of Revolving Loans required pursuant to preceding clause (A). Without limiting the obligations of the Borrowers provided for in this Section 2.23(b), the Agent and the Applicable Lenders agree that they will use their commercially reasonable efforts to attempt to minimize the costs of the type referred to in Section 2.16 which the Borrowers receiving a Revolving Commitment Increase would otherwise occur in connection with the implementation of an increase in the aggregate total Revolving Commitments and the aggregate total Commitments hereunder.
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SECTION 2.24 Borrower Agent. Each Borrower hereby designates the Company as its representative and agent (in such capacity, the Borrower Agent) for all purposes under the Loan Documents, including requests for Loans and Letters of Credit, designation of interest rates, delivery or receipt of communications, preparation and delivery of Borrowing Base Certificates and financial reports, receipt and payment of Obligations, requests for waivers, amendments or other accommodations, actions under the Loan Documents (including in respect of compliance with covenants), and all other dealings with the Agent, the Issuing Banks or any Lender. The Borrower Agent hereby accepts such appointment. The Agent, the Issuing Banks, and the Lenders shall be entitled to rely upon, and shall be fully protected in relying upon, any notice or communication (including any notice of borrowing) delivered by Borrower Agent on behalf of any Borrower. The Agent, the Issuing Banks, and the Lenders may give any notice or communication with a Borrower hereunder to the Borrower Agent on behalf of such Borrower. Each of the Agent, the Issuing Banks and the Lenders shall have the right, in its discretion, to deal exclusively with the Borrower Agent for any or all purposes under the Loan Documents. Each Borrower agrees that any notice, election, communication, representation, agreement or undertaking made on its behalf by the Borrower Agent shall be binding upon and enforceable against it. Anything contained herein to the contrary notwithstanding, no Borrower (other than the Borrower Agent) shall be authorized to request any Borrowing or Letter of Credit hereunder without the prior written consent of the Company.
SECTION 2.25 Joint and Several Liability of the U.S. Borrowers. (a) Each U.S. Borrower agrees that it is absolutely and unconditionally jointly and severally liable, as co-borrower, for the prompt payment and performance of all U.S. Obligations and all agreements of each of the U.S. Borrowers under the Loan Documents. Each U.S. Borrower agrees that its co-borrower obligations hereunder are direct obligations of payment and not of collection, that such obligations shall not be discharged until the Termination Date.
(b) It is agreed among each U.S. Borrower, the Agent, the Applicable Issuing Banks and the Applicable Lenders that the provisions of this Section 2.25 are of the essence of the transaction contemplated by the Loan Documents and that, but for such provisions, the Agent, the Applicable Issuing Banks and the Applicable Lenders would decline to make Loans the U.S. Borrowers and issue Letters of Credit for the account of U.S. Borrowers. Each U.S. Borrower acknowledges that its obligations pursuant to this Section are necessary to the conduct and promotion of its business, and can be expected to benefit such business.
(c) Nothing contained in this Agreement (including any provisions of this Section 2.25 to the contrary) shall limit the liability of (i) any U.S. Borrower to pay Loans made directly or indirectly to that U.S. Borrower (including Loans advanced to any other U.S. Borrower and then re-loaned or otherwise transferred to, or for the benefit of, such U.S. Borrower), U.S. LC Exposure and all accrued interest, fees, expenses and other related U.S. Obligations with respect thereto, for which such U.S. Borrower shall be primarily liable for all purposes hereunder, or (ii) the Company in respect of all of the U.S. Obligations under the Loan Documents. The Agent, the Applicable Issuing Banks and the U.S. Revolving Lenders shall have the right, at any time in their discretion, to condition Loans and Letters of Credit upon a separate calculation of borrowing availability for each U.S. Borrower and to restrict the disbursement and use of such Loans and Letters of Credit to such U.S. Borrower.
(d) Each U.S. Borrower has requested that the Agent and the U.S. Revolving Lenders make this credit facility available to the U.S. Borrowers on a combined basis, in order to finance the U.S. Borrowers business most efficiently and economically. The U.S. Borrowers business is a mutual and collective enterprise, and the U.S. Borrowers believe that consolidation of their credit facility will enhance the borrowing power of each U.S. Borrower and ease the administration of their relationship with the U.S. Revolving Lenders, all to the mutual advantage of the U.S. Borrowers. The U.S. Borrowers acknowledge and agree that the Agents and the U.S. Revolving Lenders willingness to extend credit to the U.S. Borrowers and to administer the U.S. Collateral on a combined basis, as set forth herein, is done solely as an accommodation to the U.S. Borrowers and at the U.S. Borrowers request.
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(e) In any action or proceeding involving any state corporate law, or any state, Federal or foreign bankruptcy, insolvency, reorganization or other law affecting the rights of creditors generally, if the obligations of any U.S. Borrower under this Section 2.25 or under this Agreement would otherwise be held or determined to be avoidable, invalid or unenforceable on account of the amount of such U.S. Borrowers liability under this Section 2.25 or under this Agreement, then, notwithstanding any other provision of this Section 2.25 to the contrary, the amount of such liability shall, without any further action by the U.S. Borrowers or the Applicable Lenders, be automatically limited and reduced to the highest amount that is valid and enforceable as determined in such action or proceeding (such highest amount determined hereunder being the relevant U.S. Borrowers maximum liability (U.S. Borrowers Maximum Liability). This Section 2.25(e) with respect to the U.S. Borrowers Maximum Liability of each U.S. Borrower is intended solely to preserve the rights of the Applicable Lenders to the maximum extent not subject to avoidance under applicable law, and no U.S. Borrower nor any other Person or entity shall have any right or claim under this Section with respect to such U.S. Borrowers Maximum Liability, except to the extent necessary so that the obligations of any U.S. Borrower hereunder shall not be rendered voidable under applicable law. Each U.S. Borrower agrees that the U.S. Obligations may at any time and from time to time exceed the U.S. Borrowers Maximum Liability of each U.S. Borrower without impairing this Section 2.25 or this Agreement, or affecting the rights and remedies of the Applicable Lenders hereunder, provided that nothing in this sentence shall be construed to increase any U.S. Borrowers obligations hereunder beyond its U.S. Borrowers Maximum Liability.
(f) In the event any U.S. Borrower (a U.S. Paying Borrower) shall make any payment or payments under this Section 2.25 or shall suffer any loss as a result of any realization upon any collateral granted by it to secure its obligations under this Agreement, each other U.S. Borrower (each a U.S. Non-Paying Borrower) shall contribute to such U.S. Paying Borrower an amount equal to such U.S. Non-Paying Borrowers U.S. Borrower Percentage of such payment or payments made, or losses suffered, by such U.S. Paying Borrower. For purposes of this Section 2.25, each U.S. Non-Paying Borrowers U.S. Borrower Percentage with respect to any such payment or loss by a U.S. Paying Borrower shall be determined as of the date on which such payment or loss was made by reference to the ratio of (i) such U.S. Non-Paying Borrowers U.S. Borrowers Maximum Liability as of such date (without giving effect to any right to receive, or obligation to make, any contribution hereunder) or, if such U.S. Non-Paying Borrowers U.S. Borrowers Maximum Liability has not been determined, the aggregate amount of all monies received by such U.S. Non-Paying Borrower from any other U.S. Borrower after the date hereof (whether by loan, capital infusion or by other means) to (ii) the aggregate U.S. Borrowers Maximum Liability of all U.S. Borrowers hereunder (including such U.S. Paying Borrower) as of such date (without giving effect to any right to receive, or obligation to make, any contribution hereunder), or to the extent that a U.S. Borrowers Maximum Liability has not been determined for any U.S. Borrower, the aggregate amount of all monies received by such U.S. Borrowers from any other U.S. Borrower after the date hereof (whether by loan, capital infusion or by other means). Nothing in this provision shall affect any U.S. Borrowers several liability for the entire amount of the U.S. Obligations (up to such U.S. Borrowers Maximum Liability). Each of the U.S. Borrowers covenants and agrees that its right to receive any contribution under this Section 2.25 from a U.S. Non-Paying Borrower shall be subordinate and junior in right of payment to the U.S. Obligations until the Termination Date. This provision is for the benefit of all of the Agent, the Applicable Issuing Banks, the Applicable Lenders, the U.S. Borrowers and the other U.S. Loan Parties and may be enforced by any one, or more, or all of them in accordance with the terms hereof.
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SECTION 2.26 Loan Account; Statement of Obligations. (a) The Agent shall maintain in accordance with its usual and customary practices an account or accounts (Loan Account) evidencing the Indebtedness of the Borrowers within each Borrower Group resulting from each Revolving Loan made to such Borrowers or issuance of a Letter of Credit for the account of such Borrowers from time to time and all other payment Obligations of such Borrowers hereunder or under the other Loan Documents, including accrued interest, fees and expenses thereon. Any failure of the Agent to record anything in the Loan Account, or any error in doing so, shall not limit or otherwise affect the obligation of the Borrowers within each Borrower Group to pay any amount owing by such Borrower Group hereunder. The Agent may maintain a single Loan Account for each Borrower Group in the name of the Borrower Agent, and each Borrower within each Borrower Group confirms that such arrangement shall have no effect on the joint and several character of its liability for the Obligations of such Borrower Group. In the absence of manifest error, entries made in the Loan Account shall constitute presumptive evidence of the information contained therein.
(b) The Borrowers within each Borrower Group hereby authorize the Agent, from time to time without prior notice to the Borrowers within such Borrower Group, to charge to the Loan Account of such Borrower Group all interest and all fees payable hereunder or under any of the other Loan Documents, all costs and expenses payable by any Loan Party within such Borrower Group hereunder or under any of the other Loan Documents, all fees and costs provided for in Section 2.12 with respect to such Borrower Group, and all other payments due and payable under any Loan Document, which amounts so charged shall thereafter constitute Revolving Loans owing by the Borrowers within such Borrower Group hereunder which shall accrue interest at the rate then applicable to Revolving Loans that are ABR Loans in the case of Revolving Loans owing by U.S. Borrowers, Canadian Base Rate Loans in the case of Revolving Loans denominated in Dollars and owing by the Canadian Borrowers or Canadian Prime Rate Loans in the case of Revolving Loans denominated in Canadian Dollars and owing by the Canadian Borrowers (unless and until converted into Interest Period Loans in accordance with the terms hereof); provided that the Agent shall not be authorized to charge any such amount to the Loan Account unless the same shall not have been paid by any Loan Party within the applicable Borrower Group when payment of such amount has otherwise become due and payable hereunder or under any other Loan Document. Any interest not paid by any Loan Party within a Borrower Group within two Business Days after such payment of such amount has otherwise become due and payable hereunder or under any other Loan Document shall be compounded by being charged to the Loan Account of such Borrower Group and shall thereafter constitute Revolving Loans hereunder owing by the Borrowers within such Borrower Group and shall accrue interest at the rate then applicable to Revolving Loans that are ABR Loans in the case of Revolving Loans owing by U.S. Borrowers, Canadian Base Rate Loans in the case of Revolving Loans denominated in Dollars and owing by the Canadian Borrowers or Canadian Prime Rate Loans in the case of Revolving Loans denominated in Canadian Dollars and owing by the Canadian Borrowers (unless and until converted into Interest Period Loans in accordance with the terms hereof).
SECTION 2.27 Extensions of Revolving Loans and Revolving Commitments. (a) The Borrower Agent may at any time and from time to time request that all or a portion of the Revolving Commitments to the Borrowers within a Borrower Group (including any previously extended Revolving Commitments to such Borrowers) existing at the time of such request (each, an Existing Revolving Commitment and any related revolving loans under any such facility, Existing Revolving Loans) be exchanged to extend the termination date thereof and the scheduled maturity date(s) of any payment of principal with respect to all or a portion of any principal amount of Existing Revolving Loans related to such Existing Revolving Commitments (any such Existing Revolving Commitments which have been so extended, Extended Revolving Commitments, any such Extended Revolving Commitments to the U.S. Borrowers, Extended U.S. Revolving Commitments, any such Extended Revolving Commitments to the Canadian Borrowers, Extended Canadian Revolving Commitments and
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any related Revolving Loans, Extended Revolving Loans, any Extended Revolving Loans to the U.S. Borrowers, Extended U.S. Revolving Loans and any Extended Revolving Loans to the Canadian Borrowers, Extended Canadian Revolving Loans) and to provide for other terms consistent with this Section 2.27. Prior to entering into any Extension Agreement with respect to any Extended Revolving Commitments to the Borrowers within a Borrower Group, the Borrower Agent shall provide a notice to the Agent (who shall provide a copy of such notice to each of the Applicable Lenders of the applicable Class of Existing Revolving Commitments) (a Revolving Extension Request) setting forth the proposed terms of the Extended Revolving Commitments to be established thereunder, which terms shall be identical to those applicable to the Existing Revolving Commitments from which they are to be extended (the Specified Existing Revolving Commitment Class) except (x) all or any of the final maturity dates of such Extended Revolving Commitments may be delayed to later dates than the final maturity dates of the Existing Revolving Commitments of the Specified Existing Revolving Commitment Class, (y) the all-in pricing (including, without limitation, margins, fees and premiums) with respect to the Extended Revolving Commitments may be higher or lower than the all-in pricing (including, without limitation, margins, fees and premiums) for the Existing Revolving Commitments of the Specified Existing Revolving Commitment Class and (z) the commitment fee rate with respect to the Extended Revolving Commitments may be higher or lower than the commitment fee rate for Existing Revolving Commitments of the Specified Existing Revolving Commitment, in each case, to the extent provided in the applicable Extension Agreement; provided that, notwithstanding anything to the contrary in this Section 2.27 or otherwise, (1) the borrowing and repayment (other than in connection with a permanent repayment and termination of commitments) of the Extended Revolving Loans under any Extended Revolving Commitments to the Borrowers within any Borrower Group shall be made on a pro rata basis with any borrowings and repayments of the Existing Revolving Loans to the Borrowers within such Borrower Group (the mechanics for which may be implemented through the applicable Extension Agreement and may include technical changes related to the borrowing and repayment procedures of this Agreement), (2) assignments and participations of Extended Revolving Commitments and Extended Revolving Loans shall be governed by the assignment and participation provisions set forth in Section 9.04 and (3)(I) in the case of Section 2.09, no permanent repayment of Extended Revolving Loans by the Borrowers within a Borrower Group (and corresponding permanent reduction in the related Extended Revolving Commitments to such Borrowers) shall be permitted unless all Existing Revolving Loans to such Borrowers and all Existing Revolving Commitments to such Borrowers of the Specified Existing Revolving Commitment Class, shall have been repaid in full and terminated, respectively and (II) in all other cases, no termination of Extended Revolving Commitments to the Borrowers within a Borrower Group and no repayment of Extended Revolving Loans by such Borrowers accompanied by a corresponding permanent reduction in Extended Revolving Commitments to such Borrowers shall be permitted unless such termination or repayment (and corresponding reduction) is accompanied by at least a pro rata termination or permanent repayment (and corresponding pro rata permanent reduction), as applicable, of the Existing Revolving Loans to such Borrowers and Existing Revolving Commitments to such Borrowers of the Specified Existing Revolving Commitment Class (or all Existing Revolving Commitments of such Class and related Existing Revolving Loans shall have otherwise been terminated and repaid in full). Any Extended Revolving Commitments of any Extension Series shall constitute a separate Class of Revolving Commitments from Existing Revolving Commitments of the Specified Existing Revolving Commitment Class and from any other Existing Revolving Commitments (together with any other Extended Revolving Commitments so established on such date).
(b) The Borrower Agent shall provide the applicable Extension Request with respect to the Existing Revolving Commitments of the Borrowers within any Borrower Group at least ten (10) Business Days prior to the date on which the Applicable Lenders under the Existing Class are requested to respond. Any Applicable Lender (an Extending Lender) wishing to have all or a portion of its Revolving Commitments (or any earlier Extended Revolving Commitments) of an Existing Class subject to such Extension Request exchanged into Extended Loans/Commitments shall notify the Agent (an
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Extension Election) on or prior to the date specified in such Extension Request of the amount of its Revolving Commitments (and/or any earlier Extended Revolving Commitments) which it has elected to convert into Extended Loans/Commitments to such Borrowers, but in no event shall any Applicable Lender be required to become an Extending Lender. In the event that the aggregate amount of Revolving Commitments (and any earlier Extended Revolving Commitments) subject to Extension Elections with respect to any Borrower Group exceeds the amount of Extended Loans/Commitments requested by such Borrower Group pursuant to the Extension Request, Revolving Commitments (and any earlier Extended Revolving Commitments) subject to Extension Elections with respect to such Borrower Group shall be exchanged to Extended Loans/Commitments with respect to such Borrower Group on a pro rata basis based on the amount of Revolving Commitments (and any earlier Extended Revolving Commitments) included in each such Extension Election. Notwithstanding the conversion of any Existing Revolving Commitment into an Extended Revolving Commitment, such Extended Revolving Commitment shall be treated identically to all Existing Revolving Commitments of the Specified Existing Revolving Commitment Class for purposes of the obligations of an Applicable Lender in respect of Swingline Loans under Section 2.05 and Letters of Credit under Section 2.06, except that the applicable Extension Agreement may provide that the last day for making Swingline Loans and/or the last day for issuing Letters of Credit with respect to the Borrowers within the applicable Borrower Group may be extended and the related obligations to make Swingline Loans and issue Letters of Credit with respect to such Borrowers may be continued (pursuant to mechanics set forth in the applicable Extension Agreement) so long as the Applicable Swingline Lender and/or the Applicable Issuing Bank, as applicable, have consented to such extensions (it being understood that no consent of any other Lender shall be required in connection with any such extension).
(c) Extended Loans/Commitments shall be established pursuant to an amendment (an Extension Agreement) to this Agreement (which, except to the extent expressly contemplated by the penultimate sentence of this Section 2.27(c) and notwithstanding anything to the contrary set forth in Section 9.02, shall not require the consent of any Lender other than the Extending Lenders with respect to the Extended Loans/Commitments established thereby) executed by the Borrower Agent, the Agent and the Extending Lenders. Notwithstanding anything to the contrary in this Section 2.27 and without limiting the generality or applicability of Section 9.02 to any Section 2.27 Additional Agreements, any Extension Agreement may provide for additional terms and/or additional amendments other than those referred to or contemplated above (any such additional amendment, a Section 2.27 Additional Agreement) to this Agreement and the other Loan Documents; provided that such Section 2.27 Additional Agreements do not become effective prior to the time that such Section 2.27 Additional Agreements have been consented to (including, without limitation, pursuant to consents applicable to holders of any Extended Loans/Commitments provided for in any Extension Agreement) by such of the Lenders, Loan Parties and other parties (if any) as may be required in order for such Section 2.27 Additional Agreements to become effective in accordance with Section 9.02. It is understood and agreed that each Lender has consented, and shall at the effective time thereof be deemed to consent to each amendment to this Agreement and the other Loan Documents authorized by this Section 2.27 and the arrangements described above in connection therewith except that the foregoing shall not constitute a consent on behalf of any Lender to the terms of any Section 2.27 Additional Agreement. In connection with any Extension Agreement, the Borrower Agent shall deliver an opinion of counsel reasonably acceptable to the Agent (i) as to the enforceability of such Extension Agreement, this Agreement as amended thereby, and such of the other Loan Documents (if any) as may be amended thereby (in the case of such other Loan Documents as contemplated by the immediately preceding sentence), (ii) to the effect that such Extension Agreement, including without limitation, the Extended Loans/Commitments provided for therein, does not conflict with or violate the terms and provisions of Section 9.02 of this Agreement and (iii) as to any other matter reasonably requested by the Agent.
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SECTION 2.28 Defaulting Lenders. Notwithstanding any provision of this Agreement to the contrary, if any Lender becomes a Defaulting Lender, then the following provisions shall apply for so long as such Lender is a Defaulting Lender:
(a) fees shall cease to accrue on the Available Revolving Commitment of such Defaulting Lender pursuant to Section 2.12(a);
(b) the Commitment and U.S. Revolving Exposure or Canadian Revolving Exposure, as applicable, of such Defaulting Lender shall not be included in determining whether all Lenders, all affected Lenders, the Required Lenders or the Super Majority Lenders have taken or may take any action hereunder (including any consent to any amendment or waiver pursuant to Section 9.02); provided that any waiver, amendment or modification requiring the consent of all Lenders or each affected Lender which affects such Defaulting Lender differently than other affected Lenders shall require the consent of such Defaulting Lender;
(c) if any Swingline Exposure or LC Exposure exists at the time an Applicable Lender becomes a Defaulting Lender then:
(i) all or any part of such Swingline Exposure and LC Exposure of such Applicable Defaulting Lender with respect to the Borrowers within the applicable Borrower Group shall be reallocated among the non-Applicable Defaulting Lenders with respect to such Borrower Group in accordance with their respective Applicable Percentages (excluding, for purposes of calculating the Applicable Percentages, the Commitments and Loans of the Applicable Defaulting Lender) but only to the extent (x) the sum of all non-Applicable Defaulting Lenders U.S. Revolving Exposures or Canadian Revolving Exposures, as applicable, plus such Applicable Defaulting Lenders Swingline Exposure and LC Exposure with respect to such Borrower Group does not exceed the lesser of the total of all non-Defaulting Lenders Revolving Commitments to such Borrower Group and the U.S. Borrowing Base or Canadian Borrowing Base, as applicable, and (y) the conditions set forth in Section 4.02 are satisfied at such time; and
(ii) if the reallocation described in clause (i) above cannot, or can only partially, be effected, the Borrowers within the applicable Borrower Group shall within three (3) Business Days following notice by the Agent (x) first, prepay the Swingline Exposure of such Applicable Defaulting Lender with respect to such Borrower Group and (y) second, cash collateralize such Applicable Defaulting Lenders LC Exposure with respect to such Borrower Group (after giving effect to any partial reallocation pursuant to clause (i) above) in accordance with the procedures set forth in Section 2.06(j) for so long as such LC Exposure is outstanding;
(iii) if the Borrowers within a Borrower Group cash collateralize any portion of such Applicable Defaulting Lenders LC Exposure with respect to such Borrower Group pursuant to this Section 2.28(c), the Borrowers within such Borrower Group shall not be required to pay any fees to such Applicable Defaulting Lender pursuant to Section 2.12(b) with respect to such Applicable Defaulting Lenders LC Exposure to such Borrowers during the period to the extent such Applicable Defaulting Lenders LC Exposure is cash collateralized;
(iv) if the LC Exposure of the Applicable Defaulting Lender with respect to the Borrowers within a Borrower Group is reallocated pursuant to this Section 2.28(c), then the fees payable to the non-Applicable Defaulting Lenders pursuant to Section 2.12(a) and Section 2.12(b) shall be adjusted in accordance with such non-Applicable Defaulting Lenders Applicable Percentages (excluding, for purposes of calculating the Applicable Percentages, the Commitments and Loans of the Applicable Defaulting Lender); or
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(v) if any Applicable Defaulting Lenders LC Exposure is neither cash collateralized nor reallocated pursuant to this Section 2.28(c), then, without prejudice to any rights or remedies of the Applicable Issuing Bank or any Lender hereunder, all letter of credit fees payable under Section 2.12(b) with respect to such Applicable Defaulting Lenders LC Exposure shall be payable to the Applicable Issuing Bank until such LC Exposure is cash collateralized and/or reallocated;
(d) so long as any Applicable Lender is a Defaulting Lender, the Applicable Swingline Lender shall not be required to fund any Swingline Loan and the Applicable Issuing Banks shall not be required to issue, amend or increase any Letter of Credit, unless it is satisfied that the related exposure will be 100% covered by the Borrower Group Commitments of the non-Defaulting Lenders and/or cash collateral will be provided by the Borrowers within such Borrower Group in accordance with Section 2.28(c), and participating interests in any such newly issued or increased Letter of Credit or newly made Swingline Loan shall be allocated among non-Defaulting Lenders to such Borrower Group in a manner consistent with Section 2.28(c)(i) (and Defaulting Lenders shall not participate therein); and
(e) in the event and on the date that each of the Agent, the Borrower Agent, the Applicable Issuing Banks and the Applicable Swingline Lender agrees that a Defaulting Lender has adequately remedied all matters that caused such Applicable Lender to be a Defaulting Lender, then the Swingline Exposure and LC Exposure of the other Applicable Lenders shall be readjusted to reflect the inclusion of the Revolving Commitment of the Applicable Lender that previously was a Defaulting Lender and on such date such Applicable Lender shall purchase at par such of the Loans of the other Applicable Lenders (other than Swingline Loans) as the Agent shall determine may be necessary in order for such Applicable Lender to hold such Loans in accordance with its Applicable Percentage.
SECTION 2.29 Currency Matters. Dollars are the currency of account and payment for each and every sum at any time due from the Loan Parties hereunder, provided that, unless otherwise provided in this Agreement or any other Loan Document or otherwise agreed to by the Agent:
(a) Each repayment of a Loan or a reimbursement of a draw on a Letter of Credit, as applicable, or a part thereof shall be made in the currency in which such Loan or Letter of Credit is denominated at the time of such repayment;
(b) Each payment of interest shall be made in the currency in which such principal or other sum in respect of which such interest has accrued is denominated;
(c) Each payment of fees by a U.S. Borrower shall be in Dollars;
(d) Each payment of fees by a Canadian Borrower shall be in Canadian Dollars;
(e) Each payment in respect of costs, expenses and indemnities shall be made in the currency in which the same were incurred by the party to whom payment is to be made (unless such currency is not Dollars or Canadian Dollars, in which case such payment shall be made in Dollars); and
(f) Any amount expressed to be payable in Canadian Dollars shall be paid in Canadian Dollars.
No payment to any Secured Party (whether under any judgment or court order or otherwise) shall discharge the obligation or liability of the Loan Party in respect of which it was made unless and until such Secured Party shall have received payment in full in the currency in which such obligation or liability was incurred or is outstanding (unless such currency is not Dollars or Canadian Dollars, in which
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case such payment shall be made in Dollars). To the extent that the amount of any such payment shall, on actual conversion into such currency, fall short of such obligation or liability, whether actual or contingent (other than contingent indemnification obligations for which no claim has been made or asserted), expressed in such currency, such Loan Party (together with the other Loan Parties within its Borrower Group) agrees to indemnify and hold harmless such Secured Party, with respect to the amount of such shortfall, with such indemnity surviving termination of this Agreement and any legal proceeding, judgment or court order pursuant to which the original payment was made which resulted in the shortfall. To the extent that the amount of any such payment to a Secured Party shall, upon an actual conversion into such currency, exceed such obligation or liability, whether actual or contingent (other than contingent indemnification obligations for which no claim has been made or asserted), expressed in that currency, such Secured Party shall return such excess to the members of the applicable Borrower Group.
SECTION 2.30 Currency Fluctuations.
(a) On the last Business Day of each calendar month or, in the event that the Exchange Rate fluctuates in excess of ten percent (10%) during such calendar month, any other Business Day in the reasonable discretion of the Agent (the Calculation Date), the Agent shall determine the Exchange Rate as of such date. The Exchange Rate so determined shall become effective on the first Business Day immediately following such determination (a Reset Date) and shall remain effective until the next succeeding Reset Date. Nothing contained in this Section 2.30 shall be construed to require the Agent to calculate compliance under this Section 2.30 more frequently than once each month.
(b) On each Reset Date, the Agent shall determine the Dollar Equivalent Amount of the Canadian Revolving Exposure.
(c) If, on any Reset Date, the Canadian Revolving Exposure or the Dollar Equivalent Amount of the Canadian Obligations exceeds the lesser of the Canadian Revolving Commitments and the Canadian Borrowing Base on such date (the amount of any such excess referred to herein as the Excess Amount) then (i) the Agent shall give notice thereof to the Borrowers within the applicable Borrower Group and the Applicable Lenders and (ii) within one (1) Business Day thereafter, such Borrowers shall cause such excess to be eliminated, either by repayment of Revolving Loans to such Borrowers or depositing of Cash Collateral with the Agent with respect to outstanding Letters of Credit issued for the account of such Borrowers, and until such Excess Amount is repaid or so cash collateralized, the Applicable Lenders shall not have any obligation to make any Loans.
SECTION 2.31 Obligations of the Canadian Loan Parties. Notwithstanding anything in this Agreement or any other Loan Document to the contrary, no Canadian Loan Party shall be liable or in any manner responsible for, or be deemed to have guaranteed, directly or indirectly, whether as a primary obligor, guarantor, indemnitor, or otherwise, and none of their assets shall secure, directly or indirectly, any of the U.S. Loan Parties U.S. Obligations (including, without limitation, principal, interest, fees, penalties, premiums, expenses, charges, reimbursements, indemnities or any other U.S. Obligations) under this Agreement or any other Loan Document.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES
Each Loan Party represents and warrants to the Lenders that:
SECTION 3.01 Organization; Powers. Each of the Loan Parties and each of its Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to own its property and assets and to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required.
SECTION 3.02 Authorization; Enforceability . The execution, delivery and performance by each of the Loan Parties of each of the Loan Documents to which it is a party, the borrowing of Loans and the other credit extensions, the use of the proceeds thereof and the issuance of Letters of Credit hereunder are, to the extent applicable, within each applicable Loan Partys organizational powers and have been duly authorized by all necessary organizational and, if required, equityholder action of such Loan Party. Each Loan Document to which each Loan Party is a party has been duly executed and delivered by such Loan Party and is a legal, valid and binding obligation of such Loan Party, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency or similar laws affecting creditors rights generally and to general principles of equity.
SECTION 3.03 Governmental Approvals; No Conflicts. The execution, delivery and performance by each of the Loan Parties of each of the Loan Documents to which it is a party, the borrowing of Loans and the other credit extensions, the use of the proceeds thereof and the issuance of Letters of Credit hereunder (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except (i) such as have been obtained or made and are in full force and effect, and (ii) for filings necessary to perfect Liens created pursuant to the Loan Documents, (b) will not violate any Requirement of Law applicable to any Loan Party or any of its Subsidiaries, (c) will not violate or result in a default under any indenture, agreement or other instrument binding upon any Loan Party or any of its Subsidiaries or its assets, or give rise to a right thereunder to require any payment to be made by any Loan Party or any of its Subsidiaries, and (d) will not result in the creation or imposition of any Lien on any asset of any Loan Party or any of its Subsidiaries, except Liens created pursuant to the Loan Documents and the Senior Secured Notes Security Documents; except, in each case other than with respect to the creation of Liens, to the extent that any such violation, default or right, or any failure to obtain such consent or approval or to take any such action, would not reasonably be expected to result in a Material Adverse Effect.
SECTION 3.04 Financial Condition; No Material Adverse Change. (a) The unaudited pro forma consolidated balance sheet of Holdings and its consolidated Subsidiaries as of September 30, 2012 (including any notes thereto) (the Pro Forma Balance Sheet and such date, the Pro Forma Balance Sheet Date), copies of which have heretofore been furnished to each Lender, has been prepared giving effect (as if such events had occurred on such date) to the consummation of the Transactions. The Pro Forma Balance Sheet has been prepared in good faith based upon assumptions believed to be reasonable as of the date thereof, and presents fairly on a pro forma basis the estimated financial position of Holdings and its consolidated Subsidiaries as at the Pro Forma Balance Sheet Date, assuming that the events specified in the preceding sentence had actually occurred at such date.
(b) The audited consolidated balance sheets of Holdings and its consolidated Subsidiaries as of January 2, 2010, January 1, 2011, and December 31, 2011, and the related consolidated statements of income and of cash flows of Holdings and its consolidated Subsidiaries for the fiscal years ended on such dates, reported on by PricewaterhouseCoopers LLP, independent public accountants, present fairly in all material respects the consolidated financial position of Holdings and its consolidated Subsidiaries as of such dates and the consolidated results of operations and consolidated cash flows of Holdings and its consolidated Subsidiaries for the respective fiscal years ended as of such dates. The unaudited consolidated balance sheet of Holdings and its consolidated Subsidiaries as of October 27,
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2012, and the related unaudited consolidated statements of income and cash flows of Holdings and its consolidated Subsidiaries for the fiscal month period ended on such date, and the corresponding statements of income and cash flows of Holdings and its consolidated Subsidiaries for the corresponding period of the prior fiscal year, present fairly in all material respects the consolidated financial condition of Holdings and its consolidated Subsidiaries as of such dates (subject to the absence of footnotes and normal year-end adjustments) and the consolidated results of operations and consolidated cash flows of Holdings and its consolidated Subsidiaries for the fiscal-month period ended as of such dates (subject to the absence of footnotes and normal year-end adjustments). All such financial statements have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by the aforementioned firm of accountants and disclosed therein). No U.S. Loan Party has any material liabilities or material obligations of any kind whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise, and whether due or to become due, other than liabilities or obligations provided for in the financial statements referred to in this paragraph, liabilities or obligations arising in the ordinary course of business consistent with past practice or liabilities which would not be required to be disclosed in an audited balance sheet (or in the notes thereto) that is prepared in accordance with GAAP.
(c) No event, change or condition has occurred that has had, or would reasonably be expected to have, a Material Adverse Effect, since the Effective Date.
SECTION 3.05 Properties. Each Loan Party and each of its Subsidiaries has good and insurable fee simple title to, or valid leasehold interests in, or easements or other limited property interests in, all its real properties (including all Mortgaged Properties) and has good and marketable title to its personal property and assets, in each case, except for defects in title that do not materially interfere with its ability to conduct its business as currently conducted or to utilize such properties and assets for their intended purposes and except where the failure to have such title would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. All such properties and assets are free and clear of Liens, other than Liens (i) permitted by Section 6.02 or (ii) arising by operation of law (which Liens, in the case of this clause (ii) do not materially interfere with the ability of any Loan Party or any of its Subsidiaries to carry on its business as now conducted or to utilize the affected properties or assets for their intended purposes).
SECTION 3.06 Litigation and Environmental Matters. (a) There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of any Loan Party, threatened against or affecting the Loan Parties or any of their Subsidiaries (i) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, would reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect or (ii) that involve any Loan Documents.
(b) Except for matters that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect (i) no Loan Party nor any of its Subsidiaries has received written notice of any claim with respect to any Environmental Liability and (ii) no Loan Party nor any of its Subsidiaries (1) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law or (2) has become subject to any Environmental Liability.
SECTION 3.07 Compliance with Laws, No Default. Each Loan Party is in compliance with all Requirements of Law applicable to it or its property, except where the failure to be so in compliance, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect. No Default has occurred and is continuing.
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SECTION 3.08 Investment Company Status. No Loan Party is an investment company as defined in, or is required to be registered under, the Investment Company Act of 1940.
SECTION 3.09 Taxes. Each Loan Party and its Subsidiaries has timely filed or caused to be filed all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which such Loan Party or such Subsidiary, as applicable, has set aside on its books adequate reserves in accordance with GAAP or (b) to the extent that the failure to do so, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.
SECTION 3.10 ERISA; Canadian Pension Plans. (a) (a) No ERISA Event has occurred in the five year period prior to the date on which this representation is made or deemed made and is continuing or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, would reasonably be expected to result in a Material Adverse Effect. Except as would not reasonably be expected to have a Material Adverse Effect, the present value of all accumulated benefit obligations under all Plans (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed the fair market value of the assets of such Plans, in the aggregate.
(b) Canadian Loan Parties are in compliance in all material respects with the requirements of the PBA and of any binding requirements of general application of a Governmental Authority with respect to each Canadian Pension Plan and are in compliance with any directive or order of a Governmental Authority directed specifically at a Canadian Pension Plan. No fact or situation that may reasonably be expected to result in a Material Adverse Effect exists in connection with any Canadian Pension Plan. No Canadian Loan Party or an Affiliate thereof maintains, contributes or has any liability with respect to a Canadian Pension Plan which provides benefits on a defined benefit basis other than a Canadian MEPP. No Pension Event has occurred that when taken together with all other Pension Events and ERISA Events for which liability is reasonably expected to occur, would reasonably be expected to result in a Material Adverse Effect. All contributions required to be made by any Canadian Loan Party or its Subsidiary to any Canadian Pension Plan have been made in a timely fashion in accordance with the terms of such Canadian Pension Plan and the PBA. No Lien has arisen, choate or inchoate, in respect of any Canadian Loan Party or their property in connection with any Canadian Pension Plan (save for contribution amounts not yet due).
SECTION 3.11 Disclosure. (a) All written information (other than the Projections, the pro forma financial statements and estimates and information of a general economic or general industry nature) concerning the Company, the Transactions and any other transactions contemplated hereby prepared by or on behalf of the foregoing or their representatives and made available to any Lender or the Agent in connection with the Transactions on or before the date hereof (the Information), when taken as a whole, as of the date such Information was furnished to the Lenders and as of the Effective Date, did not contain any untrue statement of a material fact as of any such date or omit to state a material fact necessary in order to make the statements contained therein not misleading in light of the circumstances under which such statements were made (giving effect to all supplements and updates).
(b) The Projections, pro forma financial statements and estimates prepared by or on behalf of the Company or any of its representatives and that have been made available to any Lender or the Agent in connection with the Transactions on or before the date hereof (the Other Information) (i) have been prepared in good faith based upon assumptions believed to be reasonable as of the date thereof (it being recognized that such Other Information is as to future events and is not to be viewed as a
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fact, the Other Information is subject to significant uncertainties and contingencies, many of which are beyond the control of the Loan Parties and their Subsidiaries, that no assurance can be given that any particular projections will be realized and that actual results during the period or periods covered by any such Other Information may differ from the projected results and such differences may be material), and (ii) as of the Effective Date, have not been modified in any material respect by the Loan Parties.
SECTION 3.12 Solvency. As of the Effective Date, and immediately after giving effect to the Canadian Acquisition and the consummation of the other Transactions to occur on the Effective Date, (i) the fair value of the assets of the Company and its Subsidiaries, on a consolidated basis, at a fair valuation, will exceed the debts and liabilities, direct, subordinated, contingent or otherwise, of the Company and its Subsidiaries, on a consolidated basis; (ii) the present fair saleable value of the property of the Company and its Subsidiaries, on a consolidated basis, will be greater than the amount that will be required to pay the probable liability of the Company and its Subsidiaries on a consolidated basis, on their debts and other liabilities, direct, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (iii) the Company and its Subsidiaries, on a consolidated basis, will be able to pay their debts and liabilities, direct, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (iv) the Company and its Subsidiaries, on a consolidated basis, will not have unreasonably small capital with which to conduct the businesses in which they are engaged as such businesses are now conducted and are proposed to be conducted following the Effective Date.
SECTION 3.13 Insurance. All insurance required by Section 5.10 is in full force and effect and all premiums in respect of such insurance have been duly paid. The Company believes that the insurance maintained by or on behalf of the Company and the Subsidiaries is adequate and is in accordance with normal industry practice.
SECTION 3.14 Capitalization and Subsidiaries. As of the date hereof, Schedule 3.14 sets forth (a) a correct and complete list of the name and relationship to the Company of each and all of the Companys Subsidiaries, (b) a true and complete listing of each class of the Companys and each Subsidiarys authorized Equity Interests, of which all of such issued shares are validly issued, outstanding, fully paid and non-assessable, and owned beneficially and of record by the Persons identified on Schedule 3.14, and (c) the type of entity of the Company and each of its Subsidiaries. All of the issued and outstanding Equity Interests of the Subsidiaries owned by any Loan Party have been (to the extent such concepts are relevant with respect to such ownership interests) duly authorized and issued and are fully paid and non-assessable free and clear of all Liens (other than Liens permitted pursuant to Section 6.02). As of the Effective Date, there are no outstanding purchase options, warrants, subscription rights, agreements to issue or sell, convertible interests or powers of attorney granted by the Company or a Subsidiary of the Company relating to Equity Interests of the Company or any Subsidiary.
SECTION 3.15 Security Interest in Collateral. The provisions of the Collateral Documents are effective to create legal and valid Liens (a) on the applicable U.S. Collateral described in each therein in favor of the Agent, for the benefit of the Agent, the Lenders and the other Secured Parties and (b) on the applicable Canadian Collateral described in each therein in favor of the Agent, for the benefit of the Agent, the Canadian Lenders and the other applicable Secured Parties (in each case, to the extent such matter is governed by the laws of the United States, Canada or any respective jurisdiction therein); and upon the taking of all actions described in the Loan Documents (but subject to the limitations set forth therein), including, without limitation, the filing of UCC financing statements covering the appropriate Collateral in the state of organization of each applicable U.S. Loan Party, the filing of PPSA and UCC financing statements covering the appropriate Collateral in the places of the registered office or domicile, the chief executive office and principal place of business and locations of Collateral of each Canadian Loan Party and the filings of short form agreements or other applicable
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documents or notices in respect of registered and applied for United States and Canadian federal intellectual property owned by each Loan Party, such Liens will constitute perfected Liens on the Collateral, securing the applicable Secured Obligations, enforceable against the applicable Loan Party, and having priority over all other Liens on the Collateral except in the case of (a) Permitted Encumbrances and other Liens permitted under Section 6.02, to the extent any such Permitted Encumbrances or such Liens would have priority over the Liens in favor of the Agent pursuant to any applicable law or otherwise, (b) Liens perfected only by possession (including possession of any certificate of title) to the extent the Agent has not obtained or does not maintain possession of such Collateral and (c) subject to and as provided for under the terms of the Intercreditor Agreement, the Liens granted to the Noteholder Collateral Agent on the U.S. Collateral under the Senior Secured Notes Security Documents.
SECTION 3.16 Labor Disputes. Except as, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect: (a) there are no strikes, lockouts or slowdowns against any Loan Party pending or, to the knowledge of the Company, threatened, (b) the hours worked by and payments made to employees of the Loan Parties and the Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable federal, state, provincial, local or foreign law dealing with such matters and (c) all payments due from any Loan Party or any Subsidiary, on account of wages and employee health and welfare insurance and other benefits, have been paid or accrued as a liability on the books of the Loan Party or such Subsidiary to the extent required by GAAP. Except as, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect the consummation of the Transactions will not give rise to a right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which any Loan Party or any of its Subsidiaries (or any predecessor) is a party or by which any Loan Party or any of its Subsidiaries (or any predecessor) is bound.
SECTION 3.17 Federal Reserve Regulations. (a) On the Effective Date, none of the Collateral is Margin Stock.
(b) No Loan Party nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of buying or carrying Margin Stock.
(c) No part of the proceeds of any Loan or any Letter of Credit will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately for any purpose that entails a violation of, or that is inconsistent with, the provisions of Regulation T, U or X.
SECTION 3.18 Senior Indebtedness. The obligations of the Loan Parties under the Loan Documents (a) for principal (including reimbursement obligations with respect to Letters of Credit whether or not drawn), interest (including, to the extent legally permitted, all interest accrued thereon after the commencement of any insolvency or liquidation proceeding at the rate, including any applicable post-default rate, specified in the applicable agreement), premium (if any), fees, indemnifications, reimbursements, expenses, damages and other liabilities payable under the Loan Documents constitute Senior Indebtedness under and as defined in the Senior Subordinated Note Documents, and (b) for unpaid principal (including reimbursement obligations with respect to drawn Letters of Credit) and accrued interest (including, to the extent legally permitted, all interest accrued thereon after the commencement of any insolvency or liquidation proceeding at the rate, including any applicable post-default rate, specified in the applicable agreement) constitute Designated Senior Indebtedness under and as defined in the Senior Subordinated Note Documents. The U.S. Obligations constitute ABL Debt Obligations under and as defined in the Intercreditor Agreement. The Senior Secured Notes are not secured by any of the Canadian Collateral and the Lien priorities established pursuant to the Intercreditor Agreement do not apply to the Canadian Collateral.
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SECTION 3.19 Intellectual Property. Each Loan Party owns or has the lawful right to use all material intellectual property used in the conduct of its business, without conflict with any intellectual property rights of others, except as, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. Except as, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect, there is no pending or, to any Borrowers knowledge, threatened claim that any Loan Partys ownership, use, marketing, sale or distribution of any Inventory or other product violates another Persons intellectual property rights.
SECTION 3.20 Use of Proceeds. The proceeds of the Revolving Loans, Swingline Loans and the Letters of Credit shall be used (a) to pay a portion of the Canadian Acquisition Funds, and (b) for capital expenditures, working capital needs of the Borrowers and their Subsidiaries and for general corporate purposes.
SECTION 3.21 Anti-Terrorism Laws. Each Loan Party is in compliance in all material respects with all Anti-Terrorism Laws applicable to it or its property.
ARTICLE IV.
CONDITIONS
SECTION 4.01 Effective Date. This Agreement shall become effective on the date on which each of the following conditions is satisfied (or waived in accordance with Section 9.02):
(a) Credit Agreement and Loan Documents. The Agent (or its counsel) shall have received (i) from each party hereto either (A) a counterpart of this Agreement signed on behalf of such party or (B) written evidence reasonably satisfactory to the Agent (which may include facsimile or email transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement, and (ii) duly executed copies of the other Loan Documents.
(b) Legal Opinions. The Agent shall have received, on behalf of itself and the Lenders on the Effective Date, a favorable (i) written opinion of Simpson Thacher & Bartlett LLP, U.S. counsel for Holdings and its Subsidiaries, and of Osler, Hoskin & Harcourt LLP, Canadian counsel for Holdings and its Subsidiaries, each in form and substance reasonably satisfactory to the Agent and (ii) reporting letters of local or other counsel reasonably satisfactory to the Agent as specified on Schedule 4.01(b), in each case (A) dated the Effective Date, (B) addressed to the Agent and the Lenders and (C) in form and substance reasonably satisfactory to the Agent and covering such other matters relating to the Loan Documents as the Agent shall reasonably request.
(c) Financial Statements and Projections. The Agent shall have received (i) the Pro Forma Balance Sheet, (ii) the financial statements referred to in Section 3.04(b) and (iii) pro forma forecasts prepared by management of Holdings, giving effect to the Transactions, of balance sheets, income statements, and cash flow statements on a quarterly basis through the 2013 fiscal year and on an annual basis commencing with the 2014 fiscal year through the end of the 2016 fiscal year.
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(d) Closing Certificates; Certified Certificate of Incorporation; Good Standing Certificates. The Agent shall have received (i) a certificate of each Loan Party, dated the Effective Date and executed by its Secretary or Assistant Secretary or other Responsible Officer, which shall (A) certify the resolutions of its Board of Directors, members or other body authorizing the execution, delivery and performance of the Loan Documents to which it is a party, (B) identify by name and title and bear the signatures of the Financial Officers and any other officers of such Loan Party authorized to sign the Loan Documents to which it is a party, and (C) contain appropriate attachments, including the certificate or articles of incorporation or organization of each Loan Party (in the case of the U.S. Loan Parties, certified by the relevant authority of the jurisdiction of organization of such Loan Party), and a true and correct copy of its by-laws or operating, management or partnership agreement, and (ii) a good standing certificate for each Loan Party from its jurisdiction of organization.
(e) Fees. The Lenders, the Joint Lead Arrangers, and the Agent shall have received all fees required to be paid on the Effective Date, and all reasonable out-of-pocket expenses required to be paid on the Effective Date and for which invoices have been presented to the Company at least two Business Days prior to the Effective Date (including the reasonable documented fees and expenses of legal counsel), on or before the Effective Date.
(f) Lien and Judgment Searches. The Agent shall have received the results of recent Lien and judgment searches in each of the jurisdictions contemplated by the Perfection Certificate, and such search shall reveal no material judgments and no Liens on any of the assets of the Loan Parties except for the Agents Liens, Liens permitted by Section 6.02 or Liens discharged on or prior to the Effective Date pursuant to documentation reasonably satisfactory to the Agent.
(g) Funding Account. The Agent shall have received a notice setting forth the deposit account of the Borrower Agent (with respect to the Borrower Group that includes the U.S. Borrowers) and the deposit account of a Canadian Borrower (with respect to the Borrower Group that includes the Canadian Borrowers) (each a Funding Account) to which the Agent is authorized by the Borrowers within the applicable Borrower Group to transfer the proceeds of any Borrowings requested or authorized pursuant to this Agreement.
(h) Solvency. The Agent shall have received a customary certificate from the chief financial officer of the Company certifying that the Company and its Subsidiaries, on a consolidated basis after giving effect to the Transactions to occur on the Effective Date, are solvent (within the meaning of Section 3.12).
(i) Borrowing Base Certificate. The Agent shall have received prior to the Effective Date a Borrowing Base Certificate which calculates each Borrowing Base as of the last Business Day of the most recent fiscal month ended at least ten (10) Business Days prior to the Effective Date.
(j) Opening Availability. The amount of Excess Availability, with all the U.S. Loan Parties and the Canadian Loan Parties obligations current in accordance with historical practices and after giving effect to the making of the initial Revolving Loans hereunder and the issuance of any Letters of Credit and the payment of all fees hereunder and all other Transaction Expenses attributable to the U.S. Borrowers and the Canadian Loan Parties, is not less than $150,000,000.
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(k) Pledged Stock; Stock Powers; Pledged Notes. The Agent (or its bailee) shall have received (i) the certificates representing the shares of Equity Interests required to be pledged pursuant to the applicable Security Agreement, together with an undated stock power for each such certificate executed in blank by a duly authorized officer of the pledgor thereof and (ii) each promissory note (if any) required to be pledged to the Agent (or its bailee) pursuant to the applicable Security Agreement endorsed (without recourse) in blank (or accompanied by an executed transfer form in blank) by the pledgor thereof.
(l) Perfection Certificate; Filings, Registrations and Recordings. The Agent shall have received a completed Perfection Certificate dated the Effective Date and signed by a Responsible Officer of the Company, together with all attachments contemplated thereby. Each document (including any UCC and PPSA financing statement) required by the Collateral Documents or under law or reasonably requested by the Agent to be filed, registered or recorded in order to create in favor of the Agent and other applicable Secured Parties, a perfected Lien on the Collateral described therein, prior and superior in right to any other Person (other than with respect to Liens expressly permitted by Section 6.02), shall be in proper form for filing, registration, or recordation.
(m) Material Adverse Effect. Since the date of the latest audited financial statements of Holdings and its Subsidiaries, no Material Adverse Effect has occurred.
(n) Transactions. (i) The Canadian Acquisition shall have been consummated, or substantially simultaneously with the Effective Date, shall be consummated, in accordance with the terms of the Canadian Acquisition Agreement, without giving effect to any modifications, amendments, consents or waivers that are material and adverse to the Lenders or the Agent as reasonably determined by the Agent, without the prior consent of the Agent (such consent not to be unreasonably withheld, delayed or conditioned), and (ii) concurrently with the consummation of the Canadian Acquisition, the Refinancing shall have been consummated.
(o) Insurance. The Agent shall have received liability and property insurance certificates and endorsements naming the Agent (together with the Trustee, as applicable) as an additional insured or loss payee, as applicable, (subject to the terms of the Intercreditor Agreement with respect to the U.S. Collateral).
(p) PATRIOT Act. The Agent shall have received on or prior to the Effective Date, all documentation and other information about the Borrowers and the other Loan Parties as had been reasonably requested in writing at least 7 days prior to the Effective Date by the Agent that it reasonably determines is required by regulatory authorities under applicable know your customer and anti-money laundering rules and regulations, including without limitation the PATRIOT Act.
(q) Litigation. To the knowledge of the Canadian Borrowers, there are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against any Canadian Borrower or any Canadian Guarantor, as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, would reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect.
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(r) Canadian Agreements. The Agent shall have received a complete and correct copy of the Canadian Acquisition Agreement as well as the schedule of material agreements provided by the Seller in connection with the Canadian Acquisition Agreement.
The Agent shall notify the Company and the Lenders of the Effective Date, and such notice shall be conclusive and binding.
SECTION 4.02 Each Credit Event. The obligation of each Applicable Lender to make a Revolving Loan on the occasion of any Revolving Borrowing to the Borrowers within a Borrower Group, and of any Applicable Issuing Bank to issue, amend, renew or extend any Letter of Credit for the account of any Borrower within a Borrower Group, is subject to the satisfaction of the following conditions:
(a) The Agent shall have received, in the case of a Revolving Loan, a Borrowing Request as required by Section 2.03 (or a Borrowing Request shall have been deemed given in accordance with the last paragraph of Section 2.03) or, in the case of the issuance of a Letter of Credit, the Applicable Issuing Bank and the Agent shall have received a notice requesting the issuance of such Letter of Credit as required by Section 2.06(b) or, in the case of a Swingline Loan, the Applicable Swingline Lender and the Agent shall have received a Swingline Borrowing Request as required by Section 2.05(a).
(b) The representations and warranties of the Loan Parties set forth in this Agreement and in each of the other Loan Documents shall be true and correct in all material respects (or, in the case of any representations and warranties qualified by materiality or Material Adverse Effect, in all respects) on and as of the date of such Borrowing or the date of issuance, amendment, renewal or extension of such Letter of Credit (other than an amendment, extension or renewal of a Letter of Credit without any increase in the stated amount of such Letter of Credit), as applicable, with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date (in which case such representations and warranties shall be true and correct in all material respects (or, in the case of any representations and warranties qualified by materiality or Material Adverse Effect, in all respects) as of such earlier date).
(c) After the Effective Date, at the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit (other than an amendment, extension or renewal of a Letter of Credit without any increase in the stated amount of such Letter of Credit), as applicable, no Event of Default or Default shall have occurred and be continuing.
(d) After giving effect to the proposed Borrowing or issuance, amendment, renewal or extension of such Letter of Credit, (i) the aggregate U.S. Revolving Exposures would not exceed the lesser of the U.S. Revolving Commitments and the U.S. Borrowing Base, and (ii) the aggregate Canadian Revolving Exposures would not exceed the lesser of the Canadian Revolving Commitments and the Canadian Borrowing Base.
Each Borrowing and each issuance, amendment, renewal or extension of a Letter of Credit shall be deemed to constitute a representation and warranty by the Borrowers on the date thereof as to the matters specified in paragraphs (b), (c) and (d).
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ARTICLE V.
AFFIRMATIVE COVENANTS
Until the Termination Date, each Loan Party executing this Agreement covenants and agrees, jointly and severally with all of the Loan Parties, with the Lenders that:
SECTION 5.01 Financial Statements; Borrowing Base and Other Information . The Company will furnish to the Agent (which will promptly furnish such information to the Lenders):
(a) within ninety (90) days after the end of each fiscal year of the Company, its audited consolidated balance sheet and related statements of earnings, shareholders equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by PricewaterhouseCoopers LLP or other independent public accountants of recognized national standing (whose opinion shall not be qualified as to scope of audit or as to the status of the Company and its consolidated Subsidiaries as a going concern) to the effect that such consolidated financial statements present fairly, in all material respects, the financial condition and results of operations of the Company and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP;
(b) within forty-five (45) days after the end of each of the first three fiscal quarters of each fiscal year of the Company, its consolidated balance sheet and related statements of earnings, shareholders equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its Financial Officers as presenting fairly, in all material respects, the financial condition and results of operations of the Company and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP, subject to normal year-end audit adjustments and the absence of footnotes;
(c) within thirty (30) days after the end of each of the first two fiscal months of each fiscal quarter of the Company, its consolidated balance sheet and related statements of earnings and cash flows as of the end of and for such fiscal month and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for (or, in the case of the balance sheet, as of the end of) the corresponding period or periods of the previous fiscal year, all certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of the Company and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP, subject to normal year-end audit adjustments and the absence of footnotes;
(d) concurrently with any delivery of financial statements under clause (a), (b) or (c) above, a certificate of a Financial Officer of the Company in substantially the form of Exhibit C (i) certifying that no Event of Default or Default has occurred and, if an Event of Default or Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (ii) setting forth, in the case of the financial statements delivered under clause (a) or (b), reasonably detailed calculations of the Fixed Charge Coverage Ratio (whether or not a Trigger Event then exists) as of the end of the period to which such financial statements relate, (iii) describing in reasonable detail such information with respect to Permitted Acquisitions consummated during the preceding fiscal quarter as the Agent may reasonably require, to the extent such information has not previously been supplied to the Agent hereunder, (iv) certifying as to the calculations and basis, in reasonable detail, of any cost savings added back to EBITDA pursuant to the provisions of clause (a)(xii) of the definition thereof), and
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(v) certifying, in the case of the financial statements delivered under clause (a), a list of names of all Immaterial Subsidiaries (if any) and Unrestricted Subsidiaries (if any), that each Subsidiary set forth on such list individually qualifies as an Immaterial Subsidiary or Unrestricted Subsidiary, as applicable, and that all Domestic Subsidiaries and Canadian Subsidiaries listed as Immaterial Subsidiaries in the aggregate comprise less than 10% of Total Assets of the Company and the Subsidiaries at the end of the period to which such financial statements relate and represented (on a contribution basis) less than 10% of EBITDA for the period to which such financial statements relate;
(e) concurrently with any delivery of financial statements under clause (a) above, a certificate of the accounting firm that reported on such financial statements stating whether they obtained knowledge during the course of their examination of such financial statements of any Event of Default under Section 6.12 (which certificate may be limited to the extent required by accounting rules or guidelines);
(f) concurrently with any delivery of consolidated financial statements under clause (a) or (b) above, the related unaudited consolidating financial statements reflecting the adjustments necessary to eliminate the accounts of Unrestricted Subsidiaries (if any) from such consolidated financial statements;
(g) within ninety (90) days after the beginning of each fiscal year, a detailed consolidated budget of the Company and its Subsidiaries by month for such fiscal year (including a projected consolidated balance sheet and the related consolidated statements of projected cash flows and projected income of the Company and its consolidated Subsidiaries for each quarter of such fiscal year);
(h) as soon as available but in any event on or prior to the 20th day of each fiscal month, a Borrowing Base Certificate as of the close of business on the last day of the immediately preceding fiscal month, together with such supporting information in connection therewith as the Agent may reasonably request, and which may include, without limitation, Inventory reports for each Borrower Group by category and location, together with a reconciliation to the corresponding Borrowing Base Certificate, deliver to the Agent a reasonably detailed calculation of Eligible Tire Inventory, Eligible Non-Tire Inventory, Eligible Receivables and the Value of Inventory for each Borrower Group; provided that upon the occurrence and during the continuance of a Liquidity Event, the Company shall deliver a Borrowing Base Certificate and such supporting information on Wednesday of each week (or if Wednesday is not a Business Day, on the next succeeding Business Day), as of the close of business on the immediately preceding Saturday (or, at any time that an Event of Default exists, more frequently as may be requested by the Agent); provided, further, that immediately prior to any acquisition by any Loan Party of any Person or assets permitted hereunder, all or a portion of the purchase price of which is to be funded by a Revolving Borrowing (including after giving effect to any Revolving Commitment Increase effected in connection therewith), the Company may furnish to the Agent an updated Borrowing Base Certificate that includes the assets to be acquired (including by acquisition of any Person) of any Person that is, or will upon such acquisition become, a Borrower, measured as of the date of the most recent Borrowing Base Certificate previously delivered hereunder, subject, in each case, to the requirements of the last paragraph in Section 6.04.
(i) at the Agents request, concurrently with the delivery of the Borrowing Base Certificate, deliver to the Agent a schedule of Inventory for each Borrower Group as of the last Business Day of the immediately preceding month or week, as applicable, of the Borrowers, itemizing and describing the kind, type and quantity of Inventory, the applicable Borrowers Cost thereof and the location thereof.
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(j) at the Agents request, concurrently with the delivery of the Borrowing Base Certificate, thereafter deliver to the Agent a schedule of Receivables for each Borrower Group which (i) shall be as of the last Business Day of the immediately preceding month or week, as applicable, (ii) shall be reconciled to the Borrowing Base Certificate as of such last Business Day, and (iii) shall set forth a detailed aged trial balance of all of the then existing Receivables of the Borrowers and Canadian Guarantors within each Borrower Group, specifying the names, balance due and, if an Event of Default then exists, the addresses, for each Account Debtor obligated on any Receivable so listed.
(k) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials publicly filed by any Loan Party or any Subsidiary with the SEC, or with any national securities exchange, or, after an initial public offering of shares of capital stock of Holdings or the Company, distributed by Holdings or the Company to its shareholders generally, as the case may be;
(l) not later than any date on which financial statements are delivered with respect to any period in which a Pro Forma Adjustment is made, a certificate of a Responsible Officer of the Company setting forth the amount of such Pro Forma Adjustment and, in reasonable detail, the calculations and basis therefor;
(m) promptly following the Agents request therefor, all documentation and other information that the Agent reasonably requests on its behalf or on behalf of any Lender in order to comply with its ongoing obligations under applicable know your customer and anti-money laundering rules and regulations, including the PATRIOT Act; and
(n) as promptly as reasonably practicable from time to time following the Agents request therefor, such other information regarding the operations, business affairs and financial condition of any Loan Party or any Subsidiary, or compliance with the terms of any Loan Document, as the Agent (on behalf of any Lender) may reasonably request.
Notwithstanding the foregoing, the obligations in clauses (a) and (b) of this Section 5.01 may be satisfied with respect to financial information of the Company and its Subsidiaries by furnishing (A) the applicable financial statements of Holdings (or any direct or indirect parent of Holdings) or (B) the Companys or Holdings (or any direct or indirect parent thereof), as applicable, Form 10-K or 10-Q, as applicable, filed with the SEC; provided that, with respect to each of clauses (A) and (B), (i) to the extent such information relates to Holdings (or a parent thereof), such information is accompanied by consolidating information that explains in reasonable detail the differences between the information relating to Holdings (or such parent), on the one hand, and the information relating to the Company and its Subsidiaries on a standalone basis, on the other hand and (ii) to the extent such information is in lieu of information required to be provided under clause (a) of this Section 5.01, such materials are accompanied by a report and opinion of PricewaterhouseCoopers LLP or other independent public accountants of recognized national standing, which report and opinion shall be prepared in accordance with generally accepted auditing standards and shall not be qualified as to the scope of audit or as to the status of Holdings (or such parent) and its consolidated subsidiaries as a going concern.
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Documents required to be delivered pursuant to clauses (a), (b) or (j) of this Section 5.01 may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which the Company posts such documents, or provides a link thereto on the Companys website on the Internet at the website address provided to the Agent from time to time in writing; or (ii) on which such documents are posted on the Companys behalf on IntraLinks/IntraAgency or another relevant website, if any, to which each Lender and the Agent have access (whether a commercial, third-party website or whether sponsored by the Agent); provided that: (i) upon written request by the Agent, the Company shall deliver paper copies of such documents to the Agent for further distribution to each Lender until a written request to cease delivering paper copies is given by the Agent and (ii) the Company shall notify (which may be by facsimile or electronic mail) the Agent of the posting of any such documents and provide to the Agent by electronic mail electronic versions (i.e., soft copies) of such documents. Notwithstanding anything contained herein, in every instance the Company shall be required to provide paper copies of the compliance certificates required by clause (d) of this Section 5.01 to the Agent.
SECTION 5.02 Notices of Material Events. The Company will furnish to the Agent written notice of the following promptly after any Responsible Officer of the Company obtains knowledge thereof:
(a) the occurrence of any Event of Default or Default;
(b) the filing or commencement of, or any written threat or notice of intention of any person to file or commence, any action, suit or proceeding, whether at law or in equity or by or before any Governmental Authority or in arbitration, against any Loan Party or any of its Subsidiaries as to which an adverse determination is reasonably probable and which, if adversely determined, would reasonably be expected to have a Material Adverse Effect;
(c) any loss, damage or destruction to the Collateral in the amount of $20,000,000 or more, whether or not covered by insurance;
(d) any default notice received by a Responsible Officer of the Company or any of its Material Subsidiaries with respect to any leased location or public warehouse that contains Inventory in the amount of $25,000,000 or more; or
(e) the occurrence of any ERISA Event or Pension Event that, together with all other ERISA Events or Pension Events that have occurred and are continuing, would reasonably be expected to result in a Material Adverse Effect.
Each notice delivered under this Section 5.02 shall be accompanied by a statement of a Responsible Officer of the Company setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.
SECTION 5.03 Existence; Conduct of Business. Each Loan Party will, and will cause each Subsidiary to, do or cause to be done all things reasonably necessary to preserve, renew and keep in full force and effect its legal existence and the rights, qualifications, licenses, permits, franchises, governmental authorizations, intellectual property rights, licenses and permits (except as such would otherwise reasonably expire, be abandoned, disposed or permitted to lapse in the ordinary course of business), necessary or desirable in the normal conduct of its business, and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted, except (i) other than with respect to Holdings or the Companys existence, to the extent such failure to do so would not reasonably be expected to have a Material Adverse Effect or (ii) pursuant to a transaction permitted by Section 6.03.
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SECTION 5.04 Payment of Obligations. Each Loan Party will, and will cause each Subsidiary to, pay or discharge all material Tax liabilities, before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings and where such Loan Party or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP or (b) the failure to make payment pending such contest would not reasonably be expected to result in a Material Adverse Effect.
SECTION 5.05 Maintenance of Properties. Each Loan Party will, and will cause each Subsidiary to (a) at all times maintain and preserve all material property necessary to the normal conduct of its business in good repair, working order and condition, ordinary wear and tear excepted and casualty or condemnation excepted and (b) make, or cause to be made, all needful and proper repairs, renewals, additions, improvements and replacements thereto as necessary in accordance with prudent industry practice in order that the business carried on in connection therewith, if any, may be properly conducted at all times, except, in each case, where the failure to do so, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.
SECTION 5.06 Books and Records; Inspection Rights; Appraisals; Field Examinations. (a) Each Loan Party will, and will cause each Subsidiary to, (i) keep proper books of record and account in accordance with GAAP in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities and (ii) permit any representatives designated by the Agent (including employees of the Agent or any consultants, accountants, lawyers and appraisers retained by the Agent), upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, including non-privileged environmental assessment reports and Phase I or Phase II studies in the possession and control of any Loan Party or any Subsidiary, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times during normal business hours and with representatives of the Company present, but not more than two per fiscal year (or, during the occurrence and continuation of an Event of Default, as often as reasonably requested).
(b) At reasonable times during normal business hours and upon reasonable prior notice (except when an Event of Default exists) that the Agent requests, independently of or in connection with the visits and inspections provided for in clause (a) above, (i) the Borrowers will grant access to the Agent (including employees of the Agent or any consultants, accountants, lawyers and appraisers retained by the Agent) to such Persons books, records, accounts and Inventory so that the Agent or an appraiser retained by the Agent may conduct an Inventory appraisal and (ii) the Agent may conduct (or engage third parties to conduct) such field examinations, verifications and evaluations as the Agent may deem necessary or appropriate; provided that (i) the Agent may conduct no more than one such appraisal and one such field examination for each Borrower Group in any period of 12 consecutive months following the date upon which Excess Availability is equal to or greater than 50% of the lesser of (1) the aggregate Revolving Commitments and (2) the Aggregate Borrowing Base, (ii) the Agent may conduct no more than two such appraisals and two such field examinations for each Borrower Group in any period of 12 consecutive months following the date upon which Excess Availability is for five (5) consecutive Business Days equal to or greater than 15%, but less than 50% of the lesser of (1) the aggregate Revolving Commitments and (2) the Aggregate Borrowing Base, (iii) the Agent may conduct up to three (3) such appraisals and three such field examinations for each Borrower Group in any period of 12 consecutive months following any date upon which Excess Availability is for five (5) consecutive Business Days less than 15% of the lesser of (1) the aggregate Revolving Commitments and (2) the Aggregate Borrowing Base, and (iv) the Agent may conduct as many appraisals and field examinations for each Borrower Group as it may request during the existence and continuance of an Event of Default. All such appraisals, field examinations and other verifications and evaluations shall be at the sole expense of the Borrowers; provided that the Agent shall provide the Company with a reasonably detailed accounting of all such expenses.
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(c) The Loan Parties acknowledge that the Agent, after exercising its rights of inspection, may prepare and distribute to the Lenders certain Reports pertaining to the Loan Parties assets for internal use by the Agent and the Lenders, subject to the provisions of Section 9.12 hereof.
SECTION 5.07 Reserved.
SECTION 5.08 Compliance with Laws. Each Loan Party will, and will cause each Subsidiary to, comply in all material respects with (a) all Anti-Terrorism Laws and (b) all other Requirements of Law applicable to it or its property, except in the case of Requirements of Law described in clause (b) where the failure to do so, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.
SECTION 5.09 Use of Proceeds. The proceeds of the Revolving Loans will be used to pay a portion of the Canadian Acquisition Funds, and for capital expenditures, and for working capital needs and general corporate purposes. No part of the proceeds of any Loan and no Letter of Credit will be used, whether directly or indirectly, for any purpose that would entail a violation of Regulations T, U or X.
SECTION 5.10 Insurance. Each Loan Party will, and will cause each Subsidiary to, maintain, with financially sound and reputable insurance companies (a) insurance in such amounts and against such risks, as are customarily maintained by similarly situated companies engaged in the same or similar businesses operating in the same or similar locations (after giving effect to any self-insurance reasonable and customary for similarly situated companies) and (b) all insurance required pursuant to the Collateral Documents (and shall cause (i) the Agent to be listed as a loss payee (together with any other loss payee in accordance with the Intercreditor Agreement with respect to the U.S. Collateral) on property and casualty policies covering loss or damage to Collateral and (ii) the Agent and the other Secured Parties to be listed as additional insureds on liability policies). The Company will furnish to the Agent, upon request, information in reasonable detail as to the insurance so maintained.
SECTION 5.11 Additional Loan Parties; Additional Collateral; Further Assurances. (a) Subject to applicable law and any exceptions set forth in any applicable Security Agreement, each Borrower and each Subsidiary that is a Loan Party shall cause (i) each of its Domestic Subsidiaries and Canadian Subsidiaries (other than any Excluded Subsidiary) formed or acquired after the date of this Agreement in accordance with the terms of this Agreement and (ii) any Domestic Subsidiary or Canadian Subsidiary that was an Excluded Subsidiary but has ceased to be an Excluded Subsidiary, to become a Loan Party as promptly thereafter as reasonably practicable by executing a Joinder Agreement in substantially the form set forth as Exhibit D hereto (the Joinder Agreement). Upon execution and delivery thereof, each such Person (i) shall automatically become a Loan Party and, except as provided in the last sentence of this Section 5.11(a) if such Person is joined as a Borrower or a Guarantor hereunder and thereupon shall have all of the rights, benefits, duties, and obligations in such capacity under the Loan Documents and (ii) will simultaneously therewith or as soon as practicable thereafter grant Liens to the Agent, for the benefit of the Agent, the Applicable Lenders and the other applicable Secured Parties in any property (subject to the limitations with respect to Equity Interests set forth in paragraph (b) of this Section 5.11, the limitations with respect to real property set forth in paragraph (f) of this Section 5.11, applicable law and any other limitations set forth in each Applicable Security Agreement, and excluding property with respect to which the Agent and the Borrower Agent have reasonably determined that the cost of granting Loans in such property is excessive in relation to the value of the security to be afforded by such property) of such Loan Party which constitutes Collateral, on such terms as may be required pursuant to the terms of the Collateral Documents and in such priority as may be required pursuant to the terms of the Intercreditor Agreement with respect to the U.S. Collateral. Subject to the approval of the Agent, any Domestic Subsidiary or Canadian Subsidiary that is a Loan Party may be a Borrower hereunder, subject to (A) execution of a Joinder Agreement pursuant to which such Loan Party agrees to be bound as a Borrower hereunder and such other agreements, documents or instruments as the Agent may reasonably request and (B) with respect to any Canadian Subsidiary, the completion of a field examination and appraisal with results satisfactory to the Agent.
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(b) (i) Subject to the limitations set forth or referenced in this Section 5.11, applicable law and any exceptions set forth in each applicable Security Agreement, each Borrower and each Subsidiary that is a Loan Party will cause the issued and outstanding Equity Interests (other than Excluded Equity Interests) of each Subsidiary directly owned by any Borrower or any Subsidiary that is a Loan Party to be subject at all times to a first priority (subject to the Intercreditor Agreement with respect to the U.S. Collateral and to other Liens permitted by Section 6.02), perfected Lien in favor of the Agent pursuant to the terms and conditions of the Loan Documents.
(ii) Subject to the limitations set forth or referenced in this Section 5.11, applicable law and any exceptions set forth in any applicable Security Agreement, Holdings, each Borrower and each Subsidiary that is a Loan Party will cause, except with respect to intercompany Indebtedness, all evidences of Indebtedness for borrowed money in a principal amount in excess of $2,500,000 (individually) that is owing to Holdings, a Borrower or any Subsidiary that is a Loan Party to be evidenced by a duly executed promissory note and pledged and delivered to the Agent (or its non-fiduciary agent or designee) under the applicable Security Agreement to which such Loan Party is a party and accompanied by instruments of transfer with respect thereto endorsed in blank.
(iii) Each of Holdings, each Borrower and each Subsidiary that is a Loan Party agrees that all Indebtedness of Holdings, the Company and each of its Subsidiaries that is owing to any Loan Party shall be evidenced by the Intercompany Note, which promissory note shall be required to be pledged and delivered to the Agent (or its non-fiduciary agent or designee) under the applicable Security Agreement and accompanied by instruments of transfer with respect thereto endorsed in blank; provided that the intercompany bridge loan (the Triwest Loan) owing by Triwest to the Initial Canadian Borrower, shall not be required to be pledged and delivered hereunder until the day, if any, that such intercompany bridge loan remains outstanding after the fifth Business Day following January 1, 2013.
(c) Subject to the limitations set forth or referenced in this Section 5.11, applicable law and any exceptions set forth in each applicable Security Agreement, and without limiting the foregoing, each Loan Party will, and will cause each Subsidiary that is a Loan Party to, execute and deliver, or cause to be executed and delivered, to the Agent such documents, agreements and instruments, and will take or cause to be taken such further actions (including the filing and recording of financing statements, fixture filings, mortgages, deeds of trust and other documents and such other actions or deliveries of the type required by Section 4.01, as applicable (including the delivery of the Real Property Collateral Requirements), which may be required by law or which the Agent may, from time to time, reasonably request to carry out the terms and conditions of this Agreement and the other Loan Documents and to ensure perfection and priority of the Liens created or intended to be created by the Collateral Documents, all at the expense of the Loan Parties, provided, however, that no U.S. Borrower and no other U.S. Loan Party shall be required to grant any security interest or take any action to perfect any security interest under the law of any jurisdiction outside the United States of America and no Canadian Loan Party shall be required to maintain any Collateral outside of Canada or grant any security interest or take any action to perfect any security interest under the laws of any jurisdiction outside Canada.
(d) Subject to the limitations set forth or referred to in this Section 5.11, applicable law and any exceptions set forth in each applicable Security Agreement, if any material assets (including any real property or improvements thereto or any interest therein) are acquired by any Borrower or any Subsidiary that is a Loan Party after the Effective Date (other than assets constituting Collateral under a
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Security Agreement that become subject to the perfected Lien in favor of the Agent upon acquisition thereof), the Company will, as soon as reasonably practicable, notify the Agent thereof, and, if requested by the Agent, the Company will cause such assets to be subjected to a perfected Lien securing the Secured Obligations and will take, and cause the Loan Parties that are Subsidiaries to take, such actions as shall be necessary or reasonably requested by the Agent to grant and perfect such Liens, including actions described in paragraph (c) of this Section, all at the expense of the Loan Parties.
(e) If, at any time and from time to time after the Effective Date, Subsidiaries that are not Loan Parties because they are Immaterial Subsidiaries comprise in the aggregate more than 10% of Total Assets as of the end of the most recently ended fiscal quarter of the Company or more than 10% of EBITDA for the period of four consecutive fiscal quarters as of the end of the most recently ended fiscal quarter of the Company, then the Company shall, not later than 45 days after the date by which financial statements for such quarter are required to be delivered pursuant to this Agreement, cause one or more such Subsidiaries to become additional Loan Parties (notwithstanding that such Subsidiaries are, individually, Immaterial Subsidiaries) such that the foregoing condition ceases to be true.
(f) Notwithstanding anything to the contrary contained in this Agreement, real property required to be mortgaged under the Loan Documents shall (i) exclude the Miami, Florida and Simi Valley, California real estate and (ii) shall be limited to real property located in the U.S. that is owned in fee by a U.S. Loan Party or Canada that is owned in fee by a Canadian Loan Party, the cost or book value of which (whichever is greater) at the time of the acquisition thereof (or, in the case of real property owned on the Effective Date), the cost or book value of which (whichever is greater) on the Effective Date of $2,500,000 or more (provided that the cost of perfecting such Lien is not unreasonable in relation to the benefits to the Lenders of the security afforded thereby in the reasonable determination of the Borrower Agent and the Agent).
(g) Notwithstanding anything to the contrary contained herein, the Loan Parties within each Borrower Group shall not be required to include as Collateral any Excluded Assets (as defined in any Security Agreement to which the members of such Borrower Group are parties), but for the avoidance of doubt, in no event shall the Canadian assets constitute Excluded Assets for purposes of the Canadian Collateral solely because such assets are owned by a Foreign Subsidiary that is a Canadian Loan Party.
SECTION 5.12 Designation of Subsidiaries. The board of directors of the Company may at any time after the Effective Date, in accordance with the definition of Unrestricted Subsidiary, designate any Subsidiary (other than a Canadian Borrower) as an Unrestricted Subsidiary or any Unrestricted Subsidiary as a Subsidiary; provided that (i) immediately before and after such designation, no Default or Event of Default shall have occurred and be continuing, (ii) no Subsidiary may be designated as an Unrestricted Subsidiary if it is a Restricted Subsidiary for the purpose of the Senior Secured Notes or Senior Subordinated Notes and (iii) no Unrestricted Subsidiary that is designated as a Subsidiary may be redesignated as an Unrestricted Subsidiary at any time after being so designated as a Subsidiary. The designation of any Subsidiary as an Unrestricted Subsidiary shall constitute an investment by the Company therein at the date of designation in an amount equal to the net book value of the Companys investment therein. The designation of any Unrestricted Subsidiary as a Subsidiary shall constitute the incurrence at the time of designation of any Indebtedness or Liens of such Subsidiary existing at such time.
SECTION 5.13 Post-Closing Covenant Regarding Amalgamation of Initial Canadian Borrower and Triwest. On or before the fifth Business Day following January 1, 2013 (or such later date as may be consented to by the Agent in writing), the Company shall deliver to the Agent evidence (which evidence shall be in form and substance satisfactory to the Agent) of the amalgamation
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of the Initial Canadian Borrower and Triwest, and the Company shall, and shall cause the Amalgamated Company and the other Loan Parties to, execute and deliver, or cause to be executed and delivered, to the Agent such documents, agreements, instruments, and legal opinions of counsel to the Amalgamated Company, and will take or cause to be taken such further actions (including the filing, registration, and recording of PPSA financing statements and other documents and such other actions or deliveries, as applicable), which may be required by law to reaffirm and to carry out the terms and conditions of this Agreement and the other Loan Documents and to ensure the continuing perfection and priority of the Agents Liens created or intended to be created by the Collateral Documents, including the Agents Liens upon the assets of the Amalgamated Company, all at the expense of the Loan Parties.
ARTICLE VI.
NEGATIVE COVENANTS
Until the Termination Date, each Loan Party executing this Agreement covenants and agrees, jointly and severally with all of the Loan Parties, with the Lenders that:
SECTION 6.01 Indebtedness. No Loan Party will, nor will it permit any Subsidiary to, create, incur or suffer to exist any Indebtedness, except:
(a) Indebtedness created under the Loan Documents;
(b) Indebtedness existing on the date hereof and set forth in Schedule 6.01;
(c) Indebtedness of the Company to Holdings or any Subsidiary, Indebtedness of any Subsidiary to the Company, Holdings or any other Subsidiary and Indebtedness of Holdings to the Company or any Subsidiary; provided that (i) Indebtedness of any Subsidiary that is not a Loan Party to the Company, Holdings or any Subsidiary that is a Loan Party shall only be permitted to the extent permitted as an investment under Section 6.04, (ii) Indebtedness owing by any Canadian Loan Party to any U.S. Loan Party shall only be permitted to the extent permitted as an investment under Section 6.04, and (iii) Indebtedness of the Company or Holdings to any Subsidiary that is not a Loan Party and Indebtedness of any Subsidiary that is a Loan Party to any Subsidiary that is not a Loan Party shall (x) be evidenced by the Intercompany Note or (y) otherwise be outstanding on the Effective Date so long as such Indebtedness is evidenced by an intercompany note substantially in the form of Exhibit J or otherwise subject to subordination terms substantially identical to the subordination terms set forth in Exhibit J within 60 days of the Effective Date or such later date as the Agent shall reasonably agree, in each case, to the extent permitted by applicable law and not giving rise to material adverse tax consequences;
(d) Guarantees (i) by Holdings and the Subsidiaries that are U.S. Loan Parties of the Indebtedness of the Company described in clause (m) hereof, so long as the Guarantee of the Senior Subordinated Notes is subordinated substantially on terms as set forth in the Senior Subordinated Note Documents, (ii) by Holdings, the Company or any Subsidiary that is a U.S. Loan Party of any Indebtedness of Holdings, the Company or any Subsidiary that is a U.S. Loan Party expressly permitted to be incurred under this Agreement, (iii) by any Canadian Loan Party of Indebtedness of a Loan Party that is expressly permitted to be incurred hereunder, (iv) by Holdings, the Company or any Subsidiary that is a Loan Party of Indebtedness otherwise expressly permitted hereunder of any Subsidiary that is not a Loan Party to the extent such Guarantees are permitted as an investment under Section 6.04 (the foregoing shall also apply to Guarantees of Indebtedness of any Canadian Loan Party to any U.S. Loan Party); provided that Guarantees by Holdings, the Company or any Subsidiary that is a Loan Party under this clause (d) of any other Indebtedness of a Person that is subordinated to other Indebtedness of such Person
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shall be expressly subordinated to the Obligations on terms at least as favorable to the Lenders as the Guarantee of the Senior Subordinated Notes is under the Senior Subordinated Note Documents or as set forth in the Intercompany Note (the foregoing shall also apply to any Guarantees of Indebtedness of a U.S. Loan Party to a Canadian Loan Party), and (v) by Holdings, the Company or any Subsidiary that is a Loan Party of any real property lease obligations of the Company or any Subsidiary that is a Loan Party;
(e) Indebtedness (including Capital Lease Obligations) the proceeds of which are incurred exclusively to finance the acquisition, lease, construction, repair, renovations, replacement, expansion or improvement of any fixed or capital assets or otherwise incurred in respect of Capital Expenditures, whether through the direct purchase of assets or the Equity Interests of any Person owning such assets in an aggregate principal amount, together with all other Indebtedness issued or incurred and outstanding under this clause (e), not to exceed the greater of (i) $45,000,000, and (ii) 2.5% of the Total Assets (in each case determined at the date of incurrence);
(f) Capital Lease Obligations incurred by the Company or any Subsidiary in respect of any Sale and Lease-Back Transaction that is permitted under Section 6.06;
(g) Indebtedness which represents an extension, refinancing, refunding, replacement or renewal of any of the Indebtedness described in clauses (b), (e), (f), (g), (j), (k), (m), (n), (v), (x) and (y) of this Section 6.01; provided that, (i) the principal amount (or accreted value, if applicable) thereof does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness so extended, refinanced, refunded, replaced or renewed, except by an amount equal to unpaid accrued interest and premium (including applicable prepayment penalties) thereon plus fees and expenses reasonably incurred in connection therewith, (ii) any Liens securing such Indebtedness are not extended to any additional property of any Loan Party, (iii) no Loan Party that is not originally obligated with respect to repayment of such Indebtedness is required to become obligated with respect thereto, (iv) such extension, refinancing, refunding, replacement or renewal does not result in a shortening of the average weighted maturity of the Indebtedness so extended, refinanced, refunded, replaced or renewed, (v) if the Indebtedness that is extended, refinanced, refunded, replaced or renewed was subordinated in right of payment to the Secured Obligations, then the terms and conditions of the extension, refinancing, refunding, replacement or renewal Indebtedness must include subordination terms and conditions that are at least as favorable to the Lenders as those that were applicable to the extended, refinanced, refunded, replaced or renewed Indebtedness and (vi) with respect to any such extension, refinancing, refunding, replacement or renewal of the Senior Secured Notes, such refinancing Indebtedness, if secured, is secured only by assets of the Loan Parties that constitute Collateral for the Obligations pursuant to a security agreement subject to the Intercreditor Agreement or another intercreditor agreement in form and substance reasonably satisfactory to the Agent and in any event that is no less favorable to the Secured Parties than the Intercreditor Agreement;
(h) Indebtedness incurred by the Company or any of its Subsidiaries constituting reimbursement obligations with respect to letters of credit, bank guarantees, bankers acceptances, warehouse receipts, or similar instruments issued or created in the ordinary course of business, including letters of credit in respect of workers compensation claims, health, disability or other employee benefits or property, casualty or liability insurance or self-insurance or other Indebtedness with respect to reimbursement type obligations regarding workers compensation claims, health, disability or other employee benefits or property, casualty or liability insurance or self-insurance; provided that upon the drawing of such letters of credit or the incurrence of such Indebtedness, such obligations are reimbursed within 30 days following such drawing or incurrence;
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(i) Indebtedness of the Company or any Subsidiary in respect of self-insurance and in respect of performance bonds, bid bonds, appeal bonds, surety bonds, performance and completion guarantees and similar obligations, or obligations in respect of letters of credit, bank guarantees or similar instruments related thereto, in each case provided in the ordinary course of business;
(j) Indebtedness of a Person that becomes a Subsidiary (or is a Subsidiary that survives a merger with such Person or any of its Subsidiaries or continues after an amalgamation with such Person or any of its Subsidiaries) after the Effective Date and Indebtedness acquired or assumed in connection with Permitted Acquisitions; provided that
(i) such Indebtedness exists at the time such Person becomes a Subsidiary or at the time of such Permitted Acquisition and is not created in contemplation of or in connection therewith, and
(ii) such Indebtedness is not guaranteed in any respect by any Loan Party or any Subsidiary (other than any such Person that so becomes a Subsidiary or is the survivor of a merger with such Person or any of its Subsidiaries or continues after an amalgamation with such Person or any of its Subsidiaries).
(k) Indebtedness of the Company or any Subsidiary issued or incurred to finance a Permitted Acquisition; provided that
(w) (A) the terms of such Indebtedness do not provide for any scheduled repayment, mandatory redemption or sinking fund obligation prior to the date that is 91 days after the latest Maturity Date, other than customary offers to purchase upon a change of control, asset sale or casualty or condemnation event and customary acceleration rights upon an event of default, (B) such Indebtedness is unsecured and, if the primary obligor of such Indebtedness is not a Loan Party, such Indebtedness shall not be guaranteed in any respect by Holdings, the Company or any other Loan Party except to the extent permitted under Section 6.04 and (C) the covenants, events of default, subsidiary guarantees and other terms for such Indebtedness (provided that such Indebtedness shall have interest rates, fees, funding discounts and redemption or prepayment premiums determined by the Company to be market rates and premiums at the time of issuance of such Indebtedness), taken as a whole, are determined by the Company to be market terms on the date of issuance and in any event are not more restrictive on Holdings, the Company or any other Loan Party and their Subsidiaries than the terms of this Agreement (as in effect on the Effective Date) and do not require the maintenance or achievement of any financial performance standards other than as a condition to taking specified actions; provided that a certificate of an Responsible Officer of the Company delivered to the Agent at least five (5) Business Days prior to the incurrence of such Indebtedness, together with a reasonably detailed description of the material terms and conditions of such Indebtedness or drafts of the documentation relating thereto, stating that the Company has determined in good faith that such terms and conditions satisfy the foregoing requirements shall be conclusive evidence that such terms and conditions satisfy the foregoing requirements unless the Agent notifies the Company within such five (5) Business Day period that it disagrees with such determination (including a reasonable description of the basis upon which it disagrees);
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(x) (A) the Company or such other relevant Loan Party pledges the Equity Interests of any Person acquired in such Permitted Acquisition (the acquired Person) to the Agent to the extent required under Section 5.11 and (B) such acquired Person executes a Joinder Agreement to the extent required under Section 5.11;
(y) before and after giving effect to such issuance or incurrence of Indebtedness, no Event of Default shall have occurred or be continuing; and
(z) the Fixed Charge Coverage Ratio as of the end of the most recently ended Test Period prior to the issuance or incurrence of such Indebtedness and the consummation of such acquisition, calculated on a Pro Forma Basis, after giving effect to such incurrence or issuance, to such acquisition and to any related Pro Forma Adjustment, as if such incurrence or issuance and acquisition had occurred on the first day of such Test Period, shall be equal to or greater than 1.00 to 1.00.
(l) unsecured Indebtedness in respect of obligations of the Company or any Subsidiary to pay the deferred purchase price of goods or services or progress payments in connection with such goods and services; provided that (i) such obligations are incurred in connection with open accounts extended by suppliers on customary trade terms in the ordinary course of business and not in connection with the borrowing of money and (ii) unsecured Indebtedness in respect of intercompany obligations of the Company or any Subsidiary in respect of accounts payable incurred in connection with goods sold or services rendered in the ordinary course of business and not in connection with the borrowing of money;
(m) Indebtedness of the Company pursuant to and any Guarantees of (i) the Senior Secured Notes (and any exchange notes and related exchange guarantees to be issued in exchange for such Senior Secured Notes) in an aggregate principal amount that is not in excess of $250,000,000 and (ii) the Senior Subordinated Notes in an aggregate principal amount that is not in excess of $200,000,000;
(n) other Indebtedness not otherwise permitted under this Section 6.01 in an aggregate principal amount not exceeding the greater of (A) $50,000,000 and (B) 3.5% of Total Assets at any one time outstanding;
(o) Swap Obligations pursuant to Swap Agreements incurred in the ordinary course of business and not for speculative purposes;
(p) Indebtedness consisting of promissory notes issued by any Loan Party to future, current or former officers, directors, employees, managers and consultants thereof or their respective Controlled Investment Affiliates or Immediate Family Members, in each case to finance the purchase or redemption of Equity Interests of Holdings (or any direct or indirect parent thereof) or of the Company (following a Qualified Public Offering of the Company) permitted by Section 6.08;
(q) Indebtedness arising from agreements providing for indemnification, adjustment of purchase price, earnouts or similar obligations, in each case, incurred in connection with the disposition of any business, assets or a Subsidiary, other than Guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or Subsidiaries for the purpose of financing such acquisition; provided, however, that (i) such Indebtedness is not reflected on the balance sheet of the Company or any of its Subsidiaries prepared in accordance with GAAP (contingent obligations referred to in a footnote to financial statements and not
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otherwise reflected on the balance sheet will not be deemed to be reflected on such balance sheet for purposes of this clause (i)) and (ii) the maximum aggregate liability in respect of all such Indebtedness shall not exceed the gross proceeds, including the fair market value of non-cash proceeds (the fair market value of such non-cash proceeds being measured at the time such proceeds are received and without giving effect to any subsequent changes in value), actually received by the Holdings, the Company or any of its Subsidiaries in connection with such disposition;
(r) Indebtedness consisting of obligations of Holdings, the Company or any Subsidiary under deferred compensation or other similar arrangements incurred by such Person in connection with the Transactions and Permitted Acquisitions or any other investment expressly permitted hereunder;
(s) Indebtedness (i) arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business; provided that such Indebtedness is extinguished within five Business Days of its incurrence, (ii) customer deposits and advance payments received in the ordinary course of business from customers for goods purchased in the ordinary course of business, and (iii) Indebtedness in respect of Banking Services provided by banks or other financial institutions to Holdings, the Company and its Subsidiaries in the ordinary course of business, in each case incurred or undertaken in the ordinary course of business on arms length commercial terms on a recourse basis;
(t) Indebtedness consisting of (x) the financing of insurance premiums or (y) take-or-pay obligations contained in supply arrangements, in each case, in the ordinary course of business;
(u) Indebtedness incurred by the Company or any Subsidiary in respect of letters of credit, bank guarantees, bankers acceptances or similar instruments issued or created in the ordinary course of business;
(v) (i) the incurrence of Indebtedness of Foreign Subsidiaries of the Company in an amount not to exceed at any one time outstanding, 5.0% of the Foreign Subsidiary Total Assets and (ii) the incurrence of Indebtedness of any Foreign Subsidiary or Subsidiaries of the Company in an amount not to exceed at any one time outstanding the Foreign Subsidiary Borrowing Base of such Foreign Subsidiary or Subsidiaries; provided that any Indebtedness incurred under this clause (v)(ii) shall only be permitted to be used for working capital purposes of such Foreign Subsidiary or Subsidiaries;
(w) Indebtedness supported by a Letter of Credit, in a principal amount not to exceed the face amount of such Letter of Credit;
(x) unsecured Subordinated Indebtedness of the Company and its Subsidiaries or other unsecured Indebtedness of the Company and its Subsidiaries, so long as, in each case, (i) at the time of the incurrence of such Indebtedness and after giving effect thereto, each of the Payment Conditions is satisfied, (ii) the maturity date of such Indebtedness is more than ninety (90) days after the Maturity Date, and (iii) such Indebtedness has a weighted average life to maturity that is no shorter than any other class of Indebtedness of any Loan Party;
(y) unsecured Vendor Debt, advances and similar financings in an aggregate principal amount not exceeding $50,000,000; and
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(z) Indebtedness owing by Triwest to the Initial Canadian Borrower under the Triwest Loan, which shall be extinguished upon their amalgamation by operation of law.
The accrual of interest and the accretion or amortization of original issue discount on Indebtedness and the payment of interest in the form of additional Indebtedness originally incurred in accordance with this Section 6.01 will not constitute an incurrence of Indebtedness.
SECTION 6.02 Liens. No Loan Party will, nor will it permit any Subsidiary to, create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except:
(a) Liens created pursuant to any Loan Document;
(b) Permitted Encumbrances;
(c) any Lien on any property or asset of any Loan Party or any Subsidiary existing on the date hereof and set forth in Schedule 6.02 and any replacements, renewals, refinancings, refundings or extensions thereof; provided that (i) such Lien does not extend to any other property or asset of Holdings, the Company or any Subsidiary other than after acquired property that is (A) affixed or incorporated into the property covered by such Lien or financed by Indebtedness permitted by Section 6.01 and, in each case the proceeds and products thereof, and (ii) such Lien shall secure only those obligations that it secures on the Effective Date and extensions, renewals, refinancings, refundings and replacements thereof that do not increase the outstanding principal amount thereof (except to the extent permitted under Section 6.01(g));
(d) Liens securing Indebtedness permitted under Section 6.01(e) or (f); provided that (i) such Liens attach concurrently with or within 180 days after the acquisition, repair, replacement, construction, renovation, expansion or improvement (as applicable) of the property subject to such Liens, (ii) such Liens do not at any time encumber any property except for accessions to such property other than the property financed by such Indebtedness and the proceeds and the products thereof and (iii) with respect to Capital Lease Obligations, such Liens do not at any time extend to or cover any assets (except for accessions to such assets) other than the assets subject to the applicable capitalized lease; provided that individual financings of property provided by one lender may be cross collateralized to other financings of property provided by such lender;
(e) Liens on the Equity Interests in, or other similar Liens resulting from standard joint venture agreements or stockholder agreements and other similar agreements applicable to joint ventures;
(f) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods in the ordinary course of business;
(g) Liens (i) on cash advances in favor of the seller of any property to be acquired in an investment permitted pursuant to Section 6.04 to be applied against the purchase price for such investment, and (ii) consisting of an agreement to transfer any property in a disposition permitted under Section 6.05 (other than sales, transfers and dispositions under Section 6.05(j) which constitute Liens, which sales, transfers and dispositions constituting Liens are not otherwise permitted under Section 6.05), in each case, solely to the extent such investment or disposition, as the case may be, would have been permitted on the date of the creation of such Lien;
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(h) Liens on property (i) of any Subsidiary that is not a Loan Party and (ii) that does not constitute Collateral, which Liens secure Indebtedness of the applicable Subsidiary permitted under Section 6.01;
(i) Liens in favor of Holdings, the Company or a Subsidiary securing Indebtedness permitted under Section 6.01, including Liens granted by a Subsidiary that is not a Loan Party in favor of the Company or another Loan Party in respect of Indebtedness owed by such Subsidiary;
(j) any interest or title of a lessor under leases or secured by a lessors interests under leases entered into in the ordinary course of business;
(k) Liens arising by operation of law under Article 2 of the UCC (or similar provisions of other applicable law) in the ordinary course of business;
(l) Liens encumbering reasonable customary initial deposits and margin deposits and similar Liens attaching to commodity trading accounts or other brokerage accounts incurred in the ordinary course of business and not for speculative purposes;
(m) Liens that are rights of set-off (i) relating to the establishment of depository relations with banks in the ordinary course of business and not given in connection with the issuance of Indebtedness, (ii) relating to pooled deposit or sweep accounts to permit satisfaction of overdraft or similar obligations incurred in the ordinary course of business or (iii) relating to purchase orders and other agreements entered into with customers in the ordinary course of business;
(n) Liens solely on any cash earnest money deposits made in connection with any letter of intent or purchase agreement permitted hereunder;
(o) Subordinated Vendor Liens;
(p) Liens in respect of the licensing of patents, copyrights, trademarks, trade names, other indications of origin, domain names and other forms of intellectual property in the ordinary course of business;
(q) Other Liens (other than Liens on Borrowing Base Assets) securing obligations or Indebtedness not in excess of the greater of (i) the Dollar Equivalent Amount of $20,000,000 and (ii) 1.25% of Total Assets, determined at the time of incurrence;
(r) any Lien existing on any property or asset prior to the acquisition thereof by Holdings, the Company or any Subsidiary or existing on any property or asset of any Person that becomes a Subsidiary after the date hereof prior to the time such Person becomes a Subsidiary; provided that (i) such Lien is not created in contemplation of or in connection with such acquisition or such Person becoming a Subsidiary, as the case may be, (ii) such Liens attach at all times only to the specific assets that such Liens secure on the date of such acquisition or the date such Person becomes a Loan Party or the date of such merger, amalgamation or consolidation, as the case may be, and not to any Borrowing Base Assets of Borrowers (other than after-acquired property that is (A) affixed or incorporated into the property covered by such Lien, (B) after-acquired property subject to a Lien securing such Indebtedness, the terms of which Indebtedness
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require or include a pledge of after-acquired property (it being understood that such requirement shall not be permitted to apply to any property to which such requirement would not have applied but for such acquisition) and (C) the proceeds and products thereof) and (iii) such Lien shall secure only those obligations which it secures on the date of such acquisition or the date such Person becomes a Loan Party or the date of such merger, amalgamation or consolidation, as the case may be, and extensions, refinancing, refunding, renewals and replacements thereof that do not increase the outstanding principal amount thereof (except to the extent permitted under Section 6.01(g));
(s) Liens (i) of a collecting bank arising in the ordinary course of business under Section 4-208 and Section 4-210 of the UCC (or similar provisions of other applicable law) in effect in the relevant jurisdiction covering only the items being collected upon, (ii) attaching to commodity trading accounts or other commodity brokerage accounts incurred in the ordinary course of business, and (iii) in favor of banking institutions arising as a matter of law or under general terms and conditions encumbering deposits (including the right of set-off) and which are within the general parameters customary in the banking industry;
(t) Liens (other than Liens on Borrowing Base Assets) arising out of Sale and Lease-Back transactions permitted by Section 6.06 and any extensions, refinancing, refunding, replacements and renewals thereof;
(u) Liens on goods or inventory the purchase, shipment or storage price of which is financed by a documentary letter of credit or bankers acceptance issued or created for the account of the Company or any of its Subsidiaries; provided that such Lien secures only the obligations of the Company or such Subsidiaries in respect of such letter of credit to the extent permitted under Section 6.01; and provided, further, that any such goods or inventory and the proceeds thereof, up to the Value of the Lien, shall not be Eligible Inventory or Eligible Receivables under this Agreement;
(v) Liens arising from precautionary UCC or PPSA financing statements or similar filings made in respect of operating leases;
(w) Liens granted under the Senior Secured Notes Security Documents (or, in the case of other Indebtedness incurred pursuant to Section 6.01(n) or 6.01(m)(ii), a separate security agreement or agreements substantially similar in all material respects to the Senior Secured Notes Security Documents) and any extensions, refinancing, renewals, refundings and replacements thereof; provided that (i) such Liens secure only the obligations referred to in the Senior Secured Notes Security Documents or such separate security agreements (and extensions, refinancing, refundings, renewals and replacements thereof that do not increase the outstanding principal amount thereof (except to the extent permitted under Section 6.01(g) or Section 6.01(m)(ii))), (ii) such Liens do not apply to any asset other than U.S. Collateral that is subject to a Lien granted under a Collateral Document to secure the Secured Obligations and (iii) all such Liens shall be subject to the terms of, and have the priorities with respect to the U.S. Collateral as set forth in, the Intercreditor Agreement (or, in the case of other secured Indebtedness incurred pursuant to Section 6.01(n), another intercreditor agreement in form and substance reasonably acceptable to the Agent that is no less favorable to the Secured Parties than the Intercreditor Agreement);
(x) Liens deemed to exist in connection with investments in repurchase agreements under Section 6.04; provided that such Liens do not extend to any assets other than those assets that are the subject of such repurchase agreements;
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(y) ground leases in respect of real property on which facilities owned or leased by the Company or any of its Subsidiaries are located;
(z) pledges, deposits or security by such Person under workmens compensation laws, unemployment insurance, employers health tax, and other social security laws or similar legislation or other insurance related obligations (including, but not limited to, in respect of deductibles, self-insured retention amounts and premiums and adjustments thereto) or indemnification obligations of (including obligations in respect of letters of credit or bank guarantees for the benefit of) insurance carriers providing property, casualty or liability insurance, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of Indebtedness) or leases to which such Person is a party, or deposits to secure public or statutory obligations of such Person or deposits of cash or U.S. government bonds to secure surety or appeal bonds to which such Person is a party, or deposits as security for contested taxes or import duties or for the payment of rent, in each case incurred in the ordinary course of business;
(aa) Liens in favor of issuers of performance, surety, bid, indemnity, warranty, release, appeal or similar bonds or with respect to other regulatory requirements or letters of credit or bankers acceptances issued, and completion guarantees provided for, in each case, issued pursuant to the request of and for the account of such Person in the ordinary course of its business or consistent with past practice prior to the Effective Date and so long as the Lien of such Person does not attach to any ABL First Lien Collateral or Canadian Collateral or if such Lien attaches to any ABL First Lien Collateral or Canadian Collateral, such Person has entered into a subordination agreement with the Agent in form and satisfactory to the Agent;
(bb) minor survey exceptions, minor encumbrances, ground leases, easements or reservations of, or rights of others for, licenses, rights-of-way, servitudes, sewers, electric lines, drains, telegraph, telephone and cable television lines and other similar purposes, or zoning, building codes or other restrictions (including minor defects and irregularities in title and similar encumbrances including the reservations, limitations, provisos, and conditions, if any, expressed in any original grant from the Crown of any real property or any interest therein) as to the use of real properties or Liens incidental, to the conduct of the business of such Person or to the ownership of its properties which were not incurred in connection with Indebtedness and which do not in the aggregate materially impair their use in the operation of the business of such Person;
(cc) Liens securing Indebtedness permitted to be incurred pursuant to Section 6.01(v);
(dd) (x) Liens securing Secured Swap Obligations and (y) Liens on cash and Permitted Investments securing other Swap Agreements if the aggregate amount of all cash and Permitted Investments subject to Liens permitted by this clause (dd) at no time exceeds $15,000,000;
(ee) leases, sub-leases, licenses or sub-licenses granted to others in the ordinary course of business which do not materially interfere with the ordinary conduct of the business of Holdings, the Company or any of its Subsidiaries and do not secure any Indebtedness;
(ff) Liens arising from UCC or the PPSA (or equivalent statute) financing statement filings regarding consignments entered into by the Company and its Subsidiaries in the ordinary course of business;
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(gg) Liens solely on any cash earnest money deposits made by Holdings, the Company or any of its Subsidiaries in connection with any letter of intent or purchase agreement permitted;
(hh) Liens on insurance policies and the proceeds thereof securing the financing of the premiums with respect thereto and deposits made or other security provided in the ordinary course of business to secure liability to insurance carriers;
(ii) Liens on Capital Stock of an Unrestricted Subsidiary that secure Indebtedness or other obligations of such Unrestricted Subsidiary;
(jj) Deposits securing obligations owed by Holdings, the Company or any Subsidiary in respect of any overdraft and related liabilities arising from Banking Services, including treasury, depository and cash management services or any ACH transfers of funds; and
(kk) additional Liens securing Indebtedness permitted to be incurred under Section 6.01; provided that, (i) on a Pro Forma Basis, at the time of, and after giving effect to, the incurrence of such Indebtedness, the Senior Secured Leverage Ratio would be no greater than 3.50 to 1.00 and (ii) to the extent that such Liens are contemplated to be on assets that are Collateral, the holders of such Indebtedness (or a representative thereof of behalf of such holders) shall have entered into the Intercreditor Agreement or a similar agreement providing that the Liens securing such Indebtedness shall rank junior to the Liens of the Agent (or with the same priority as the Senior Secured Notes) with respect to U.S. Collateral and junior to Liens of the Agent in the Canadian Collateral.
Notwithstanding the foregoing, for so long as Tire Pros Francorp is not a Loan Party, Tire Pros Francorp shall not be permitted to incur Liens on its assets under clauses (h), (g), (w), (cc) and (kk) of this Section 6.02.
SECTION 6.03 Fundamental Changes. (a) No Loan Party will, nor will it permit any Subsidiary to, merge into, consolidate with or amalgamate with any other Person, or permit any other Person to merge into, consolidate with or amalgamate with it, or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto no Event of Default shall have occurred and be continuing:
(i) any Person (including the Company and Holdings) may merge, consolidate or amalgamate with or into the Company or Holdings, as applicable, in a transaction in which the surviving or continuing entity is the Company or Holdings, as applicable, or another Person organized or existing under the laws of the United States of America, any State thereof or the District of Columbia and such Person (if not the Company or Holdings, as applicable) expressly assumes, in writing, all the obligations of the Company or Holdings, as applicable, under the Loan Documents, in which event such Person will succeed to, and be substituted for, the Company or the Holdings, as applicable;
(ii) any Person may merge, consolidate or amalgamate with or into any Subsidiary in a transaction in which the surviving or continuing entity is a Subsidiary and, if any party to such merger, consolidation or amalgamation is a Subsidiary that is a Loan Party, is or becomes a Subsidiary that is a Loan Party concurrently with such merger, consolidation or amalgamation; provided, that in the case of any merger, consolidation or amalgamation with a Canadian Borrower, such Canadian Borrower shall be the surviving or continuing Person or such Person (if not such Canadian Borrower) shall expressly assume, in writing, all the obligations of such Canadian Borrower under the Loan Documents, in which event such Person will succeed to, and be substituted for, such Canadian Borrower;
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(iii) any Subsidiary (other than a Canadian Borrower) may liquidate or dissolve if the Company determines in good faith that such liquidation or dissolution is in the best interests of the Company, is not materially disadvantageous to the Lenders and such liquidation or dissolution is accompanied by a disposition of the assets of such Subsidiary to the Holdings, the Company or any other Subsidiary;
(iv) any Subsidiary may merge, consolidate or amalgamate with any Person who is not a Loan Party or Subsidiary to effect an investment permitted under Section 6.04 (other than Section 6.04(m)); provided, however, if such Subsidiary is a Loan Party, the surviving or continuing Person of such merger, consolidation or amalgamation shall be a Loan Party;
(v) so long as the same does not result in the liquidation, dissolution or cessation of existence of the Company, a Canadian Borrower or Holdings, any merger, amalgamation, winding up, dissolution or liquidation may be effected for the purposes of effecting a transaction permitted by Section 6.05 (other than sales, transfers and dispositions under Section 6.05(j)) that constitute a merger, dissolution or liquidation which is not otherwise permitted under Section 6.05); and
(vi) the Transactions may be consummated.
(b) The Company and each Subsidiary that is a Loan Party will not, and will not permit any of its Subsidiaries to (i) carry on and conduct its business in all material respects other than in substantially the same manner as it is presently conducted or in a manner reasonably related or ancillary thereto or (ii) engage to any material extent in any business other than businesses of the type conducted by the Company and its Subsidiaries] taken as a whole, on the date of hereof and businesses reasonably related or ancillary thereto.
(c) Holdings will not engage in any business or operations other than (i) the ownership, direct or indirect, of all the outstanding shares of capital stock of the Company, (ii) performance of its obligations under and in connection with the Loan Documents, the Senior Subordinated Note Documents, the Senior Secured Note Documents and the other agreements contemplated hereby and thereby, (iii) actions incidental to the consummation of the Transactions, (iv) actions required by law to maintain its existence, (v) any public offering of its common stock, any other issuance of its Equity Interests and performance of its obligations under any agreements related thereto, (vi) any transaction Holdings is permitted to enter into in this Article VI and (vii) activities incidental to the foregoing.
SECTION 6.04 Investments, Loans, Advances, Guarantees and Acquisitions. No Loan Party will, nor will it permit any Subsidiary to, purchase, hold or acquire (including pursuant to any merger, consolidation, or amalgamation with any Person that was not a Loan Party and a wholly owned Subsidiary prior to such merger, consolidation, or amalgamation) any capital stock, evidences of indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, Guarantee any obligations of, or make or permit to exist any investment or any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions) all or substantially all of the property and assets or business of another Person or assets of any other Person constituting a business unit (whether through purchase of assets, merger, consolidation, amalgamation or otherwise), except:
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(a) Permitted Investments, Investment Grade Securities and loans and advances in connection with the sale, transfer or disposition of assets other than Collateral;
(b) investments in existence or contemplated on the date of this Agreement and described in Schedule 6.04; and any modification, replacement, renewal, reinvestment or extension thereof (provided that the amount of the original investment is not increased except as otherwise permitted by this Section 6.04), and any investments, loans and advances existing on the date hereof by Holdings, the Company or any Subsidiary in or to Holdings, the Company or any other subsidiary of the Company;
(c) (i) loans and advances to employees, directors, officers, managers, distributors and consultants for business-related travel expenses, moving expenses and other similar expenses or payroll advances, in each case incurred in the ordinary course of business or consistent with past practices or (ii) to fund such Persons purchase of Equity Interests of Holdings, the Company or any direct or indirect parent company of Holdings (provided that the amount of such loans and advances shall be contributed to the Company in cash as common equity) or (iii) advances to, or guarantees of Indebtedness of, employees not in excess of $5,000,000 outstanding at any one time, in the aggregate;
(d) investments (i) in Holdings, the Company or any other Loan Party, (ii) by any Subsidiary that is not a Loan Party in Holdings, the Company or any other Loan Party, and (iii) by Holdings, the Company or any other Loan Party in any Subsidiary that is not a Loan Party in an aggregate amount for all such investments under this clause (iii) not to exceed the sum of $5,000,000 and an amount equal to any repayments, interest, returns, profits, distributions, income and similar amounts actually received in cash in respect of any such Investment (which amount shall not exceed the amount of such Investment valued at the fair market value of such Investment at the time such Investment was made); provided that, investments by any U.S. Loan Party in any Canadian Loan Party shall be subject to clause (iii) above and not clauses (i) or (ii);
(e) investments consisting of extensions of credit in the nature of accounts receivable or notes receivable arising from the grant of trade credit in the ordinary course of business, Investments received in satisfaction or partial satisfaction thereof from financially troubled account debtors and other credits to suppliers in the ordinary course of business and investments as a result of the foreclosure on any secured investment or other transfer of title with respect to any secured investment in default;
(f) investments made to repurchase or retire Equity Interests of Holdings (or any direct or indirect parent thereof) or the Company owned by any employee stock ownership plan or key employee stock ownership plan of Holdings (or any direct or indirect parent thereof) or the Company;
(g) investments in the form of Swap Agreements permitted by Section 6.01;
(h) investments of any Person existing at the time such Person becomes a Subsidiary of the Company or consolidates, amalgamates, or merges with Holdings, the Company or any of the Subsidiaries (including in connection with a Permitted Acquisition) so long as such investments were not made in contemplation of such Person becoming a Subsidiary or of such amalgamation or merger;
(i) investments and other assets received in connection with the dispositions of assets permitted by Section 6.05;
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(j) investments constituting deposits described in Section 6.02;
(k) accounts receivable or notes receivable arising and trade credit granted in the ordinary course of business and other credits to suppliers or vendors in the ordinary course of business;
(l) Permitted Acquisitions;
(m) Liens, Indebtedness, fundamental changes, dispositions, Restricted Payments and Restricted Debt Payments permitted under Sections 6.01, 6.02, 6.03 (except to the extent constituting the acquisition of a Person that becomes a Subsidiary or the acquisition by Holdings, the Company or any Subsidiary of all or substantially all the assets or businesses of a Person or of assets constituting a business unit, line of business or division of such Person), 6.05, 6.06 and 6.08, respectively, solely to the extent constituting Liens, Indebtedness, fundamental changes, dispositions, Restricted Payments and Restricted Debt Payments which are permitted under the foregoing Sections 6.01, 6.02, 6.03, 6.05, 6.06 and 6.08, respectively, which Liens, Indebtedness, fundamental changes, dispositions, Restricted Payments and Restricted Debt Payments are not otherwise permitted by this Section 6.04;
(n) the Transactions;
(o) investments in the ordinary course of business consisting of UCC Article 3 (or equivalent statutes) endorsements for collection or deposit and UCC Article 4 (or equivalent statutes) customary trade arrangements with customers consistent with past practices;
(p) in exchange for any other investment or investments (including debt obligations and Equity Interests) received in connection with the bankruptcy or reorganization of suppliers and customers or in settlement or delinquent obligations of, or other disputes with, customers and suppliers arising in the ordinary course of business or received upon the foreclosure with respect to any secured investment or other transfer of title with respect to any secured investment and investments in satisfaction of judgments against such other Person;
(q) loans and advances to Holdings (or any direct or indirect parent thereof) in lieu of, and not in excess of the amount of (after giving effect to any other loans, advances or Restricted Payments in respect thereof), Restricted Payments to the extent permitted to be made to Holdings in accordance with Section 6.08(a);
(r) advances of payroll payments in the ordinary course of business to satisfy ordinary course payroll and other obligations of such company;
(s) (i) Investments, purchases and other acquisitions of assets to the extent that payment for such Investments, purchases and other acquisitions of assets is made solely with Qualified Equity Interests of Holdings (or of any direct or indirect parent thereof) or the Company or (ii) Investments, purchases and other acquisitions of assets to the extent the payment for such Investment, purchases and other acquisitions of assets is made with the cash proceeds from the issuance by Holdings (or any direct or indirect parent thereof) or the Company of Qualified Equity Interests or a substantially contemporaneous capital contribution in respect of Qualified Equity Interests of Holdings or the Company;
(t) extensions or advances of trade credit, asset purchases (including purchases of Inventory, supplies and materials), the lease of any asset and the licensing or contribution of intellectual property pursuant to joint marketing or other arrangements with other Persons, in each case in the ordinary course of business;
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(u) guarantees by Holdings, the Company or any Subsidiary of leases (other than capitalized leases) for which another Loan Party is the lessee or of other obligations of another Loan Party that do not constitute Indebtedness, in each case entered into in the ordinary course of business;
(v) other investments, loans and advances; provided that, at the time such investment, loan or advance is made and after giving effect thereto, each of the Payment Conditions is satisfied;
(w) other investments, loans and advances which, together with any Restricted Payments made pursuant to Section 6.08(a)(xii) and Restricted Debt Payments made pursuant to Section 6.08(b)(vii), do not exceed $25,000,000 in the aggregate; provided that, at the time such investment, loan or advance is made and after giving effect thereto, no Event of Default or Liquidity Event exists or has occurred and is continuing;
(x) any investment in any Subsidiary or any joint venture in connection with intercompany cash management arrangements or related activities arising in the ordinary course of business;
(y) investments consisting of purchases and acquisitions of assets or services in the ordinary course of business;
(z) investments made in the ordinary course of business in connection with obtaining, maintaining or renewing client contacts and loans or advances made to distributors in the ordinary course of business;
(aa) investments in prepaid expenses, negotiable instruments held for collection and lease, utility and workers compensation, performance and similar deposits entered into as a result of the operations of the business in the ordinary course of business; and
(bb) the Triwest Loan.
For purposes of covenant compliance, the amount of any investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value thereof.
In connection with any merger, consolidation or amalgamation (or other acquisition of the assets) of a Subsidiary that is not a Borrower or Canadian Loan Party, as applicable with and into (or to) a Borrower, or Canadian Loan Party, as applicable or any Permitted Acquisition or other acquisition of assets permitted hereunder, whether by purchase of stock, merger, consolidation, amalgamation or purchase of assets and whether in a single transaction or series of related transactions, the Inventory or Receivables so acquired shall not be included in the applicable Borrowing Base (subject to the provisions of the definitions Borrowing Base, Eligible Tire Inventory, Eligible Non-Tire Inventory and Eligible Receivables until such time as the Agent shall have completed its diligence in respect of such Inventory and Receivables in their Permitted Discretion), provided that the Inventory and Receivables of Triwest acquired in connection with the Canadian Acquisition shall be included in the Canadian Borrowing Base as and to the extent provided in the definition thereof and in the definition of Canadian Initial Borrowing Base Period notwithstanding the amalgamation of the Initial Canadian Borrower with Triwest. In connection with such diligence, the Agent may obtain, at the expense of the Borrowers within the applicable Borrowing Group, an appraisal and commercial finance exam with respect to such Receivables and Inventory as it may reasonably deem desirable in its Permitted Discretion and such appraisal and exam shall be paid for by the Borrowers within the applicable Borrower Group and shall not be limited by or included in the number of appraisals and field exams reimbursable under the terms of Section 5.06(b).
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SECTION 6.05 Asset Sales. No Loan Party will, nor will it permit any Subsidiary to, sell, transfer, lease or otherwise dispose of any asset, including any Equity Interest owned by it, except:
(a) sales, transfers and dispositions of (i) Inventory in the ordinary course of business and (ii) used, obsolete, worn out or surplus equipment or property in the ordinary course of business, or of property no longer used or useful in the conduct of the business of the Company and its Subsidiaries;
(b) sales, leases, transfers and dispositions to the Company or any Subsidiary, provided that any such sales, transfers or dispositions to a Subsidiary that is not a Loan Party shall be made in compliance with Section 6.09;
(c) sales, leases, transfers and dispositions of accounts receivable in connection with the compromise, settlement or collection thereof;
(d) sales, transfers and dispositions of (i) investments permitted by clauses (a), (h), (i), (j) and (p) of Section 6.04, (ii) investments permitted by clause (b) of Section 6.04 by a Loan Party to another Loan Party and by a Subsidiary that is not a Loan Party to a Loan Party or any Subsidiary and (iii) other investments to the extent required by or made pursuant to customary buy/sell arrangements made in the ordinary course of business between the parties to agreements related thereto;
(e) Sale and Lease-Back transactions permitted by Section 6.06;
(f) dispositions resulting from any casualty or other insured damage to, or any taking under power of eminent domain or by condemnation or similar proceeding of, any property or asset of the Company or any Subsidiary (a Recovery Event);
(g) Reserved.
(h) sales, transfers and other dispositions of assets that are not otherwise permitted by any other paragraph of this Section; provided that (i) with respect to any such sale, transfer or disposition for a purchase price in excess of $10,000,000, the Company or a Subsidiary shall receive not less than 75% of such consideration in the form of cash or Permitted Investments; provided that, for purposes of determining what constitutes cash under this clause (i), (A) any liabilities (as shown on the Companys or such Subsidiarys most recent balance sheet provided hereunder or in the footnotes thereto) of the Company or such Subsidiary, other than liabilities that are by their terms subordinated to the payment in cash of the Obligations, that are assumed by the transferee with respect to the applicable sale, transfer or disposition and for which the Company and all of the Subsidiaries shall have been validly released by all applicable creditors in writing and (B) any securities received by the Company or such Subsidiary from such transferee that are converted by the Company or such Subsidiary into cash (to the extent of the cash received) within 180 days following the closing of the applicable sale, transfer or disposition, (ii) after giving effect to any such sale, transfer or disposition, no Event of Default shall have occurred and be continuing, and (iii) to the extent applicable, the Net Cash Proceeds thereof are used to prepay the Revolving Loans as required by Section 2.11(c);
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(i) sales, leases, transfers and dispositions of property to the extent that (i) such property is exchanged for credit against the purchase price of similar replacement property or (ii) the proceeds of such disposition are promptly applied to the purchase price of such replacement property;
(j) sales, leases, transfers and dispositions permitted by Sections 6.03 and 6.08 and Liens permitted by Section 6.02;
(k) leases, subleases, space leases, licenses or sublicenses, in each case in the ordinary course of business and which do not materially interfere with the business of Holdings, the Company and its Subsidiaries;
(l) sales, leases, transfers and dispositions listed on Schedule 6.05; and
(m) sales, transfers and other dispositions of assets not constituting Collateral; provided that (i) after giving effect to any such sale, transfer or disposition, no Event of Default shall have occurred and be continuing and (ii) the Net Cash Proceeds of such sale, transfer or disposition are concurrently reinvested by the Company and its Subsidiaries in their business for general working capital purposes.
SECTION 6.06 Sale and Lease-Back Transactions. No Loan Party will, nor will it permit any Subsidiary to, enter into any arrangement, directly or indirectly, whereby it shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property that it intends to use for substantially the same purpose or purposes as the property sold or transferred (a Sale and Lease-Back Transaction); provided that a Sale and Lease-Back Transaction shall be permitted so long as (a) such Sale and Lease-Back Transaction (i) is made for cash consideration in an amount not less than the fair value of such property, (ii) is pursuant to a lease on market terms and (b) the aggregate amount of Attributable Debt for all Sale and Lease-Back Transactions does not exceed $50,000,000 at any time outstanding.
SECTION 6.07 Accounting Changes. The Company will not make any change in its method of determining its fiscal year and fiscal quarter end dates; provided, that the Company may, upon written notice to the Agent, change the financial reporting convention specified above to any other financial reporting convention reasonably acceptable to the Agent, in which case the Company and the Agent will, and are hereby authorized by the Lenders to, make any adjustments to this Agreement that are necessary in order to reflect such change in financial reporting.
SECTION 6.08 Restricted Payments; Certain Payments of Indebtedness.
(a) Neither Holdings nor the Company will declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except:
(i) Holdings may make (A) Restricted Payments payable solely in Qualified Equity Interests of Holdings, (B) Restricted Payments from the Net Cash Proceeds of the issuance by Holdings of Qualified Equity Interests or a substantially contemporaneous capital contribution in respect of Qualified Equity Interests of Holdings and (C) Restricted Payments from the proceeds of Restricted Payments permitted under this Section 6.08 that are received from the Company;
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(ii) the Company may make Restricted Payments payable solely in Qualified Equity Interests of the Company and may make Restricted Payments from the Net Cash Proceeds of the issuance by the Company of Qualified Equity Interests or a substantially contemporaneous capital contribution in respect of Qualified Equity Interests of the Company;
(iii) the Company may make Restricted Payments to Holdings (and Holdings may make Restricted Payments to any direct or indirect parent thereof) the proceeds of which are used to purchase, repurchase, retire, redeem or otherwise acquire the Equity Interests of Holdings (or of any such direct or indirect parent of Holdings) or of the Company (following a Qualified Public Offering of the Company) (including related stock appreciation rights or similar securities) held by any future, present or former employee, director, officer, manager or consultant (or their respective Controlled Investment Affiliates or Immediate Family Members) of Holdings, the Company, any of its Subsidiaries or any of its direct or indirect parent companies pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or agreement, or any stock subscription or shareholder agreement (including, for the avoidance of doubt, any principal and interest payable on any notes issued by the Holdings, the Company or any direct or indirect parent company of Holdings in connection with such purchase, repurchase, retirement, redemption or other acquisition), including any Equity Interest rolled over by management of the Holdings, the Company or any direct or indirect parent company of Holdings in connection with the Transactions (as defined in the Existing Credit Agreement); provided that the aggregate amount of Restricted Payments made under this clause does not exceed $5,000,000 for any fiscal year (which amount shall be increased to $10,000,000 on and after the date of a Qualified Public Offering); provided, further, that each of the amounts in any fiscal year under this clause may be increased by an amount not to exceed:
(A) the cash proceeds from the sale of Equity Interests (other than Disqualified Equity Interests) of the Company and, to the extent contributed to the Company, the cash proceeds from the sale of Equity Interests of Holdings or any direct or indirect parent company of Holdings, in each case to any future, present or former employees, directors, officers, managers, or consultants (or their respective Controlled Investment Affiliates or Immediate Family Members) of Holdings, the Company, any of its Subsidiaries or any of its direct or indirect parent companies that occurs after the Effective Date, to the extent the cash proceeds from the sale of such Equity Interests have not otherwise been applied to the payment of Restricted Payments by virtue of clause (i) or (ii) of this Section 6.08(a); plus
(B) the cash proceeds of key man life insurance policies received by Holdings, the Company or its Subsidiaries after the Effective Date; less
(C) the amount of any Restricted Payments previously made with the cash proceeds described in clauses (A) and (B) of this clause (iii);
and provided, further, that cancellation of Indebtedness owing to the Company from any future, present or former employees, directors, officers, managers, or consultants of the Company (or their respective Controlled Investment Affiliates or Immediate Family Members), any direct or indirect parent company of the Company or any of the Companys Subsidiaries in connection with a repurchase of Equity Interests of the Company or any of its direct or indirect parent companies will not be deemed to constitute a Restricted Payment for purposes of this covenant or any other provision of this Agreement;
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(iv) non-cash repurchases of Equity Interests deemed to occur upon exercise of stock options or warrants if such Equity Interests represent a portion of the exercise price of such options or warrants;
(v) the Company may make Restricted Payments to Holdings (together with loans or advances made pursuant to Section 6.04(q)) in amounts required for Holdings or any direct or indirect parent company of Holdings to pay, in each case, without duplication,
(A) franchise and excise taxes and other fees, taxes and expenses required to maintain their corporate existence;
(B) foreign, federal, state, provincial, municipal and local income and similar taxes, to the extent such income taxes are attributable to the income of the Company and its Subsidiaries and, to the extent of the amount actually received from its Unrestricted Subsidiaries, in amounts required to pay such taxes to the extent attributable to the income of such Unrestricted Subsidiaries; provided that in each case the amount of such payments in any fiscal year does not exceed the amount that the Company and its Subsidiaries would be required to pay in respect of foreign, federal, state, provincial, municipal and local taxes for such fiscal year were the Company, its Restricted Subsidiaries and its Unrestricted Subsidiaries (to the extent described above) to pay such taxes separately from any such parent company;
(C) customary salary, bonus and other benefits payable to employees, directors, officers and managers of Holdings or any direct or indirect parent company of Holdings to the extent such salaries, bonuses and other benefits are attributable to the ownership or operation of the Company and its Subsidiaries, including the Companys proportionate share of such amounts relating to such parent entity being a public company;
(D) general corporate operating and overhead costs and expenses of Holdings or any direct or indirect parent company of Holdings not in excess of $2,000,000 in any fiscal year, to the extent such costs and expenses are attributable to the ownership or operation of the Company and its Subsidiaries, including the Companys proportionate share of such amounts relating to such parent entity being a public company;
(E) fees and expenses other than to Affiliates of the Company related to any unsuccessful equity or debt offering of such parent company;
(F) amounts payable pursuant to the Management Services Agreements, (including any amendment thereto so long as any such amendment is not materially disadvantageous in the good faith judgment of the board of directors of the Company to the Lenders when taken as a whole, as compared to the Management Services Agreement as in effect on the Effective Date), solely to the extent such amounts are not paid directly by the Company or its Subsidiaries; and
(G) cash payments in lieu of issuing fractional shares in connection with the exercise of warrants, options or other securities convertible into or exchangeable for Equity Interests of Holdings, the Company or any direct or indirect parent company of Holdings.
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(vi) to the extent constituting Restricted Payments, Holdings and the Company may enter into and consummate the Transactions;
(vii) to the extent constituting Restricted Payments, Holdings and the Company may enter into and consummate transactions expressly permitted by any provision of Section 6.03 or 6.09 (other than Section 6.09(e));
(viii) the Company may make Restricted Payments to Holdings to finance any investment permitted to be made pursuant to Section 6.04 (other than Section 6.04(m)); provided that (A) such Restricted Payment shall be made substantially concurrently with the closing of such investment and (B) Holdings shall, immediately following the closing thereof, cause (i) all property acquired (whether assets or Equity Interests) to be contributed to the Company or its Subsidiaries or (ii) the merger or amalgamation (to the extent permitted in Section 6.03) of the Person formed or acquired into the Company or its Subsidiaries in order to consummate such investment;
(ix) Holdings may make Restricted Payments with the proceeds of the issuance of Indebtedness of Holdings permitted by Section 6.01 (other than (x) Section 6.01(c) and (y) any such Indebtedness Guaranteed by or secured directly or indirectly by the assets of the Company or any of its Subsidiaries);
(x) in addition to the foregoing Restricted Payments, Holdings and the Company may make additional Restricted Payments; provided that each of the Payment Conditions is satisfied;
(xi) the distribution, as a dividend or otherwise (and the declaration of such dividend), of shares of capital stock of, or Indebtedness owed to the Company or a Subsidiary by, any Unrestricted Subsidiary;
(xii) other Restricted Payments by Holdings and the Company which, together with investments, loans and advances made pursuant to Section 6.04(w) and Restricted Debt Payments made pursuant to Section 6.08(b)(vii), do not exceed $25,000,000 in the aggregate; provided that, at the time such Restricted Payments are made and after giving effect thereto, no Liquidity Event or Event of Default exists or has occurred and is continuing; and
(xiii) to the extent constituting Restricted Payments, Holdings and the Company may make any non-compete, bonus or earn-out payments payable to former stockholders of Holdings (or any direct or indirect parent thereof) or the Company pursuant to agreements in effect on the Effective Date; and
(xiv) Holdings and the Company may make Restricted Payments in respect of any payments made or expected to be made by Holdings, the Company or any Subsidiary or any direct or indirect parent company of Holdings in respect of withholding or similar taxes payable upon exercise of Equity Interests by any future, present or former employee, director, officer, manager or consultant (or their respective Controlled Investment Affiliates or Immediate Family Members) and any repurchases of Equity Interests deemed to occur upon exercise of stock options or warrants if such Equity Interests represent a portion of the exercise price of such options or warrants or required withholding or similar taxes.
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(b) No Loan Party will, nor will it permit any Subsidiary to, make or agree to pay or make, directly or indirectly, any payment or other distribution (whether in cash, securities or other property) of or in respect of principal on the Senior Secured Notes, the Senior Subordinated Notes, any other Subordinated Indebtedness or any Indebtedness that refinances, extends, refunds, replaces or renews any such Indebtedness (collectively, Restricted Indebtedness), or any payment or other distribution (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any Restricted Indebtedness (collectively, Restricted Debt Payments), except:
(i) extensions, refinancings, refundings, replacements and renewals of any such Restricted Indebtedness to the extent permitted by Section 6.01;
(ii) payment of secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness (other than Borrowing Base Assets) so long as such sale is permitted by Section 6.05 (other than sales, transfers and dispositions under Section 6.05(j));
(iii) payment of Restricted Indebtedness in exchange for or with proceeds of any substantially contemporaneous issuance of Qualified Equity Interests or substantially contemporaneous capital contribution in respect of Qualified Equity Interests of Holdings or the Company;
(iv) payment of Restricted Indebtedness under the Senior Secured Notes (or any extensions, renewals, refinancing, refundings or replacements thereof permitted under Section 6.01(g) and Section 6.02(w)), with the Net Cash Proceeds of any sale, transfer or other disposition of any Noteholder First Lien Collateral, or, in the case of any such extensions, refinancings, refundings, renewals or replacements, any property or assets in respect of which the security interest of the holders thereunder has priority over the security interest of the Agent, for the benefit of the Secured Parties, in such property or assets, pursuant to the Intercreditor Agreement or another intercreditor agreement in form and substance reasonably satisfactory to the Agent that is no less favorable to the Secured Parties than the Intercreditor Agreement;
(v) payment of Restricted Indebtedness with the Net Cash Proceeds of Qualified Equity Interests of Holdings or the Company;
(vi) other Restricted Debt Payments; provided that each of the Payment Conditions is satisfied (it being understood and agreed that, if an irrevocable notice or contractual obligation is given in, made or arises in respect of any Restricted Debt Payment, the foregoing conditions only need to be satisfied at the time of the giving of such irrevocable notice or entering into (or effectiveness of) any such contractual obligation); and
(vii) other Restricted Debt Payments which, together with any investments, loans or advances made pursuant to Section 6.04(w) and Restricted Payments made pursuant to Section 6.08(a)(xii), do not exceed $25,000,000 in the aggregate; provided that, at the time such Restricted Debt Payments are made and after giving effect thereto, no Liquidity Event or Event of Default exists or has occurred and is continuing.
SECTION 6.09 Transactions with Affiliates. No Loan Party will, nor will it permit any Subsidiary to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) transactions that are on terms and conditions substantially as favorable to such Loan Party as would be obtainable by such Loan Party at the time in a comparable arms-length
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transaction from unrelated third parties that are not Affiliates, (b) transactions between or among Holdings, the Company and any Subsidiary (other than an Unrestricted Subsidiary) not involving any other Affiliate (but if a Default exists, such transactions shall be on an arms-length basis and any sale of goods between such parties shall be at least at cost), (c) any investment permitted by Section 6.04, (d) any Indebtedness permitted under Section 6.01 or Lien permitted under Section 6.02, (e) any Restricted Payment or Restricted Debt Payment permitted by Section 6.08, (f) the payment of reasonable fees and out-of-pocket costs to directors of Holdings (or any direct or indirect parent thereof), the Company or any Subsidiary, and compensation and employee benefit arrangements paid to, and indemnities provided for the benefit of, directors, officers or employees of Holdings (or any direct or indirect parent thereof), the Company or its Subsidiaries in the ordinary course of business, (g) any issuances of securities or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment agreements, stock options and stock ownership plans approved by Holdings (or its direct or indirect parent companys) or the Companys board of directors, (h) the payment of (A) management or monitoring or similar fees to the Sponsor and Sponsor termination fees and related indemnities and reasonable expenses, and (B) transaction advisory services fees with respect to transactions in respect of which the Sponsor provides any transaction, advisory or other similar services, in each case pursuant to, and in accordance with, the Management Services Agreements as such agreements are in effect as of the Effective Date; provided that, other than in the case of the payment of indemnities and expenses, no Event of Default has occurred and is continuing or would result after giving effect to such payment (and during the existence of any such Event of Default, such fees may accrue but may not be paid), (i) any contribution to the capital of Holdings (or any direct or indirect parent company thereof) by the Sponsor or any Affiliate thereof or any purchase of Equity Interests of Holdings (or any direct or indirect parent company thereof) by the Sponsor or any Affiliate thereof, (j) the Transactions, (k) payments by Holdings (and any direct or indirect parent thereof), the Company and its Subsidiaries pursuant to the tax sharing agreements among Holdings (and any such parent thereof), the Company and the Subsidiaries on customary terms to the extent attributable to the ownership or operation of the Company and its Subsidiaries, (l) transactions pursuant to permitted agreements in existence on the Effective Date and set forth on Schedule 6.09 or any amendment thereto to the extent such an amendment is not adverse to the Lenders in any material respect and (m) payments by the Company or any Subsidiary to any of the Sponsor for any financial advisory, financing, underwriting or placement services or in respect of other investment banking activities, including in connection with acquisitions or divestitures, which payments are approved by a majority of the disinterested members of the Board of Directors of Holdings (or such parent) or the Company in good faith.
SECTION 6.10 Restrictive Agreements. No Loan Party will, nor will it permit any Subsidiary to, directly or indirectly, enter into, incur or permit to exist any agreement or other contractual arrangement to which it is a party or by which its property is bound that prohibits, restricts or imposes any condition upon the ability of such Loan Party or any of its Subsidiaries to create, incur or permit to exist any Lien upon any of its property or assets for the benefit of the Secured Parties under the Loan Documents; provided that (i) the foregoing shall not apply to restrictions and conditions imposed by law, by any Loan Document, by the Senior Secured Note Documents, by the Senior Subordinated Note Documents or by any Vendor Debt, (ii) the foregoing shall not apply to restrictions and conditions (A) existing on the date hereof identified on Schedule 6.10 and (B) to the extent any such restrictions or conditions permitted by clause (A) is set forth in an agreement evidencing Indebtedness, are set forth in any agreement evidencing any permitted renewal, extension, refunding, replacement or refinancing of such Indebtedness so long as such renewal, extension, refunding, replacement or refinancing does not expand the scope of any such restriction or condition, (iii) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary pending such sale; provided such restrictions and conditions apply only to the Subsidiary that is to be sold and such sale is permitted hereunder, (iv) the foregoing shall not apply to any agreement or other instrument of a Person acquired in a Permitted Acquisition or other investment permitted by Section 6.04 in existence at the time
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of such Permitted Acquisition (but not created in connection therewith or in contemplation thereof), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person so acquired; (v) the foregoing shall not apply to restrictions or conditions imposed by any agreement relating to secured Indebtedness permitted by this Agreement if such restrictions or conditions apply only to the property or assets securing such Indebtedness, (vi) the foregoing shall not apply to (A) customary restrictions and provisions in joint venture agreements and other similar agreements applicable to joint ventures to the extent such joint ventures are permitted hereunder, (B) customary provisions restricting subletting or assignment of any lease governing a leasehold interest or (C) customary provisions restricting assignment of any agreement entered into in the ordinary course of business and (vii) the foregoing shall not apply to restrictions or conditions imposed by any agreement relating to Indebtedness of a Subsidiary that is not a Loan Party that is permitted by Section 6.01 or to any cash or other deposits permitted by Section 6.02.
SECTION 6.11 Amendment of Material Documents. No Loan Party will, nor will it permit any Subsidiary to, amend, modify or waive any of its rights under (a) the Senior Secured Note Documents (or any instrument or agreement governing any refinancing Indebtedness in respect thereof permitted under Section 6.01), (b) the Senior Subordinated Note Documents or any other agreement relating to any Subordinated Indebtedness, to the extent, in the case of each of the foregoing clauses (a) and (b), any such amendment, modification or waiver would be adverse to the Lenders in any material respect, or (c) the Management Services Agreement, to the extent that any such amendment, modification or waiver would increase the amount of any management fees payable thereunder from the amounts set forth in the Management Services Agreement as in effect on the Effective Date.
SECTION 6.12 Fixed Charge Coverage Ratio. The Company will not permit its Fixed Charge Coverage Ratio as of the last day of any Test Period to be lower than 1.00 to 1.00; provided that such Fixed Charge Coverage Ratio will only be tested as of the last day of the Test Period ending immediately prior to the date on which a Trigger Event shall have occurred and shall continue to be tested as of the last day of each Test Period thereafter until such Trigger Event is no longer continuing.
SECTION 6.13 Canadian Pension Plans. No Canadian Loan Party or Affiliate shall become liable under or contribute to, any Canadian Pension Plan that provides benefits on a defined benefit basis, other than a Canadian MEPP.
ARTICLE VII.
EVENTS OF DEFAULT
SECTION 7.01 Events of Default. If any of the following events (Events of Default) shall occur:
(a) any Borrower shall fail to pay (i) any principal of any Loan or any reimbursement obligation in respect of any LC Disbursement when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or by acceleration thereof or otherwise, or (ii) any interest on any Loan or any fee or any other amount payable under this Agreement or any other Loan Document within five (5) Business Days after it shall become due and payable;
(b) any representation or warranty made or deemed made by or on behalf of any Loan Party herein or in any other Loan Document or any amendment or modification thereof or waiver thereunder, or in any report, Borrowing Base Certificate or other certificate, financial statement or other document furnished pursuant to or in connection with this Agreement or any Loan Document, shall prove to have been materially incorrect when made or deemed made;
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(c) any Loan Party shall fail to observe or perform any covenant, condition or agreement contained (i) in Section 2.21 (solely with respect to post-closing collateral perfection obligations of the Loan Parties and the application of amounts during the continuance of a Liquidity Event), 5.06(b), and 5.09, or in Article VI (subject to the Cure Right in Section 7.02 in connection with any Default under Section 6.12), (ii) in Section 5.01(h) (after a two (2) Business Day grace period), or (iii) in Section 5.02(a) or 5.03 (but only with respect to Holdings or the Companys existence) (provided that if (A) any such Default described in this clause (iii) is of a type that can be cured within five (5) Business Days and (B) such Default could not materially adversely impact the Agents Liens on the Collateral, such Default shall not constitute an Event of Default for five (5) Business Days after the occurrence of such Default so long as the Loan Parties are diligently pursuing the cure of such Default);
(d) any Loan Party shall fail to observe or perform any covenant, condition or agreement contained in any Loan Document (other than those specified in clauses (a) and (c) above) and such default shall continue unremedied for a period of 30 days after notice thereof to the Borrower Agent from the Agent or the Required Lenders;
(e) (i) any Loan Party shall fail to make any payment beyond the applicable grace period (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) with respect to any Material Indebtedness, or (ii) any event or condition occurs (other than with respect to Material Indebtedness constituting Derivative Transactions, termination events or equivalent events pursuant to the terms of the related Swap Agreements in accordance with the terms thereof and not as a result of any default thereunder by any Loan Party) that results in any Material Indebtedness becoming due prior to its scheduled maturity or that enables or permits (with the giving of notice, if required) the holder or holders of any such Material Indebtedness or any trustee or agent on its or their behalf to cause any such Material Indebtedness to become due, or to require the prepayment, repurchase, redemption or defeasance thereof, prior to its scheduled maturity; provided that this paragraph (e) shall not apply to secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness if such sale or transfer is permitted hereunder and under the documents providing for such Indebtedness;
(f) a Change in Control shall occur;
(g) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization, arrangement, consolidation, readjustment, a proposal or other relief in respect of a Loan Party or any Subsidiary of any Loan Party or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, interim receiver, monitor, trustee, custodian, sequestrator, liquidator, conservator or similar official for any Loan Party or any Subsidiary of any Loan Party or for a substantial part of its assets, and, in any such case of clause (i) or (ii), such proceeding or petition shall continue undismissed and unstayed for sixty (60) days or an order or decree approving or ordering any of the foregoing shall be entered;
(h) any Loan Party or any Subsidiary of any Loan Party shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization, arrangement, consolidation, readjustment, a proposal or other relief under any federal, state, provincial or foreign bankruptcy, insolvency, receivership, arrangement, winding up or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (g) of this Article, (iii) apply for or
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consent to the appointment of a receiver, interim receiver, monitor, trustee, custodian, sequestrator, liquidator, conservator or similar official for such Loan Party or Subsidiary of any Loan Party or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors;
(i) any Loan Party or any Subsidiary of any Loan Party shall become unable, admit in writing its inability or fail generally to pay its debts in excess of the threshold amount that constitutes Material Indebtedness as they become due;
(j) one or more final judgments for the payment of money in an aggregate amount in excess of $25,000,000 (in each case to the extent not covered by third-party insurance as to which the insurer has been notified of such judgment and does not deny coverage), shall be rendered against any Loan Party or any combination of Loan Parties and the same shall remain undischarged for a period of sixty (60) consecutive days during which execution shall not be effectively stayed, satisfied or bonded, or any writ or warrant of attachment or execution or similar process is issued against all or any material part of the property of any Loan Party and is not released, vacated, stayed or bonded within sixty (60) days after its issue;
(k) an ERISA Event or Pension Event shall have occurred that, when taken together with all other ERISA Events and Pension Events that have occurred and are continuing, would reasonably be expected to result in a Material Adverse Effect;
(l) the Loan Guaranty at any time after its execution and delivery and for any reason, other than as expressly permitted hereunder or thereunder, shall fail to remain in full force or effect, or any action shall be taken by any Loan Party to discontinue or to assert the invalidity or unenforceability of the Loan Guaranty, or any Loan Guarantor shall deny or disaffirm in writing that it has any further liability under the Loan Guaranty to which it is a party;
(m) (i) any Collateral Document after delivery thereof pursuant to the terms of the Loan Documents shall for any reason, other than pursuant to the terms hereunder or thereunder (including as a result of a transaction permitted under Section 6.03 or 6.05), fail to create a valid and perfected security interest with the priority required by the Collateral Documents (subject to the Intercreditor Agreement) in any Collateral purported to be covered thereby, except to the extent that any such loss of perfection or priority results from the failure of the Agent to maintain possession of certificates actually delivered to it representing securities pledged under the Collateral Documents or to file UCC or PPSA continuation statements and except as to Collateral consisting of real property to the extent that such losses are covered by a lenders title insurance policy and such insurer has been notified and has not denied coverage, or (ii) any Collateral Document shall fail to remain in full force or effect or any action shall be taken by any Loan Party to discontinue or to assert the invalidity or unenforceability of any Collateral Document;
(n) any material provision of any Loan Document at any time after its execution and delivery and for any reason other than as expressly permitted hereunder or thereunder (including as a result of a transaction permitted under Section 6.03 or 6.05) or as a result of the occurrence of the Termination Date, ceases to be in full force and effect, or any Loan Party shall challenge in writing the validity or enforceability of any Loan Document or any Loan Party shall deny in writing that it has any further liability or obligation under any Loan Document (other than as a result of the occurrence of the Termination Date) or purports in writing to revoke or rescind any Loan Document; or
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(o) the Obligations referred to in Section 3.18(a) shall cease to constitute senior indebtedness under the subordination provisions of any document or instrument evidencing any permitted Subordinated Indebtedness (including the Indebtedness under the Senior Subordinated Notes as evidenced by the Senior Subordinated Note Documents) or such subordination provision shall be invalidated or otherwise cease, for any reason, to be valid, binding and enforceable obligations of the parties thereto;
then, and in every such event (other than an event with respect to any Loan Party described in clause (g) or (h) of this Article), and at any time thereafter during the continuance of such event, the Agent may, and at the request of the Required Lenders shall, by notice to the Borrower Agent, take any of the following actions, at the same or different times: (i) terminate the Commitments, and thereupon the Commitments shall terminate immediately, (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrowers accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Loan Party, and (iii) require that the Borrowers deposit in the LC Collateral Account an amount in cash equal to 103% of the then outstanding LC Exposure; provided that upon the occurrence of an event with respect to any Loan Party described in clause (g) or (h) of this Article, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Borrowers accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by each Loan Party, and the obligation of the Borrowers to cash collateralize the outstanding Letters of Credit as aforesaid shall automatically become effective, in each case without further act of the Agent or any Lender.
SECTION 7.02 Cure Right. (a) Notwithstanding anything to the contrary contained in this Article VII, in the event that the Company fails to comply with the requirements of Section 6.12, until the expiration of the 10th day subsequent to the date the certificate calculating the Fixed Charge Coverage Ratio is required to be delivered pursuant to Section 5.01(d), Holdings (or any direct or indirect parent thereof) shall have the right to issue Permitted Cure Securities for cash or otherwise receive cash contributions to (or in the case of any direct or indirect parent of Holdings receive equity interests in Holdings for its cash contributions to) the capital of Holdings (collectively, the Cure Right), and upon contribution by Holdings of such cash in return for common Equity Interests or for existing Equity Interests to the Company (the Cure Amount) pursuant to the exercise by the Company of such Cure Right, the Fixed Charge Coverage Ratio under Section 6.12 shall be recalculated giving effect to the following pro forma adjustments:
(i) EBITDA shall be increased with respect to such applicable fiscal quarter and any Test Period that contains such fiscal quarter, solely for the purpose of measuring the Fixed Charge Coverage Ratio under Section 6.12 and not for any other purpose under this Agreement, by an amount equal to the Cure Amount; and
(ii) if, after giving effect to the foregoing pro forma adjustments, the Company shall then be in compliance with Section 6.12, the Company shall be deemed to have satisfied the requirements of Section 6.12 as of the relevant date of determination with the same effect as though there had been no failure to comply therewith at such date, and the applicable breach or default of Section 6.12 that had occurred shall be deemed cured for purposes of this Agreement.
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(b) Notwithstanding anything herein to the contrary, (i) in each four fiscal-quarter period there shall be at least two fiscal quarters during which the Cure Right is not exercised, (ii) the Cure Amount shall be no greater than the amount required for purposes of complying with Section 6.12 and (iii) all Cure Amounts shall be disregarded for purposes of determining any baskets or ratios with respect to the other covenants contained in the Loan Documents.
SECTION 7.03 Exclusion of Immaterial Subsidiaries. Solely for the purposes of determining whether an Event of Default has occurred under clause (g) or (h) of Section 7.01, any reference in any such paragraph to any Subsidiary shall be deemed not to include any Immaterial Subsidiary affected by any event or circumstance referred to in any such paragraph; provided that if it is necessary to exclude more than one Subsidiary from paragraph (g) or (h) of Section 7.01 pursuant to this Section 7.03 in order to avoid an Event of Default thereunder, all excluded Subsidiaries shall be considered to be a single consolidated Subsidiary for purposes of determining whether the condition specified above is satisfied.
ARTICLE VIII.
THE AGENT
Each of the Lenders and the Issuing Banks hereby irrevocably appoints the Agent as its agent and authorizes the Agent to take such actions on its behalf, including execution of the other Loan Documents, and to exercise such powers as are delegated to the Agent by the terms of the Loan Documents, together with such actions and powers as are reasonably incidental thereto. Without limiting the generality of the foregoing, the Agent shall have the sole and exclusive authority to (a) act as the disbursing and collecting agent for Lenders with respect to all payments and collections arising in connection with the Loan Documents, including, with respect to the Canadian Loan Parties, the Agent acting through its Canada branch; (b) execute and deliver as Agent each Loan Document, including any intercreditor or subordination agreement, and accept delivery of each Loan Document from any Loan Party or other Person; (c) act as collateral agent for Secured Parties for purposes of perfecting and administering Liens under the Loan Documents, and for all other purposes stated therein; (d) manage, supervise or otherwise deal with Collateral; and (e) take any enforcement action or otherwise exercise any rights or remedies with respect to any Collateral under the Loan Documents, applicable law or otherwise. The Agent alone shall be authorized to determine whether any Accounts or Inventory constitute Eligible Receivables or Eligible Inventory, or whether to impose or release any Reserve, which determinations and judgments, if exercised in good faith, shall exonerate the Agent from liability to any Lender or other Person for any error in judgment.
Any bank serving as the Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Loan Parties or any subsidiary of a Loan Party or other Affiliate thereof as if it were not the Agent hereunder.
The Agent shall not have any duties or obligations except those expressly set forth in the Loan Documents. Without limiting the generality of the foregoing, (a) the Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) the Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated by the Loan Documents that the Agent is required to exercise in writing as directed by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 9.02), and (c) except as expressly set forth in the Loan Documents, the Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to any Loan Party or any of its subsidiaries that is communicated to or obtained by the bank serving as the Agent or any of its Affiliates in any capacity. The Agent shall not be liable for any action taken or not taken by it with the consent or at
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the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 9.02) or in the absence of, or for any losses not directly and solely caused by, its own gross negligence or willful misconduct. The Agent shall not be deemed to have knowledge of any Default unless and until written notice thereof is given to the Agent by the Borrower Agent or a Lender, and the Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with any Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or in connection with any Loan Document, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth in any Loan Document, (iv) the validity, enforceability, effectiveness or genuineness of any Loan Document or any other agreement, instrument or document, (v) the creation, perfection or priority of Liens on the Collateral or the existence of the Collateral, or (vi) the satisfaction of any condition set forth in Article IV or elsewhere in any Loan Document, other than to confirm receipt of items expressly required to be delivered to the Agent.
If any Lender acquires knowledge of a Default or Event of Default, it shall promptly notify the Agent and the other Lenders thereof in writing. Each Lender agrees that, except as otherwise provided in any Loan Documents or with the written consent of the Agent and the Required Lenders, it will not take any enforcement action, accelerate the Obligations under any Loan Documents, or exercise any right that it might otherwise have under Applicable Law to credit bid at foreclosure sales, UCC sales or other similar dispositions of Collateral. Notwithstanding the foregoing, however, a Lender may take action to preserve or enforce its rights against a Loan Party where a deadline or limitation period is applicable that would, absent such action, bar enforcement of the Obligations held by such Lender, including the filing of proofs of claim in a Bankruptcy Proceeding.
The Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The Agent may consult with legal counsel (who may be counsel for any Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.
The Agent may perform any and all its duties and exercise its rights and powers by or through any one or more agents, co-agents or sub-agents appointed by the Agent. The Agent and any such agents, co-agents or sub-agent may perform any and all its duties and exercise its rights and powers through their respective Related Parties. The Lenders shall execute and deliver such documents as the Agent deems appropriate to vest any rights or remedies in such agents, co-agents or sub-agent. The exculpatory provisions of the preceding paragraphs shall apply to any such agents, co-agents or sub-agent and to the Related Parties of the Agent and any agents, co-agents or such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as the Agent.
Subject to the appointment and acceptance of a successor to the Agent as provided in this paragraph, the Agent may resign at any time by notifying the Lenders, the Issuing Banks and the Borrower Agent. Upon any such resignation, the Required Lenders shall have the right, with the consent (not to be unreasonably withheld or delayed) of the Company, to appoint a successor; provided that, during the existence and continuation of an Event of Default, no consent of the Company shall be required. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Agent gives notice of its resignation, then the retiring Agent may, on behalf of the Lenders and the Issuing Banks, appoint a successor Agent which shall be a
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commercial bank or an Affiliate of any such commercial bank reasonably acceptable to the Company. Upon the acceptance of its appointment as the Agent hereunder by a successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. The fees payable by the Company to a successor Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Company and such successor. After the Agents resignation hereunder, the provisions of this Article and Section 9.03 shall continue in effect for the benefit of such retiring Agent, its sub-agents, branches and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as the Agent. Any successor to BANA by merger or acquisition of stock or this loan shall continue to be the Agent hereunder without further act on the part of the parties hereto, unless such successor resigns as provided above.
Each Lender acknowledges that it has, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or related agreement or any document furnished hereunder or thereunder.
Each Lender hereby agrees that (a) it has requested a copy of each Report prepared by or on behalf of the Agent; (b) the Agent (i) does not make any representation or warranty, express or implied, as to the completeness or accuracy of any Report or any of the information contained therein or any inaccuracy or omission contained in or relating to a Report or (ii) shall not be liable for any information contained in any Report; (c) the Reports are not comprehensive audits or examinations, and that any Person performing any field examination will inspect only specific information regarding the Loan Parties and will rely significantly upon the Loan Parties books and records, as well as on representations of the Loan Parties personnel and that the Agent undertakes no obligation to update, correct or supplement the Reports; (d) it will keep all Reports confidential and strictly for its internal use, not share the Report with any Loan Party or any other Person except as otherwise permitted pursuant to this Agreement; and (e) without limiting the generality of any other indemnification provision contained in this Agreement, it will pay and protect, and indemnify, defend, and hold the Agent and any such other Person preparing a Report harmless from and against, the claims, actions, proceedings, damages, costs, expenses, and other amounts (including reasonable attorneys fees) incurred by the Agent or such other Person as the direct or indirect result of any third parties who might obtain all or part of any Report through the indemnifying Lender and any action such Lender may take as a result of or any conclusion it may draw from any such Report.
For the purposes of creating a solidarité active in accordance with Article 1541 of the Civil Code of Quebec between each Secured Party, taken individually, on the one hand, and the Agent, on the other hand, each Loan Party and each such Secured Party acknowledge and agree with the Agent that such Secured Party and the Agent are hereby conferred the legal status of solidary creditors of each such Loan Party in respect of all Obligations owed by each such Loan Party to the Agent and such Secured Party hereunder and under the other Loan Documents (collectively, the Solidary Claim) and that, accordingly, but subject (for the avoidance of doubt) to Article 1542 of the Civil Code of Quebec, each such Loan Party is irrevocably bound towards the Agent and each Secured Party in respect of the entire Solidary Claim of the Agent and such Secured Party. As a result of the foregoing, the parties hereto acknowledge that the Agent and each Secured Party shall at all times have a valid and effective right of action for the entire Solidary Claim of the Agent and such Secured Party and the right to give full acquittance for it. Accordingly, and without limiting the generality of the foregoing, the Agent, as solidary creditor with each Secured Party, shall at all times have a valid and effective right of action in
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respect of the Solidary Claim and the right to give a full acquittance for same. By its execution of the Loan Documents to which it is a party, each such Loan Party not a party hereto shall also be deemed to have accepted the stipulations hereinabove provided. The parties further agree and acknowledge that such Liens (hypothecs) under the Collateral Documents and the other Loan Documents shall be granted to the Agent, for its own benefit and for the benefit of the applicable Secured Parties, as solidary creditor as hereinabove set forth.
In addition, and without limiting any of the foregoing, for the purposes of holding any hypothec granted to the Attorney (as defined below) pursuant to the laws of the Province of Quebec to secure payment of any debenture issued by any Loan Party, each of the Secured Parties (as defined below) hereby irrevocably appoints and authorizes the Agent and, to the extent necessary, ratifies the appointment and authorization of the Agent, to act as the person holding the power of attorney (i.e. fondé de pouvoir) (in such capacity, the Attorney) of the creditors as contemplated under Article 2692 of the Civil Code of Quebec, and to enter into, to take and to hold on their behalf, and for their benefit, any hypothec, and to exercise such powers and duties that are conferred upon the Attorney under any related deed of hypothec. Moreover, without prejudice to such appointment and authorization to act as the person holding the power of attorney as aforesaid, each of the Secured Parties hereby irrevocably appoints and authorizes the Agent (in such capacity, the Quebec Custodian) to act as agent and custodian for and on behalf of the Secured Parties to hold and be the sole registered holder of any debenture which may be issued under any such deed of hypothec, the whole notwithstanding Section 32 of An Act respecting the special powers of legal persons (Quebec) or any other applicable law, and to execute all related documents. Each of the Attorney and the Quebec Custodian shall: (a) have the sole and exclusive right and authority to exercise, except as may be otherwise specifically restricted by the terms hereof, all rights and remedies given to the Attorney and the Quebec Custodian (as applicable) pursuant to any such deed of hypothec, debenture, debenture pledge agreement, applicable laws or otherwise, (b) benefit from and be subject to all provisions hereof with respect to the Agent mutatis mutandis, including, without limitation, all such provisions with respect to the liability or responsibility to and indemnification by the Secured Parties, and (c) be entitled to delegate from time to time any of its powers or duties under any deed of hypothec, debenture, or debenture pledge agreement on such terms and conditions as it may determine from time to time. Any person who becomes a Secured Party shall, by its execution of an Assignment and Assumption, be deemed to have consented to and confirmed: (i) the Attorney as the person holding the power of attorney as aforesaid and to have ratified, as of the date it becomes a Secured Party, all actions taken by the Attorney in such capacity, and (ii) the Quebec Custodian as the agent and custodian as aforesaid and to have ratified, as of the date it becomes a Secured Party, all actions taken by the Quebec Custodian in such capacity. The substitution of the Agent pursuant to the provisions of this Section 9 also constitute the substitution of the Attorney and the Quebec Custodian. For the purposes of this paragraph, Secured Parties means collectively (a) the Lenders, (b) the Agent, (c) each Issuing Bank, (d) each counterparty to any Swap Agreement with a Loan Party the obligations under which constitute Secured Swap Obligations, (e) each Swingline Lender, (f) the beneficiaries of each indemnification obligation undertaken by any Loan Party under any Loan Document, (g) each Person providing Banking Services which constitute Banking Services Obligations and (h) the successors and permitted assigns of each of the foregoing.
The co-arrangers, joint bookrunners and syndication agent shall not have any right, power, obligation, liability, responsibility or duty under this Agreement other than those applicable to all Lenders as such.
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ARTICLE IX.
MISCELLANEOUS
SECTION 9.01 Notices. (a) Except in the case of notices and other communications expressly permitted to be given by telephone (and subject to paragraph (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by facsimile, as follows:
if to any Loan Party, to the Borrower Agent at:
American Tire Distributors, Inc.
12200 Herbert Wayne Court, Suite 150
Huntersville, North Carolina 28078
Attention: Jason Yaudes
Facsimile No.: (704) 992-1451
if to Bank of America, N.A., as the Agent, an Applicable Issuing Bank or an Applicable Swingline Lender, at: Bank of America, N.A.
300 Galleria Parkway, Suite 800
Atlanta, Georgia 30339
Attention: American Tire Loan Administration Manager
Facsimile No.: 404-607-3277
if to any other Lender, to it at its address or facsimile number set forth in its Administrative Questionnaire.
All such notices and other communications (i) sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received or (ii) sent by facsimile shall be deemed to have been given when sent and when receipt has been confirmed by telephone, provided that if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next Business Day for the recipient.
(b) Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communications (including e-mail and internet or intranet websites) pursuant to procedures approved by the Agent; provided that the foregoing shall not apply to notices pursuant to Article II or to compliance and no Event of Default certificates delivered pursuant to Section 5.01(d) unless otherwise agreed by the Agent and the applicable Lender. The Agent or the Borrower Agent (on behalf of the Loan Parties) may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications. All such notices and other communications (i) sent to an e-mail address shall be deemed received upon the senders receipt of an acknowledgement from the intended recipient (such as by the return receipt requested function, as available, return e-mail or other written acknowledgement); provided that if not given during the normal business hours of the recipient, such notice or communication shall be deemed to have been given at the opening of business on the next Business Day for the recipient, and (ii) posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (b)(i) of notification that such notice or communication is available and identifying the website address therefor.
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(c) Any party hereto may change its address or facsimile number for notices and other communications hereunder by notice to the other parties hereto.
SECTION 9.02 Waivers; Amendments. (a) No failure or delay by the Agent, an Issuing Bank or any Lender in exercising any right or power hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Agent, the Issuing Banks and the Lenders hereunder and under any other Loan Document are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of any Loan Document or consent to any departure by any Loan Party therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, to the extent permitted by law, the making of a Loan or issuance of a Letter of Credit shall not be construed as a waiver of any Default, regardless of whether the Agent, any Lender or an Issuing Bank may have had notice or knowledge of such Default at the time.
(b) Neither this Agreement nor any other Loan Document nor any provision hereof or thereof may be waived, amended or modified except (i) in the case of this Agreement, pursuant to an agreement or agreements in writing entered into by the Borrowers and the Required Lenders or (ii) in the case of any other Loan Document (other than any such amendment to effectuate any modification thereto expressly contemplated by the terms of such other Loan Documents), pursuant to an agreement or agreements in writing entered into by the Agent and the Loan Party or Loan Parties that are parties thereto, with the consent of the Required Lenders; provided that no such agreement shall (A) increase the Commitment of any Lender (including any Defaulting Lender) without the written consent of such Lender; it being understood that a waiver of any condition precedent set forth in Article IV or the waiver of any Default, mandatory prepayment or mandatory reduction of any Revolving Commitments, or the making of any Protective Advance, so long as in compliance with the provisions of Section 2.04, shall not constitute an increase of any Revolving Commitment of any Revolving Lender; provided that any change to the second and third provisos to the second sentence of Section 2.04(a) shall require the written consent of each Revolving Lender, (B) reduce or forgive the principal amount of any Loan or LC Disbursement or reduce the rate of interest thereon, or reduce or forgive any interest or fees payable hereunder, without the written consent of each Lender directly affected thereby (including any Defaulting Lender), (C) postpone any scheduled date of payment of the principal amount of any Loan or LC Disbursement, or any date for the payment of any interest, fees or other Obligations payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender directly affected thereby; provided that only the consent of the Required Lenders shall be necessary to amend the provisions of Section 2.13(f) providing for the default rate of interest, or to waive any obligations of the Borrowers to pay interest at such default rate, (D) increase the advance rates set forth in the definition of Canadian Borrowing Base or U.S. Borrowing Base without the written consent of the Super Majority Lenders, (E) change any of the provisions of this Section or the definition of Required Lenders, Super Majority Lenders or any other provision of any Loan Document specifying the number or percentage of Revolving Lenders (or Revolving Lenders of any Class) required to waive, amend or modify any rights thereunder or make any determination or grant any consent thereunder, without the written consent of each Revolving Lender, (F) release all or substantially all of the Loan Guarantors from their obligations under the Loan Guaranty (except as otherwise permitted herein or in the other Loan Documents, including pursuant to Section 6.03, 6.05 or 10.11 hereof), without the written consent of each Lender, (G) except as provided in clause (c) or (d) of this Section or in any Collateral Document, release all or substantially all of the Collateral, without the written consent of each Lender or (H) make any change to the definition of Aggregate Borrowing Base, Borrowing Base, Canadian Borrowing Base, Eligible Tire Inventory, Eligible Non-Tire Inventory, Eligible
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Receivable or Net Orderly Liquidation Value, U.S. Borrowing Base, or Value or add any new categories of eligible assets, in each case, that would have the effect of increasing the amount of the U.S. Borrowing Base or the Canadian Borrowing Base, without the written consent of the Super Majority Lenders; and provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Agent, any Applicable Issuing Bank or any Applicable Swingline Lender hereunder without the prior written consent of the Agent, such Applicable Issuing Bank or such Applicable Swingline Lender, as the case may be. The Agent may also amend the Commitment Schedule to reflect assignments entered into pursuant to Section 9.04. Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder, except that the Commitment of such Lender may not be increased without the consent of such Lender (it being understood that any Commitment or Loan held or deemed held by any Defaulting Lender shall be excluded from a vote of the Lenders hereunder requiring any consent of the Lenders).
(c) The Lenders hereby irrevocably agree that the Liens granted to the Agent by the Loan Parties on any Collateral shall be automatically released (i) upon the Termination Date, (ii) upon the sale or other disposition of the property constituting such Collateral (including as part of or in connection with any other sale or other disposition permitted hereunder) to any Person other than another Loan Party, to the extent such sale or other disposition is made in compliance with the terms of this Agreement (and the Agent may rely conclusively on a certificate to that effect provided to it by any Loan Party upon its reasonable request without further inquiry), (iii) to the extent such Collateral is comprised of property leased to a Loan Party, upon termination or expiration of such lease, (iv) subject to paragraph (b) of this Section 9.02, if the release of such Lien is approved, authorized or ratified in writing by the Required Lenders, (v) to the extent the property constituting such Collateral is owned by any Loan Guarantor, upon the release of such Guarantor from its obligations under its Loan Guaranty in accordance with the provisions of this Agreement, (vi) as required to effect any sale or other disposition of such Collateral in connection with any exercise of remedies of the Agent and the Lenders pursuant to the Collateral Documents, and (vii) as required pursuant to the terms of the Intercreditor Agreement; provided that the Agent may, in its discretion, release the Lien on Collateral valued in the aggregate not in excess of $5,000,000 during each fiscal year without the consent of any Lender. Any such release shall not in any manner discharge, affect, or impair the Obligations or any Liens (other than those expressly being released) upon (or obligations of the Loan Parties in respect of) all interests retained by the Loan Parties, including the proceeds of any sale, all of which shall continue to constitute part of the Collateral to the extent required under the provisions of the Loan Documents.
(d) Notwithstanding anything to the contrary contained in Section 9.02, guarantees, collateral security documents and related documents executed by Subsidiaries in connection with this Agreement may be in a form reasonably determined by the Agent and may be amended and waived with the consent of the Agent at the request of the Borrower Agent without the need to obtain the consent of any other Lenders if such amendment or waiver is delivered in order (i) to comply with local law or advice of local counsel, (ii) to cure ambiguities or defects or (iii) to cause such guarantee, collateral security document or other document to be consistent with this Agreement and the other Loan Documents.
(e) If, in connection with any proposed amendment, waiver or consent requiring the consent of each Revolving Lender, each Lender, each Revolving Lender directly affected thereby or each Lender directly affected thereby, the consent of the Required Lenders is obtained, but the consent of other necessary Lenders is not obtained (any such Lender whose consent is necessary but not obtained being referred to herein as a Non-Consenting Lender), then the Company may elect to replace a Non-Consenting Lender as a Lender party to this Agreement, provided that, concurrently with such replacement, (i) another bank or other entity which is reasonably satisfactory to the Company and the Agent shall agree, as of such date, to purchase for cash at par the Loans and other Obligations due to the
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Non-Consenting Lender pursuant to an Assignment and Assumption and to become a Lender for all purposes under this Agreement and to assume all obligations of the Non-Consenting Lender to be terminated as of such date and to comply with the requirements of clause (b) of Section 9.04, (ii) the replacement Lender shall pay the processing and recordation fee referred to in Section 9.04(b)(iii)(C), if applicable in accordance with the terms of such Section, (iii) the replacement Lender shall grant its consent with respect to the applicable proposed amendment, waiver or consent and (iv) the Borrowers within the applicable Borrower Group shall pay to such Non-Consenting Lender in same day funds on the day of such replacement (1) all interest, fees and other amounts then accrued but unpaid to such Non-Consenting Lender by the Borrowers within such Borrower Group hereunder to and including the date of termination, including, without limitation, payments due to such Non-Consenting Lender under Sections 2.15 and 2.17, and (2) an amount, if any, equal to the payment which would have been due to such Lender on the day of such replacement under Section 2.16 had the Loans of such Non-Consenting Lender been prepaid on such date rather than sold to the replacement Lender.
SECTION 9.03 Expenses; Indemnity; Damage Waiver. (a) The Company shall pay (i) all reasonable documented out-of-pocket expenses incurred by the Agent, each of the Joint Lead Arrangers and their respective Affiliates, including the reasonable fees, charges and disbursements of Parker, Hudson, Rainer & Dobbs LLP and Norton Rose Canada LLP, counsel for the Agent, in connection with the syndication and distribution (including, without limitation, via the internet or through a service such as Intralinks) of the credit facilities provided for herein, the preparation of the Loan Documents and related documentation, (ii) all reasonable documented out-of-pocket expenses incurred by the Agent and its Affiliates, including the reasonable fees, charges and disbursements of one firm of outside U.S. legal counsel and one firm of outside Canadian local counsel (to the extent relevant) to the Agent, in connection with any amendments, modifications or waivers of the provisions of any Loan Documents (whether or not the transactions contemplated thereby shall be consummated), (iii) all reasonable documented out-of-pocket expenses incurred by the Agent, Issuing Banks or the Lenders, including the reasonable documented fees, charges and disbursements of any counsel for the Agent and for one law firm retained by the Lenders, in connection with the enforcement, collection or protection of its rights in connection with the Loan Documents, including its rights under this Section, or in connection with the Loans made or Letters of Credit issued hereunder, including all such reasonable documented out-of-pocket expenses incurred during any workout, restructuring or related negotiations in respect of such Loans of Letters of Credit, and (iv) subject to any other provisions of this Agreement and the Loan Documents, all reasonable documented out-of-pocket expenses incurred by the Agent in the administration of the Loan Documents. Expenses reimbursable by the Company under this Section include, without limiting the generality of the foregoing, subject to any other applicable provision of any Loan Document, reasonable documented out-of-pocket costs and expenses incurred in connection with:
(i) appraisals;
(ii) field examinations and the preparation of Reports based on the fees charged by a third party retained by the Agent or (notwithstanding any reference to out-of-pocket above in this Section 9.03) the internally allocated fees for each Person employed by the Agent with respect to each field examination;
(iii) lien and title searches, title insurance and endorsements to Title Insurance Policies;
(iv) taxes, fees and other charges for recording any Mortgages, filing financing statements and continuations, and other actions to perfect, protect, and continue the Agents Liens; and
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(v) forwarding loan proceeds, collecting checks and other items of payment, and establishing and maintaining the accounts and lock boxes, and costs and expenses of preserving and protecting the Collateral.
Other than to the extent required to be paid on the Effective Date, all amounts due under this paragraph (a) shall be payable by the Company within ten (10) Business Days of receipt of an invoice relating thereto and setting forth such expenses in reasonable detail.
(b) Each Borrower shall indemnify the Agent, each Issuing Bank and each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an Indemnitee) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, penalties, liabilities and related reasonable and documented out-of-pocket fees, expenses (including the reasonable fees, disbursements and other charges of one counsel for all Indemnitees and, if necessary, of a single separate firm of local counsel in each appropriate jurisdiction (which may include a single special counsel acting in multiple jurisdictions) for all Indemnitees (and, in the case of an actual or perceived conflict of interest (as reasonably determined by the Indemnitee affected by such conflict) where such Indemnitee informs the Company of such conflict and thereafter retains its own counsel, of another firm of counsel for such affected Indemnitee) incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of the Loan Documents or any agreement or instrument contemplated thereby, the performance by the parties hereto of their respective obligations thereunder or the consummation of the Transactions or any other transactions contemplated hereby, (ii) any Loan or Letter of Credit or the use of the proceeds therefrom (including any refusal by an Issuing Bank to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any Environmental Liability related in any way to any Loan Party or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto (and regardless of whether such matter is initiated by a third party or by any Borrower, any other Loan Party or any of their respective Affiliates); provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, penalties, liabilities or related expenses or fees (i) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee, its Affiliates or any of its Related Parties, (ii) result from a material breach of the obligations of any such Indemnitee or one of its Related Parties under the Loan Documents or (iii) disputes brought by and between and among Indemnitees (not involving an act or omission of the Borrowers, the other Loan Parties or their Affiliates as determined by a court of competent jurisdiction in a final and non-appealable decision); provided that the Agent, Issuing Banks and Swingline Lenders shall remain indemnified in respect of such disputes to the extent otherwise entitled to be so indemnified.
(c) To the extent that any Borrower fails to pay any amount required to be paid by it to the Agent, an Issuing Bank or a Swingline Lender under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Agent, such Issuing Bank or Swingline Lender, as the case may be, such Lenders Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, penalty, liability or related expense, as the case may be, was incurred by or asserted against the Agent, any Issuing Bank or any Swingline Lender in its capacity as such.
(d) To the extent permitted by applicable law, no party to this Agreement shall assert, and each hereby waives, any claim against any other party hereto or any Related Party thereof, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions, any Loan or Letter of Credit or the use of the proceeds thereof.
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(e) All amounts due under this Section shall be paid, unless otherwise specified, promptly after written demand therefor.
SECTION 9.04 Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby (including any Affiliate of an Issuing Bank that issues any Letter of Credit), except that (i) other than as a matter of law following an event that is permitted in accordance with Section 6.03 of this Agreement, no Loan Party may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by any Loan Party without such consent shall be null and void) and (ii) no Lender may assign or otherwise transfer its rights or obligations hereunder except in accordance with this Section (any attempted assignment or transfer not complying with the terms of this Section shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby (including any Affiliate of an Issuing Bank that issues any Letter of Credit), Participants (to the extent provided in paragraph (c) of this Section) and, to the extent expressly contemplated hereby, the Related Parties of each of the Agent, the Issuing Banks and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.
(b) (i) Subject to the conditions set forth in paragraph (b)(ii) below, any Lender may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it) with the prior written consent (such consent not to be unreasonably withheld or delayed) of:
(A) the Company; provided that no consent of the Company shall be required if an Event of Default specified in paragraphs (a), (g) or (h) of Section 7.01 has occurred and is continuing;
(B) the Agent; and
(C) each Applicable Issuing Bank.
(ii) Notwithstanding the foregoing or anything to the contrary set forth herein, any assignment of any Loans or Commitments to any Purchasing Debt Affiliate shall also be subject to the requirements of Section 9.04(f).
(iii) Assignments shall be subject to the following additional conditions:
(A) except in the case of an assignment to another Lender, an Affiliate of a Lender or an Approved Fund or an assignment of the entire remaining amount of the assigning Lenders Commitment or Loans of any Class, the amount of the Commitment or the principal amount of Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Agent and determined on an aggregate basis in the event of concurrent assignments to Related Funds (as defined below)) shall not be less than $1,000,000 unless each of the Company and the Agent otherwise consent, provided that no such consent of the Company shall be required if an Event of Default specified in paragraphs (a), (g) or (h) of Section 7.01 has occurred and is continuing;
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(B) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lenders rights and obligations under this Agreement;
(C) the parties to each assignment shall execute and deliver to the Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500;
(D) the assignee shall execute and deliver to the Agent an agreement to be a party and subject to, and accept the terms of, the allocation and exchange mechanism agreement among the Agent and the Lenders; and
(E) the assignee, if it shall not be a Lender, shall deliver on or prior to the effective date of such assignment, (1) to the Agent an Administrative Questionnaire and (2) to the Borrower Agent (with a copy to the Agent) the tax forms required by Sections 2.17(e) and (f).
The term Related Funds shall mean with respect to any Lender that is an Approved Fund, any other Approved Fund that is managed or advised by the same investment advisor as such Lender or by an Affiliate of such investment advisor.
(iv) Subject to acceptance and recording thereof pursuant to paragraph (b)(v) of this Section, from and after the effective date specified in each Assignment and Assumption the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lenders rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.15, 2.16, 2.17 and 9.03 with respect to facts and circumstances occurring on or prior to the effective date of such assignment). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 9.04 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (c) of this Section.
(v) The Agent, acting for this purpose as an agent of the Borrowers, shall maintain at one of its offices a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount (and stated interest) of the Loans and LC Disbursements owing to, each Lender pursuant to the terms hereof from time to time (the Register). The entries in the Register shall be conclusive, absent manifest error, and the Borrowers, the Agent, the Issuing Banks and the Lenders shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower Agent, the Issuing Banks and any Lender, at any reasonable time and from time to time upon reasonable prior notice.
(vi) Upon its receipt of a duly completed Assignment and Assumption executed by an assigning Lender and an assignee, the assignees completed Administrative Questionnaire and tax forms required by Section 9.04(b)(iii)(D)(2) (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Agent shall
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accept such Assignment and Assumption and record the information contained therein in the Register; provided that if either the assigning Lender or the assignee shall have failed to make any payment required to be made by it pursuant to Section 2.05, 2.06(d) or (e), 2.07(b), 2.18(c) or 9.03(c), the Agent shall have no obligation to accept such Assignment and Assumption and record the information therein in the Register unless and until such payment shall have been made in full, together with all accrued interest thereon. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph.
(vii) By executing and delivering an Assignment and Assumption, the assigning Lender thereunder and the assignee thereunder shall be deemed to confirm to and agree with each other and the other parties hereto as follows: (i) such assigning Lender warrants that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim and that its Commitment, and the outstanding balances of its Loans, in each case without giving effect to assignments thereof which have not become effective, are as set forth in such Assignment and Assumption, (ii) except as set forth in (i) above, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement, any other Loan Document or any other instrument or document furnished pursuant hereto, or the financial condition of any Borrower or any Subsidiary or the performance or observance by any Borrower or any Subsidiary of any of its obligations under this Agreement, any other Loan Document or any other instrument or document furnished pursuant hereto; (iii) such assignee represents and warrants that it is an Eligible Assignee, legally authorized to enter into such Assignment and Assumption; (iv) such assignee confirms that it has received a copy of this Agreement, together with copies of the most recent financial statements referred to in Section 3.04(a) or delivered pursuant to Section 5.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Assumption; (v) such assignee will independently and without reliance upon the Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (vi) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all the obligations which by the terms of this Agreement are required to be performed by it as a Lender.
(c) (i) Any Lender may, without the consent of any Borrower, the Borrower Agent, the Agent, any Issuing Bank or any Swingline Lender, sell participations to one or more banks or other entities (a Participant) in all or a portion of such Lenders rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided that (A) such Lenders obligations under this Agreement shall remain unchanged, (B) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (C) the Borrowers, the Agent, the Issuing Banks, the Swingline Lenders and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lenders rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 9.02(b) that affects such Participant. Subject to paragraph (c)(ii) of this Section, the Company agrees that each Participant shall be entitled to the benefits of Sections 2.15, 2.16 and 2.17 to the same extent as if it were a Lender and had acquired its interest by
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assignment pursuant to paragraph (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 9.08 as though it were a Lender, provided such Participant agrees to be subject to Section 2.18(c) as though it were a Lender. Each Lender that sells a participation, acting solely as a non-fiduciary agent (solely for tax purposes) of the Borrower, shall maintain a register for the recordation of the names and addresses of the Participants and principal amount (and stated interest) of each Participants interest in the Loans or other obligations under this Agreement (the Participant Register). The entries in the Participant Register shall be conclusive, absent manifest error, and such Lender, each Loan Party and the Agent shall treat each Person whose name is recorded in the Participant Register pursuant to the terms hereof as the owner of such participation for all purposes of this Agreement, notwithstanding notice to the contrary.
(ii) A Participant shall not be entitled to receive any greater payment under Section 2.15 or 2.17 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Companys prior written consent. No Participant shall be entitled to the benefits of Section 2.17 unless the Company is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrowers, to comply with Section 2.17(e) or (f), as applicable, as though it were a Lender.
(d) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including without limitation any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
(e) Notwithstanding anything to the contrary contained herein, any Lender (a Granting Lender) may grant to a special purpose funding vehicle (an SPC), identified as such in writing from time to time by the Granting Lender to the Agent and the Borrower Agent, the option to provide to the Borrowers all or any part of any Loan that such Granting Lender would otherwise be obligated to make to the Borrowers pursuant to this Agreement; provided that (i) nothing herein shall constitute a commitment by any SPC to make any Loan and (ii) if an SPC elects not to exercise such option or otherwise fails to provide all or any part of such Loan, the Granting Lender shall be obligated to make such Loan pursuant to the terms hereof. The making of a Loan by an SPC hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Loan were made by such Granting Lender. Each party hereto hereby agrees that (i) neither the grant to any SPC nor the exercise by any SPC of such option shall increase the costs or expenses or otherwise increase or change the obligations of the Borrowers under this Agreement (including its obligations under Section 2.15, 2.16 or 2.17), (ii) no SPC shall be liable for any indemnity or similar payment obligation under this Agreement (all liability for which shall remain with the Granting Lender) and (iii) the Granting Lender shall for all purposes including approval of any amendment, waiver or other modification of any provision of the Loan Documents, remain the Lender of record hereunder. In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior indebtedness of any SPC, it will not institute against, or join any other Person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any State thereof. In addition, notwithstanding anything to the contrary contained in this Section 9.04, any SPC may (i) with notice to, but without the prior written consent of, the Borrowers, the Borrower Agent and the Agent and without paying any processing fee therefor, assign all or a portion of its interests in any Loans to the Granting Lender or to any financial institutions (consented to by the Company and the Agent) providing liquidity and/or credit support to or for the account of such SPC to support the funding or maintenance of Loans and (ii) disclose on a confidential basis any non-public information relating to its Loans to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit or liquidity enhancement to such SPC.
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(f) Notwithstanding anything else to the contrary contained in this Agreement, any Lender may assign all or a portion of its Commitments and/or Loans to any Purchasing Debt Affiliate in accordance with Section 9.04(f); provided that:
(i) no Default or Event of Default has occurred or is continuing or would result therefrom; and
(ii) no Loan or Commitment may be assigned to a Purchasing Debt Affiliate pursuant to this Section 9.04(f), if after giving effect to such assignment, Purchasing Debt Affiliates in the aggregate would own in excess of 10% of all Commitments then outstanding.
Notwithstanding anything to the contrary in this Agreement, no Purchasing Debt Affiliate shall have any right to (A) attend (including by telephone) any meeting or discussions (or portion thereof) among the Agent or any Lender to which representatives of the Loan Parties are not invited, and (B) receive any information or material prepared by the Agent or any Lender or any communication by or among the Agent and/or one or more Lenders, except to the extent such information or materials have been made available to any Loan Party or its representatives (and in any case, other than the right to receive notices of prepayments and other administrative notices in respect of its Commitments and Loans required to be delivered to Lenders pursuant to Article II), or (C) make or bring (or participate in, other than as a passive participant in or recipient of its pro rata benefits of) any claim, in its capacity as a Lender, against the Agent or any other Lender with respect to any duties or obligations or alleged duties or obligations of such Agent or any other such Lender under the Loan Documents.
(g) Notwithstanding anything in Section 9.04 or the definitions of Required Lenders or Super Majority Lenders to the contrary, for purposes of determining whether the Required Lenders, the Super Majority Lenders or any other requisite Class vote required by this Agreement have (i) consented (or not consented) to any amendment, modification, waiver, consent or other action with respect to any of the terms of any Loan Document or any departure by any Loan Party therefrom, (ii) otherwise acted on any matter related to any Loan Document, or (iii) directed or required the Agent or any Lender to undertake any action (or refrain from taking any action) with respect to or under any Loan Document, all Commitments held by any Purchasing Debt Affiliate shall be deemed to be not outstanding for all purposes of calculating whether the Required Lenders, the Super Majority Lenders (or requisite vote of any Class of Lenders) have taken any actions.
SECTION 9.05 Survival. All covenants, agreements, representations and warranties made by the Loan Parties in the Loan Documents and in the certificates or other instruments delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of the Loan Documents and the making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Agent, an Issuing Bank, a Swingline Lender or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated. The provisions of Sections 2.15, 2.16, 2.17 and 9.03 and Article VIII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement or any provision hereof.
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SECTION 9.06 Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement, the other Loan Documents and any separate letter agreement with respect to fees payable to the Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Agent and when the Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by facsimile or other electronic transmission shall be effective as delivery of a manually executed counterpart of this Agreement.
SECTION 9.07 Severability. To the extent permitted by law, any provision of any Loan Document held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions thereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.
SECTION 9.08 Right of Setoff. If an Event of Default shall have occurred and be continuing, each Applicable Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by such Applicable Lender or Affiliate to or for the credit or the account of any Borrower within the applicable Borrower Group or any Applicable Guarantor of the Applicable Guaranteed Obligations with respect to such Borrower Group against any of and all the Secured Obligations held by such Applicable Lender with respect to such Borrower Group, irrespective of whether or not such Applicable Lender shall have made any demand under the Loan Documents and although such obligations may be unmatured. The Applicable Lender shall notify the Borrower Agent and the Agent of such set-off or application, provided that any failure to give or any delay in giving such notice shall not affect the validity of any such set-off or application under this Section. The rights of each Applicable Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Applicable Lender may have.
NOTWITHSTANDING THE FOREGOING, AT ANY TIME THAT ANY OF THE SECURED OBLIGATIONS SHALL BE SECURED BY REAL PROPERTY LOCATED IN CALIFORNIA, NO LENDER SHALL EXERCISE A RIGHT OF SETOFF, LENDERS LIEN OR COUNTERCLAIM OR TAKE ANY COURT OR ADMINISTRATIVE ACTION OR INSTITUTE ANY PROCEEDING TO ENFORCE ANY PROVISION OF THIS AGREEMENT OR ANY LOAN DOCUMENT UNLESS IT IS TAKEN WITH THE CONSENT OF THE LENDERS REQUIRED BY SECTION 9.02 OF THIS AGREEMENT, IF SUCH SETOFF OR ACTION OR PROCEEDING WOULD OR MIGHT (PURSUANT TO SECTIONS 580a, 580b, 580d AND 726 OF THE CALIFORNIA CODE OF CIVIL PROCEDURE OR SECTION 2924 OF THE CALIFORNIA CIVIL CODE, IF APPLICABLE, OR OTHERWISE) AFFECT OR IMPAIR THE VALIDITY, PRIORITY, OR ENFORCEABILITY OF THE LIENS GRANTED TO AGENT PURSUANT TO THE COLLATERAL DOCUMENTS OR THE ENFORCEABILITY OF THE OBLIGATIONS HEREUNDER, AND ANY ATTEMPTED EXERCISE BY ANY LENDER OR ANY SUCH RIGHT WITHOUT OBTAINING SUCH CONSENT OF THE PARTIES AS REQUIRED ABOVE, SHALL BE NULL AND VOID. THIS PARAGRAPH SHALL BE SOLELY FOR THE BENEFIT OF EACH OF THE LENDERS.
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SECTION 9.09 Governing Law; Jurisdiction; Consent to Service of Process. (a) THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, UNLESS OTHERWISE SPECIFIED, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(b) Each party hereby irrevocably and unconditionally submits to the exclusive jurisdiction of any U.S. federal or New York State court sitting in New York, New York, in any action or proceeding arising out of or relating to any Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding shall be heard and determined in such New York State or, to the extent permitted by law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.
(c) Each party hereto hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any other Loan Document in any court referred to in clause (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement or any other Loan Document will affect the right of any party to this Agreement to serve process in any other manner permitted by law.
SECTION 9.10 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 9.11 Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.
SECTION 9.12 Confidentiality. Each of the Agent, each Issuing Bank and the each Lender (the Subject Persons) agrees (and each Lender agrees to cause its SPC, if any) to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) pursuant to the order of any court or administrative agency or in any pending legal, judicial or administrative proceeding, or otherwise as required by applicable law or compulsory legal process based on the advice of counsel (in which case each Subject Person agrees (except with respect to any audit or
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examination conducted by bank accountants or any governmental bank regulatory authority exercising examination or regulatory authority), to the extent practicable and not prohibited by applicable law, to inform the Company promptly thereof prior to disclosure), (b) upon the request or demand of any regulatory authority having jurisdiction over such Subject Person or any of its Affiliates (in which case such Subject Person agrees (except with respect to any audit or examination conducted by bank accountants or any governmental bank regulatory authority exercising examination or regulatory authority) to the extent practicable and not prohibited by applicable law, to inform the Company promptly thereof prior to disclosure), (c) to the extent that such information becomes publicly available other than by reason of improper disclosure by a Subject Person or any of its Affiliates or any Related Parties thereto in violation of this Agreement or any other confidentiality obligations owing to the Company or its Related Parties, (d) to the extent that such information is received by a Subject Person from a third party that is not, to such Subject Persons knowledge, subject to contractual or fiduciary confidentiality obligations owing to the Company or any of its Related Parties, (e) to the extent that such information is independently developed by such Subject Person, (f) to the Subject Persons Affiliates and to its and their respective employees, legal counsel, independent auditors, professionals and other experts or agents who need to know such information in connection with this Agreement, the other Loan Documents and the Transactions (including in connection with protecting or enforcing the Subject Persons rights with respect to the Loan Documents) and who are informed of the confidential nature of such information and are or have been advised of their obligation to keep information of this type confidential, (g) to potential or prospective Lenders, Participants or Assignees and to any direct or indirect, actual or prospective, contractual counterparty to any Swap Agreement relating to the Company or any of its Subsidiaries, in each case who are instructed that they shall be bound by the terms of this paragraph (or language substantially similar to this paragraph), (h) to another Subject Person, (i) if the Company provides its prior written consent to the proposed disclosure, or (j) for purposes of establishing a due diligence defense; provided that the disclosure of any such information to any Lenders, Participants, Assignees or counterparties or to prospective Lenders, Participants, Assignees or counterparties referred to above shall be made subject to the acknowledgment and acceptance by such persons that such information is being disseminated on a confidential basis (on substantially the terms set forth in this paragraph or as is otherwise reasonably acceptable to the Company). For the purposes of this Section, Information means all information received from any Loan Party relating to the Loan Parties or their businesses, the Sponsor or the Transactions other than any such information that is available to the Agent, any Issuing Bank or any Lender on a nonconfidential basis prior to disclosure by any Loan Party. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.
SECTION 9.13 Several Obligations; Nonreliance; Violation of Law. The respective obligations of the Lenders hereunder are several and not joint and the failure of any Lender to make any Loan or perform any of its obligations hereunder shall not relieve any other Lender from any of its obligations hereunder. Each Lender hereby represents that it is not relying on or looking to any Margin Stock for the repayment of the Borrowings provided for herein and acknowledges that the Collateral shall not include any Margin Stock. Anything contained in this Agreement to the contrary notwithstanding, neither the Issuing Banks nor any Lender shall be obligated to extend credit to any Borrower in violation of any Requirement of Law.
SECTION 9.14 USA PATRIOT Act. Agent and Lenders hereby notify Loan Parties that pursuant to the requirements of the PATRIOT Act, Agent and Lenders are required to obtain, verify and record information that identifies each Loan Party, including its legal name, address, tax ID number and other information that will allow Agent and Lenders to identify it in accordance with the PATRIOT Act. Agent and Lenders will also require information regarding each personal guarantor, if any, and may require information regarding Loan Parties management and owners, such as legal name, address social security number and date of birth.
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SECTION 9.15 Disclosure. Each Loan Party and each Lender hereby acknowledges and agrees that the Agent and its Affiliates from time to time may hold investments in, make other loans to or have other relationships with any of the Loan Parties and their respective Affiliates. In addition, each Loan Party and each Lender hereby acknowledges that an Affiliate of the Agent was an initial purchaser of the Senior Secured Notes.
SECTION 9.16 Appointment for Perfection. Each Applicable Lender hereby appoints each other Applicable Lender as its agent for the purpose of perfecting Liens, for the benefit of the Agent, the Applicable Lenders and the other applicable Secured Parties, in assets which, in accordance with Article 9 of the UCC, the PPSA, or any other applicable law can be perfected only by possession. Should any Lender obtain possession of any such Collateral, such Lender shall notify the Agent thereof, and, promptly upon the Agents request therefor shall deliver such Collateral to the Agent or otherwise deal with such Collateral in accordance with the Agents instructions.
SECTION 9.17 Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts which are treated as interest on such Loan under applicable law (collectively the Charges), shall exceed the maximum lawful rate (the Maximum Rate) which may be contracted for, charged, taken, received or reserved by the Lender holding such Loan in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at, with respect to a U.S. Revolving Loan, the Federal Funds Effective Rate, or, with respect to a Canadian Revolving Loan, the Canadian Overnight Rate, in each case, to the date of repayment, shall have been received by such Lender.
SECTION 9.18 Cumulative Effect; Conflict of Terms; Entire Agreement; Credit Inquiries; No Advisory or Fiduciary Responsibility. Each Loan Party hereby agrees and confirms that, notwithstanding the amendment and restatement of the Existing Credit Agreement pursuant to this Agreement:
(a) The provisions of the Loan Documents are cumulative. The parties acknowledge that the Loan Documents may use several limitations, tests or measurements to regulate similar matters, and they agree that these are cumulative and that each must be performed as provided. Except as otherwise provided in another Loan Document (by specific reference to the applicable provision of this Agreement), if any provision contained herein is in direct conflict with any provision in another Loan Document (other than the Intercreditor Agreement with respect to U.S. Collateral), the provision herein shall govern and control.
(b) Time is of the essence of the Loan Documents. The Loan Documents constitute the entire contract among the parties relating to the subject matter hereof, and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof.
(c) Each Loan Party hereby authorizes the Agent and the Lenders (but they shall have no obligation) to respond to usual and customary credit inquiries from third parties concerning any Loan Party or Subsidiary.
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(d) In connection with all aspects of each transaction contemplated by any Loan Document, the Loan Parties acknowledge and agree that (a)(i) this credit facility and any related arranging or other services by the Agent, any Lender, any of their Affiliates or any arranger are arms-length commercial transactions between the Loan Parties and such Person; (ii) the Loan Parties have consulted their own legal, accounting, regulatory and tax advisors to the extent they have deemed appropriate; and (iii) the Loan Parties are capable of evaluating and understanding, and do understand and accept, the terms, risks and conditions of the transactions contemplated by the Loan Documents; (b) each of the Agent, the Lenders, the Swingline Lenders, their Affiliates and any arranger is and has been acting solely as a principal in connection with this credit facility, is not the financial advisor, agent or fiduciary for the Loan Parties, any of their Affiliates or any other Person, and has no obligation with respect to the transactions contemplated by the Loan Documents except as expressly set forth therein; and (c) the Agent, Lenders, the Swingline Lenders, their Affiliates and any arranger may be engaged in a broad range of transactions that involve interests that differ from those of the Loan Parties and their Affiliates, and have no obligation to disclose any of such interests to the Loan Parties or their Affiliates.
SECTION 9.19 Confirmation, Ratification and Affirmation by Loan Parties. Each Loan Party hereby agrees and confirms that, notwithstanding the amendment and restatement of the Existing Credit Agreement pursuant to this Agreement:
(a) The obligations of each Loan Guarantor contained in the Loan Guaranty shall remain in full force and effect and are hereby confirmed, renewed, affirmed and continued by this Agreement.
(b) All rights, benefits, interests, duties, liabilities and obligations of the parties to the Collateral Documents and the agreements, documents and instruments executed and delivered in connection therewith are hereby confirmed, renewed, affirmed and continued hereby. Without limitation of the foregoing, all security interests, pledges, assignments and other Liens previously granted by any Guarantor, as a grantor, pursuant to the Collateral Documents are hereby confirmed, renewed, affirmed and continued, and all such security interests, pledges, assignments and other Liens shall remain in full force and effect as security for all Secured Obligations with no change in the priority applicable thereto, in each case, subject only to Liens permitted under the Loan Documents, to the extent provided therein.
(c) This affirmation under this Section 9.19 does not extinguish the indebtedness or liabilities outstanding in connection with the Existing Credit Agreement, the Loan Guaranty or the Collateral Documents, nor does it constitute a novation with respect thereto; rather, such indebtedness and liabilities have been redenominated, as set forth herein.
(d) Each reference in the Loan Guaranty and each Collateral Document to the Credit Agreement shall mean and be a reference to this Agreement, and each reference to any other term defined in the Existing Credit Agreement shall be a reference to such term as amended by the execution and delivery of this Agreement.
(e) Each Loan Guarantor acknowledges and stipulates that the Loan Guaranty, the Collateral Documents and each other Loan Document (including, without limitation, in each reference herein to the Loan Documents), each Banking Services agreement and each Swap Agreement in respect of Secured Swap Obligations executed by such Loan Guarantor are legal, valid and binding obligations of such Loan Guarantor that are enforceable against such Loan Guarantor in accordance with the terms thereof, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, receivership, moratorium, or other laws affecting
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creditors rights generally and by general principles of equity, as set forth in such Loan Documents, and the security interests and Liens granted under Collateral Documents and each other Loan Document by such Loan Guarantor in favor of the Agent, for the benefit of the applicable Secured Parties, are and continue to be, duly perfected, security interests and Liens (having the Lien priority set forth in the Intercreditor Agreement with respect to the U.S. Collateral), in each case, to the full extent provided by the terms of the Collateral Documents and each other Loan Document and subject only to Liens permitted under the Loan Documents, to the extent provided therein.
SECTION 9.20 INTERCREDITOR AGREEMENT. REFERENCE IS MADE TO THE INTERCREDITOR AGREEMENT. EACH LENDER HEREUNDER (A) CONSENTS TO THE SUBORDINATION OF LIENS PROVIDED FOR IN THE INTERCREDITOR AGREEMENT WITH RESPECT TO U.S. COLLATERAL THAT DOES NOT CONSTITUTE ABL FIRST LIEN COLLATERAL, (B) AGREES THAT IT WILL BE BOUND BY AND WILL TAKE NO ACTIONS CONTRARY TO THE PROVISIONS OF THE INTERCREDITOR AGREEMENT AND (C) AUTHORIZES AND INSTRUCTS THE AGENT TO ENTER INTO THE INTERCREDITOR AGREEMENT AS ABL AGENT AND ON BEHALF OF SUCH LENDER. THE FOREGOING PROVISIONS ARE INTENDED AS AN INDUCEMENT TO THE LENDERS UNDER THIS AGREEMENT TO EXTEND CREDIT TO BORROWERS AND SUCH LENDERS ARE INTENDED THIRD PARTY BENEFICIARIES OF SUCH PROVISIONS AND THE PROVISIONS OF THE INTERCREDITOR AGREEMENT.
SECTION 9.21 Judgment Currency. If, for the purpose of obtaining a judgment in any court or obtaining an order enforcing a judgment, it becomes necessary to convert any amount due under this Agreement in Dollars or in any other currency (hereinafter in this Section 9.21 called the first currency) into any other currency (hereinafter in this Section 9.21 called the second currency), then the conversion shall be made at the prevailing Exchange Rate for buying the first currency with the second currency at the Agents close of business on the Business Day next preceding the day on which the judgment is given or (as the case may be) the order is made. Any payment made by a Borrower within a Borrower Group to the Agent, any Applicable Lender, any Applicable Issuing Bank or any Applicable Swingline Lender pursuant to this Agreement in the second currency shall constitute a discharge of the obligations of the Borrowers within such Borrower Group only to the extent of the amount of the first currency which the Agent, such Applicable Lender, such Applicable Issuing Bank or such Applicable Swingline Lender is able, on the date of the receipt by it of such payment in any second currency, to purchase, in accordance with the Agent, such Applicable Lender, such Applicable Issuing Bank or such Applicable Swingline Lenders normal banking procedures, with the amount of such second currency so received. If the amount of the first currency purchased pursuant to the preceding sentence falls short of the amount originally due to the Agent, such Applicable Lender, such Applicable Issuing Bank or such Swingline Lender in the first currency under this Agreement, the Borrowers within such Borrower Group agree that they will indemnify the Agent, each Applicable Lender, each Applicable Issuing Bank and each Applicable Swingline Lender against and hold the Agent, each Applicable Lender, each Applicable Issuing Bank and each Applicable Swingline Lender harmless from any shortfall so arising. This indemnity shall constitute an obligation of each such Borrower separate and independent from the other obligations contained in this Agreement, shall give rise to a separate and independent cause of action and shall continue in full force and effect notwithstanding any judgment or order for a liquidated sum or sums in respect of amounts due to the Agent, any Applicable Lender, any Applicable Issuing Bank or any Applicable Swingline Lender under any Loan Documents or under any such judgment or order. Any such shortfall shall be deemed to constitute a loss suffered by the Agent, such Applicable Lender, such Applicable Issuing Bank or such Applicable Swingline Lender. If the amount of the first currency exceeds the amount originally due to the Agent, any Applicable Lender, any Applicable Issuing Bank or any Applicable Swingline Lender in the first currency under this Agreement, the Agent, such Applicable Lender, such Applicable Issuing Bank or such Applicable Swingline Lender shall promptly remit such excess to the Borrowers within the applicable Borrower Group. The covenants contained in this Section 9.21 shall survive the payment in full of the Obligations and termination of the Commitments under this Agreement.
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SECTION 9.22 Canadian Anti-Money Laundering Legislation. If the Agent has ascertained the identity of any Canadian Loan Party or any authorized signatories of any Canadian Loan Party for the purposes of the Proceeds of Crime Act and other applicable anti-money laundering, anti-terrorist financing, economic or trade sanctions and know your client policies, regulations, laws or rules (the Proceeds of Crime Act and such other applicable policies, regulations, laws or rules, collectively, including any guidelines or orders thereunder, AML Legislation), then the Agent shall be deemed to have done so as an agent for each Canadian Lender, and this Agreement shall constitute a written agreement in such regard between each Canadian Lender and the Agent within the meaning of the applicable AML Legislation; and shall provide to each Canadian Lender copies of all information obtained in such regard without any representation or warranty as to its accuracy or completeness.
Notwithstanding the preceding sentence and except as may otherwise be agreed in writing, each of the Canadian Lenders agrees that Agent has no obligation to ascertain the identity of the Canadian Loan Parties or any authorized signatories of the Canadian Loan Parties on behalf of any Canadian Lender, or to confirm the completeness or accuracy of any information it obtains from any Canadian Loan Party or any such authorized signatory in doing so.
ARTICLE X.
LOAN GUARANTY
SECTION 10.01 Guaranty. Each Canadian Obligations Guarantor hereby agrees that it is jointly and severally liable for, and, as primary obligor and not merely as surety, and absolutely and unconditionally guarantees to the Agent, the Canadian Lenders and the other applicable Secured Parties the prompt payment when due, whether at stated maturity, upon acceleration or otherwise, and at all times thereafter, of the Canadian Obligations (the Canadian Guaranteed Obligations) and each U.S. Guarantor hereby agrees that it is jointly and severally liable for, and, as primary obligor and not merely as surety, and absolutely and unconditionally guarantees to the Agent, the Lenders and the other Secured Parties the prompt payment when due, whether at stated maturity, upon acceleration or otherwise, and at all times thereafter, of the Canadian Guaranteed Obligations and the U.S. Obligations (collectively, the U.S. Guaranteed Obligations). Each Applicable Guarantor further agrees that the Applicable Guaranteed Obligations may be extended or renewed in whole or in part without notice to or further assent from it, and that it remains bound upon its guarantee notwithstanding any such extension or renewal.
SECTION 10.02 Guaranty of Payment. This Loan Guaranty is a guaranty of payment and not of collection. Each Applicable Guarantor waives any right to require the Agent, any Applicable Issuing Bank, any Applicable Swingline Lender or any Applicable Lender to sue any Borrower, any Applicable Guarantor, any other guarantor, or any other Person obligated for all or any part of the Applicable Guaranteed Obligations (with respect to any Applicable Guaranteed Obligations, each an Applicable Obligated Party), or otherwise to enforce its payment against any collateral securing all or any part of the Applicable Guaranteed Obligations and waives the benefits of division and discussion.
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SECTION 10.03 No Discharge or Diminishment of Loan Guaranty. (a) Except as otherwise provided for herein, the obligations of each Applicable Guarantor hereunder are unconditional and absolute and not subject to any reduction, limitation, impairment or termination for any reason (other than as expressly provided in Section 10.11), including: (i) any claim of waiver, release, extension, renewal, settlement, surrender, alteration, or compromise of any of the Applicable Guaranteed Obligations, by operation of law or otherwise; (ii) any change in the corporate existence, structure or ownership of any Borrower within the applicable Borrower Group or any other guarantor of or other Person liable for any of the Applicable Guaranteed Obligations; (iii) any insolvency, bankruptcy, arrangement, winding up reorganization or other similar proceeding affecting any Applicable Obligated Party, or their assets or any resulting release or discharge of any obligation of any Applicable Obligated Party; or (iv) the existence of any claim, setoff or other rights which any Applicable Guarantor may have at any time against any Applicable Obligated Party, the Agent, any Applicable Issuing Bank, any Applicable Swingline Lender, any Applicable Lender, or any other Person, whether in connection herewith or in any unrelated transactions.
(b) The obligations of each Applicable Guarantor hereunder are not subject to any defense or setoff, counterclaim, recoupment, or termination whatsoever by reason of the invalidity, illegality, or unenforceability of any of the Applicable Guaranteed Obligations or otherwise, or any provision of applicable law or Regulation purporting to prohibit payment by any Applicable Obligated Party, of the Applicable Guaranteed Obligations or any part thereof.
(c) Further, the obligations of any Applicable Guarantor hereunder are not discharged or impaired or otherwise affected by: (i) the failure of the Agent, any Applicable Issuing Bank, any Applicable Swingline Lender or any Applicable Lender to assert any claim or demand or to enforce any remedy with respect to all or any part of the Applicable Guaranteed Obligations; (ii) any waiver or modification of or supplement to any provision of any agreement relating to the Applicable Guaranteed Obligations; (iii) any release, non-perfection, or invalidity of any indirect or direct security for the obligations of each Borrower within the applicable Borrower Group for all or any part of the Applicable Guaranteed Obligations or any obligations of any other guarantor of or other Person liable for any of the Applicable Guaranteed Obligations; (iv) any action or failure to act by the Agent, any Applicable Issuing Bank, any Applicable Swingline Lender or any Applicable Lender with respect to any collateral securing any part of the Applicable Guaranteed Obligations; or (v) any default, failure or delay, willful or otherwise, in the payment or performance of any of the Applicable Guaranteed Obligations, or any other circumstance, act, omission or delay that might in any manner or to any extent vary the risk of such Applicable Guarantor or that would otherwise operate as a discharge of any Applicable Guarantor as a matter of law or equity (other than as expressly provided in Section 10.11).
SECTION 10.04 Defenses Waived. To the fullest extent permitted by applicable law, each Applicable Guarantor hereby waives any defense based on or arising out of any defense of any Borrower within the applicable Borrower Group or any Applicable Guarantor or the unenforceability of all or any part of the Applicable Guaranteed Obligations from any cause, or the cessation from any cause of the liability of any Borrower within the applicable Borrower Group or any Applicable Guarantor, other than the termination of an Applicable Guarantors obligations hereunder as expressly provided in Section 10.11. Without limiting the generality of the foregoing, each Applicable Guarantor irrevocably waives acceptance hereof, presentment, demand, protest and, to the fullest extent permitted by law, any notice not provided for herein, as well as any requirement that at any time any action be taken by any Person against any Applicable Obligated Party, or any other Person. The Agent may, at its election, foreclose on any Collateral held by it by one or more judicial or nonjudicial sales, accept an assignment of any such Collateral in lieu of foreclosure or otherwise act or fail to act with respect to any collateral securing all or a part of the Applicable Guaranteed Obligations, compromise or adjust any part of the Applicable Guaranteed Obligations, make any other accommodation with any Applicable Obligated Party or exercise any other right or remedy available to it against any Applicable Obligated Party, without affecting or impairing in any way the liability of such Applicable Guarantor under this Loan Guaranty except to the extent the Applicable Guaranteed Obligations have been fully and indefeasibly paid in cash.
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To the fullest extent permitted by applicable law, each Applicable Guarantor waives any defense arising out of any such election even though that election may operate, pursuant to applicable law, to impair or extinguish any right of reimbursement or subrogation or other right or remedy of any Applicable Guarantor against any Applicable Obligated Party or any security.
SECTION 10.05 Rights of Subrogation. No Applicable Guarantor will assert any right, claim or cause of action, including, without limitation, a claim of subrogation, contribution or indemnification that it has against any Applicable Obligated Party, or any collateral, until the Loan Parties, the Canadian Obligations Guarantors and the U.S. Guarantors have fully performed all their obligations to the Agent, the Issuing Banks, the Swingline Lenders and the Lenders, including without limitation payment in full of all of the Obligations and termination of the Commitments.
SECTION 10.06 Reinstatement; Stay of Acceleration. If at any time any payment of any portion of the Applicable Guaranteed Obligations is rescinded or must otherwise be restored or returned upon the insolvency, bankruptcy, arrangement or reorganization of any Borrower within the applicable Borrower Group or otherwise, each Applicable Guarantors obligations under this Loan Guaranty with respect to that payment shall be reinstated at such time as though the payment had not been made. If acceleration of the time for payment of any of the Applicable Guaranteed Obligations is stayed upon the insolvency, bankruptcy, arrangement or reorganization of any Borrower within the applicable Borrower Group, all such amounts otherwise subject to acceleration under the terms of any agreement relating to the Applicable Guaranteed Obligations shall nonetheless be payable by the Applicable Guarantors forthwith on demand by the Agent, the Applicable Lender or the other applicable Secured Party.
SECTION 10.07 Information. Each Applicable Guarantor assumes all responsibility for being and keeping itself informed of each Borrowers financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations and the nature, scope and extent of the risks that each Applicable Guarantor assumes and incurs under this Loan Guaranty, and agrees that none of the Agent, any Applicable Issuing Bank, any Applicable Swingline Lender or any Applicable Lender shall have any duty to advise any Applicable Guarantor of information known to it regarding those circumstances or risks.
SECTION 10.08 Maximum Liability. The provisions of this Loan Guaranty are severable, and in any action or proceeding involving any state, Canadian federal or provincial corporate law, or any state, provincial, federal or foreign bankruptcy, insolvency, arrangement, reorganization or other law affecting the rights of creditors generally, if the obligations of any Applicable Guarantor under this Loan Guaranty would otherwise be held or determined to be avoidable, invalid or unenforceable on account of the amount of such Applicable Guarantors liability under this Loan Guaranty, then, notwithstanding any other provision of this Loan Guaranty to the contrary, the amount of such liability shall, without any further action by the Applicable Guarantors or the applicable Secured Parties, be automatically limited and reduced to the highest amount that is valid and enforceable as determined in such action or proceeding (such highest amount determined hereunder being the relevant Applicable Guarantors Maximum Liability). This Section 10.08 with respect to the Maximum Liability of each Applicable Guarantor is intended solely to preserve the rights of the applicable Secured Parties to the maximum extent not subject to avoidance under applicable law, and no Applicable Guarantor nor any other Person or entity shall have any right or claim under this Section with respect to such Maximum Liability, except to the extent necessary so that the obligations of any Applicable Guarantor hereunder shall not be rendered voidable under applicable law. Each Applicable Guarantor agrees that the Applicable Guaranteed Obligations may at any time and from time to time exceed the Maximum Liability of each Applicable Guarantor without impairing this Loan Guaranty or affecting the rights and remedies of the applicable Secured Parties hereunder, provided that nothing in this sentence shall be construed to
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increase any Applicable Guarantors obligations hereunder beyond its Maximum Liability. Notwithstanding the foregoing, nothing contained in this Agreement (including any provisions of this Article X to the contrary) shall limit the liability of the Borrowers within each Borrower Group in respect of all of the Obligations of such Borrowers under the Loan Documents.
SECTION 10.09 Contribution.
(a) In the event any Canadian Obligations Guarantor (a Canadian Obligations Paying Guarantor) shall make any payment or payments under this Loan Guaranty in respect of the Canadian Obligations or shall suffer any loss as a result of any realization upon any collateral granted by it to secure its obligations under this Loan Guaranty, each other Canadian Obligations Guarantor (each a Canadian Obligations Non-Paying Guarantor) shall contribute to such Canadian Obligations Paying Guarantor an amount equal to such Canadian Obligations Non-Paying Guarantors Canadian Obligations Guarantor Percentage of such payment or payments made, or losses suffered, by such Canadian Obligations Paying Guarantor. For purposes of this Article X, each Canadian Obligations Non-Paying Guarantors Canadian Obligations Guarantor Percentage with respect to any such payment or loss by a Canadian Obligations Paying Guarantor shall be determined as of the date on which such payment or loss was made by reference to the ratio of (i) such Canadian Obligations Non-Paying Guarantors Maximum Liability as of such date (without giving effect to any right to receive, or obligation to make, any contribution hereunder) or, if such Canadian Obligations Non-Paying Guarantors Maximum Liability has not been determined, the aggregate amount of all monies received by such Canadian Obligations Non-Paying Guarantor from a Canadian Borrower after the date hereof (whether by loan, capital infusion or by other means) to (ii) the aggregate Maximum Liability of all Canadian Obligations Guarantors hereunder (including such Canadian Obligations Paying Guarantor) as of such date (without giving effect to any right to receive, or obligation to make, any contribution hereunder), or to the extent that a Maximum Liability has not been determined for any Canadian Obligations Guarantor, the aggregate amount of all monies received by such Canadian Obligations Guarantors from a Canadian Borrower after the date hereof (whether by loan, capital infusion or by other means). Nothing in this provision shall affect any Canadian Obligations Guarantors several liability for the entire amount of the Canadian Guaranteed Obligations (up to such Canadian Obligations Guarantors Maximum Liability). Each of the Canadian Obligations Guarantors covenants and agrees that its right to receive any contribution under this Loan Guaranty from a Canadian Obligations Non-Paying Guarantor shall be subordinate and junior in right of payment to the termination of a Canadian Obligations Guarantors obligations hereunder as expressly provided in Section 10.11. This provision is for the benefit of all of the Agent, the Canadian Issuing Banks, the Canadian Swingline Lenders, the Canadian Lenders, the Borrowers and the other Loan Parties and may be enforced by any one, or more, or all of them in accordance with the terms hereof.
(b) In the event any U.S. Guarantor (a U.S. Paying Guarantor) shall make any payment or payments under this Loan Guaranty in respect of the U.S. Obligations or shall suffer any loss as a result of any realization upon any collateral granted by it to secure its obligations under this Loan Guaranty, each other U.S. Guarantor (each a U.S. Non-Paying Guarantor) shall contribute to such U.S. Paying Guarantor an amount equal to such U.S. Non-Paying Guarantors U.S. Guarantor Percentage of such payment or payments made, or losses suffered, by such U.S. Paying Guarantor. For purposes of this Article X, each U.S. Non-Paying Guarantors U.S. Guarantor Percentage with respect to any such payment or loss by a U.S. Paying Guarantor shall be determined as of the date on which such payment or loss was made by reference to the ratio of (i) such U.S. Non-Paying Guarantors Maximum Liability as of such date (without giving effect to any right to receive, or obligation to make, any contribution hereunder) or, if such U.S. Non-Paying Guarantors Maximum Liability has not been determined, the aggregate amount of all monies received by such U.S. Non-Paying Guarantor from any U.S. Borrower after the date hereof (whether by loan, capital infusion or by other means) to (ii) the aggregate Maximum Liability of all U.S. Guarantors hereunder (including such U.S. Paying Guarantor) as of such date (without giving
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effect to any right to receive, or obligation to make, any contribution hereunder), or to the extent that a Maximum Liability has not been determined for any U.S. Guarantor, the aggregate amount of all monies received by such U.S. Guarantors from any U.S. Borrower after the date hereof (whether by loan, capital infusion or by other means). Nothing in this provision shall affect any U.S. Guarantors several liability for the entire amount of the U.S. Guaranteed Obligations (up to such U.S. Guarantors Maximum Liability). Each of the U.S. Guarantors covenants and agrees that its right to receive any contribution under this Loan Guaranty from a U.S. Non-Paying Guarantor shall be subordinate and junior in right of payment to the termination of a U.S. Guarantors obligations hereunder as expressly provided in Section 10.11. This provision is for the benefit of all of the Agent, the Issuing Banks, the Swingline Lenders, the Lenders, the Borrowers and the other Loan Parties and may be enforced by any one, or more, or all of them in accordance with the terms hereof.
SECTION 10.10 Liability Cumulative. The liability of each applicable Loan Party as an Applicable Guarantor under this Article X is in addition to and shall be cumulative with all liabilities of each such Loan Party to the Agent, the Issuing Banks, the Swingline Lenders and the Lenders under this Agreement and the other Loan Documents to which such Loan Party is a party or in respect of any obligations or liabilities of the other Loan Parties, without any limitation as to amount, unless the instrument or agreement evidencing or creating such other liability specifically provides to the contrary.
SECTION 10.11 Termination; Release of Guarantors and Borrowers. The Loan Guaranty of all Applicable Guarantors shall terminate on the Termination Date. Notwithstanding anything in Section 9.02(b) to the contrary (i) an Applicable Guarantor or a Borrower that is a Subsidiary shall automatically be released from its obligations hereunder and its Loan Guaranty and obligations as a Borrower shall be automatically released upon the consummation of any transaction permitted hereunder as a result of which such Guarantor or Borrower ceases to be a Subsidiary of the Company and (ii) so long as no Event of Default has occurred and is continuing, (A) if an Applicable Guarantor or Borrower is or becomes an Excluded Subsidiary, then such Applicable Guarantor shall be automatically released from its obligations hereunder and its Loan Guaranty and obligations as a Borrower shall be automatically released upon notification thereof from the Borrower Agent to the Agent. In connection with any such release, the Agent shall execute and deliver to any Applicable Guarantor or Borrower that is a Subsidiary, at such Applicable Guarantors or Borrowers expense, all documents that such Applicable Guarantor or Borrower shall reasonably request to evidence termination or release. Any execution and delivery of documents pursuant to the preceding sentence of this Section 10.11 shall be without recourse to or warranty by the Agent.
[SIGNATURES APPEAR ON FOLLOWING PAGES]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.
BORROWERS: | ||
AMERICAN TIRE DISTRIBUTORS, INC., a Delaware corporation, as a U.S. Borrower | ||
By | /s/ William E. Berry | |
Name: William E. Berry | ||
Title: President & CEO | ||
AM-PAC TIRE DIST. INC., a California corporation, as a U.S. Borrower | ||
By | /s/ William E. Berry | |
Name: William E. Berry | ||
Title: President & CEO | ||
ATD ACQUISITION CO. V INC., a corporation organized under the laws of Canada, as the Canadian Borrower | ||
By | /s/ William E. Berry | |
Name: William E. Berry | ||
Title: President & CEO |
[Signatures continue on following page.]
[Signature Page to ATDSixth Amended and Restated Credit Agreement]
GUARANTORS: | ||
AMERICAN TIRE DISTRIBUTORS HOLDINGS, INC., as Holdings and a U.S. Guarantor | ||
By | /s/ William E. Berry | |
| ||
Name: William E. Berry | ||
Title: President & CEO | ||
ATD ACQUISITION CO. IV, a Delaware corporation, as a U.S. Guarantor | ||
By | /s/ William E. Berry | |
| ||
Name: William E. Berry | ||
Title: President & CEO | ||
FIRESTONE OF DENHAM SPRINGS, INC., a Louisiana corporation, as a U.S. Guarantor | ||
By | /s/ William E. Berry | |
| ||
Name: William E. Berry | ||
Title: President & CEO | ||
TIRE WHOLESALERS, INC., a Washington corporation and a U.S. Guarantor | ||
By | /s/ William E. Berry | |
| ||
Name: William E. Berry | ||
Title: President & CEO | ||
TRIWEST TRADING (CANADA) LTD., a corporation incorporated under the laws of Canada, as a Canadian Guarantor | ||
By | /s/ William E. Berry | |
| ||
Name: William E. Berry | ||
Title: President & CEO |
[Signatures continue on following page.]
[Signature Page to ATDSixth Amended and Restated Credit Agreement]
BANK OF AMERICA, N.A., individually and as Agent, an Issuing Bank, a U.S. Revolving Lender and the U.S. Swingline Lender | ||
By | /s/ Seth Benefield | |
Name: Seth Benefield | ||
Title: Senior Vice President | ||
BANK OF AMERICA, N.A., (acting through its Canada branch), as an Issuing Bank, a Canadian Revolving Lender, and the Canadian Swingline Lender | ||
By | /s/ Medina Sales De Andrade | |
Name: Medina Sales De Andrade | ||
Title: Vice President |
[Signatures continue on following page.]
[Signature Page to ATDSixth Amended and Restated Credit Agreement]
WELLS FARGO CAPITAL FINANCE, LLC, as a U.S. Revolving Lender | ||
By | /s/ Reza Sabani | |
| ||
Name: Reza Sabani | ||
Title: Authorized Signatory |
[Signatures continue on following page.]
[Signature Page to ATDSixth Amended and Restated Credit Agreement]
WELLS FARGO CAPITAL FINANCE CORPORATION CANADA, as a Canadian Revolving Lender | ||
By | /s/ Domenic Cosentino | |
| ||
Name: Domenic Cosentino | ||
Title: Authorized Signatory |
[Signatures continue on following page.]
[Signature Page to ATDSixth Amended and Restated Credit Agreement]
BARCLAYS BANK PLC, as a U.S. Revolving Lender and a Canadian Revolving Lender | ||
By | /s/ Diane Relfe | |
| ||
Name: Diane Relfe | ||
Title: Director |
[Signatures continue on following page.]
[Signature Page to ATDSixth Amended and Restated Credit Agreement]
ROYAL BANK OF CANADA, as a U.S. Revolving Lender | ||
By |
/s/ Michael Petersen | |
Name: Michael Petersen | ||
Title: Attorney in Fact |
[Signatures continue on following page.]
[Signature Page to ATDSixth Amended and Restated Credit Agreement]
ROYAL BANK OF CANADA, as a Canadian Revolving Lender | ||
By |
/s/ James Parisi | |
Name: James Parisi | ||
Title: Authorized Signatory |
[Signatures continue on following page.]
[Signature Page to ATDSixth Amended and Restated Credit Agreement]
UBS LOAN FINANCE LLC, as a U.S. Revolving Lender and a Canadian Revolving Lender | ||
By | /s/ Irja R. Otsa | |
Name: Irja R. Otsa | ||
Title: Associate Director | ||
By | /s/ Joselin Fernandes | |
Name: Joselin Fernandes | ||
Title: Associate Director |
[Signatures continue on following page.]
[Signature Page to ATDSixth Amended and Restated Credit Agreement]
RBS BUSINESS CAPITAL, a division of RBS Asset Finance, Inc., as a U.S. Revolving Lender | ||
By | /s/ Don Cmar | |
Name: Don Cmar | ||
Title: Vice President |
[Signatures continue on following page.]
[Signature Page to ATDSixth Amended and Restated Credit Agreement]
SUNTRUST BANK, as Syndication Agent, a U.S. Revolving Lender, and a Canadian Revolving Lender | ||
By | /s/ Mark Fidati | |
Name: Mark Fidati | ||
Title: Senior Vice President |
[Signatures continue on following page.]
[Signature Page to ATDSixth Amended and Restated Credit Agreement]
TD BANK, N.A., as a U.S. Revolving Lender | ||
By | /s/ Andrew Loughlin | |
Name: Andrew Loughlin | ||
Title: Vice President |
[Signatures continue on following page.]
[Signature Page to ATDSixth Amended and Restated Credit Agreement]
THE TORONTO-DOMINION BANK, as a Canadian Revolving Lender | ||
By | /s/ Dan Flaro /s/ Kyle Weage | |
Name: Dan Flaro Kyle Weage | ||
Title: VP Analyst |
[Signatures continue on following page.]
[Signature Page to ATDSixth Amended and Restated Credit Agreement]
U.S. BANK NATIONAL ASSOCIATION, as a U.S. Revolving Lender | ||
By | /s/ Scot Turner | |
Name: Scot Turner | ||
Title: Senior Vice President |
[Signatures continue on following page.]
[Signature Page to ATDSixth Amended and Restated Credit Agreement]
U.S. BANK NATIONAL ASSOCIATION, Canada branch, as a Canadian Revolving Lender | ||
By | /s/ Joseph Rauhala | |
Name: Joseph Rauhala | ||
Title: Principal Officer |
[Signatures continue on following page.]
[Signature Page to ATDSixth Amended and Restated Credit Agreement]
REGIONS BANK, as a U.S. Revolving Lender | ||
By | /s/ Amanda Watkins | |
Name: Amanda Watkins | ||
Title: Vice President |
[Signature Page to ATDSixth Amended and Restated Credit Agreement]
COMMITMENT SCHEDULE
LENDER |
U.S.
REVOLVING COMMITMENTS |
CANADIAN REVOLVING COMMITMENTS |
||||||
Bank of America, N.A. |
$ | 278,142,856.93 | $ | 0 | ||||
Bank of America, N.A. (acting through its Canada branch) |
$ | 0 | $ | 21,857,143.07 | ||||
Wells Fargo Capital Finance, LLC |
$ | 190,000,000.00 | $ | 0 | ||||
Wells Fargo Capital Finance Corporation Canada |
$ | 0 | $ | 15,000,000.00 | ||||
SunTrust Bank |
$ | 120,109,890.00 | $ | 9,890,110.00 | ||||
UBS Loan Finance LLC |
$ | 60,054,945.00 | $ | 4,945,055.00 | ||||
Regions Bank |
$ | 50,000,000.00 | $ | 0 | ||||
U.S. Bank National Association |
$ | 37,362,637.36 | $ | 0 | ||||
U.S. Bank National Association, Canada branch |
$ | 0 | $ | 2,637,362.64 | ||||
RBS Business Capital |
$ | 35,000,000.00 | $ | 0 | ||||
TD Bank, N.A. |
$ | 32,692,307.69 | $ | 0 | ||||
The Toronto-Dominion Bank |
$ | 0 | $ | 2,307,692.31 | ||||
Barclays Bank PLC |
$ | 28,021,978.02 | $ | 1,978,021.98 | ||||
Royal Bank of Canada |
$ | 18,615,385.00 | $ | 0 | ||||
Royal Bank of Canada |
$ | 0 | $ | 1,384,615.00 | ||||
|
|
|
|
|||||
TOTAL |
$ | 850,000,000.00 | $ | 60,000,000.00 |
Schedule 1.01(a)
Existing Letters of Credit
Prod Type |
Beneficiary |
Instrument Number |
Liability Amount |
Expiration Date | ||||||||
SLC |
United States Fire Insurance | 68032354 | $ | 175,000 | June 30, 2013 | |||||||
SLC |
Argonaut Insurance Co. | 3014249 | $ | 125,000 | September 30, 2013 | |||||||
SLC |
Universal Underwriters Insurance | 3014979 | $ | 150,000 | October 1, 2013 | |||||||
SLC |
XL Specialty Insurance Company | 7420499 | $ | 6,394,000 | October 1, 2013 | |||||||
SLC |
The Realty Associates Fund IX, LP | 68074350 | $ | 100,000 | April 26, 2013 | |||||||
SLC |
HEF (NC-SC) QRS 14-86 Inc. | 3009036 | $ | 1,308,693 | March 7, 2013 |
Schedule 1.01(b)
Immaterial Subsidiaries
Name |
||
TriCan Tire Distributors Inc. |
Schedule 1.01(c)
Mortgaged Properties
None
SCHEDULE 1.01(d)
ADDRESS |
CITY | ST | ZIP CODE |
SQUARE FOOTAGE |
LEASED or OWNED |
|||||||||||
3000 35th Avenue |
Birmingham | AL | 35203 | leased | ||||||||||||
420 Industrial Park Road |
Cullman | AL | 35055 | 100,000 | leased | |||||||||||
881 Roy Hodges Boulevard |
Montgomery | AL | 36117 | 72,000 | leased | |||||||||||
5240 Willis Road |
Theodore | AL | 36582 | 100,000 | leased | |||||||||||
1200 E. 12th Street |
N. Little Rock | AR | 72214 | 80,000 | leased | |||||||||||
3921 East 19th Street |
Texarkana | AR | 71854 | 81,000 | leased | |||||||||||
2001 South 15th Avenue |
Phoenix | AZ | 85007 | 125,643 | leased | |||||||||||
6720 S. Alvernon Way |
Tucson | AZ | 85756 | 100,000 | leased | |||||||||||
5600 Norris Road |
Bakersfield | CA | 93308 | 122,486 | leased | |||||||||||
22411 S. Bonita Street |
Carson | CA | 90745 | 94,984 | leased | |||||||||||
2400 Main Street |
Chula Vista | CA | 91911 | 81,330 | leased | |||||||||||
3064 S. Chestnut Ave |
Fresno | CA | 93725 | 147,840 | leased |
5100 Commerce Avenue |
Moorpark | CA | 93021 | 110,000 | leased | |||||||||||
11680 Dayton Drive |
Rancho Cucamonga | CA | 91730 | 143,468 | leased | |||||||||||
4632 Raley Blvd. |
Sacramento | CA | 95838 | 133,380 | leased | |||||||||||
645 Dado Street |
San Jose | CA | 95112 | 137,500 | leased | |||||||||||
13335 Orden Drive |
Santa Fe Springs | CA | 90670 | 171,826 | leased | |||||||||||
4750 Fanucchi Way |
Shafter | CA | 93263 | 176,500 | leased | |||||||||||
955 Aeroplaza Drive |
Colorado Springs | CO | 80916 | 125,060 | leased | |||||||||||
1150 E. 58th Avenue |
Denver | CO | 80216 | 88,930 | leased | |||||||||||
1200 East 58th Avenue |
Denver | CO | 80216 | 40,420 | leased | |||||||||||
2139 Bond Street |
Grand Junction | CO | 81505 | 82,800 | leased | |||||||||||
7051 Stuart Ave. |
Jacksonville | FL | 32254 | 80,000 | leased | |||||||||||
11700 Miramar Parkway, Suite 500 |
Miramar | FL | 33025 | 144,482 | leased | |||||||||||
6251 Los Rios Way |
Ft. Myers | FL | 33966 | 46,750 | leased | |||||||||||
8751 Skinner Court |
Orlando | FL | 32824 | 125,775 | leased | |||||||||||
7502 Sears Boulevard |
Pensacola | FL | 32514 | 60,650 | leased | |||||||||||
4755 Capital Circle NW |
Tallahassee | FL | 32303 | 50,000 | leased |
4411 Eagle Falls Place |
Tampa | FL | 33619 | 147,197 | leased | |||||||||||
2122 Noland Connector |
Augusta | GA | 30909 | 80,000 | leased | |||||||||||
102 Dunbar Rd. |
Byron | GA | 31008 | 50,000 | leased | |||||||||||
3075 Southpark Boulevard, Suite 100 |
Ellenwood | GA | 30294 | 84,000 | leased | |||||||||||
2155 Barrett Park Drive, Suite 215 |
Kennessaw | GA | 30144 | 100,646 | leased | |||||||||||
1402 Mills B. Lane Blvd. |
Savannah | GA | 31405 | 60,500 | leased | |||||||||||
2232 Mountain Industrial Blvd. |
Tucker | GA | 30084 | 105,000 | leased | |||||||||||
3915 Delaware Avenue, Suite 5 |
Des Moines | IA | 50313 | 108,948 | leased | |||||||||||
1404 E. Fargo Avenue |
Nampa | ID | 83667 | 70,000 | leased | |||||||||||
9450 Sergo Drive |
Mc Cook | IL | 60525 | 233,669 | leased | |||||||||||
305 Erie Street |
Morton | IL | 61550 | 122,500 | leased | |||||||||||
2855 Fortune Circle West |
Indianapolis | IN | 46241 | 121,875 | leased | |||||||||||
5015 S. Water Circle |
Wichita | KS | 67217 | 113,524 | leased | |||||||||||
8169 and 8173 National Turnpike |
Louisville | KY | 40214 | 90,000 | leased | |||||||||||
6735 Exchequer Drive, #130 |
Baton Rouge | LA | 70809 | 67,500 | leased | |||||||||||
655 LA Hwy 30 |
St. Gabriel | LA | 70776 | 95,000 | leased |
39492 Willis Alley |
Pear River | LA | 70452 | 19,000 | leased | |||||||||||
111 Constitution Blvd |
Franklin | MA | 02038 | 96,126 | leased | |||||||||||
4625 Hollins Ferry Road |
Baltimore | MD | 21227 | 150,403 | leased | |||||||||||
530 Marvel Road |
Salisbury | MD | 21801 | 71,300 | owned | |||||||||||
17950 Dix-Toledo Road, Suite 300 |
Brownstown Township | MI | 48192 | 135,751 | leased | |||||||||||
5100 West 35th Street |
St. Louis Park | MN | 55416 | 121,400 | leased | |||||||||||
13261 Corporate Exchange Drive |
Bridgeton | MO | 63044 | 123,200 | leased | |||||||||||
4121 N. Kentucky Avenue |
Kansas City | MO | 64161 | 87,560 | leased | |||||||||||
2727 North Oak Grove |
Springfield | MO | 65803 | 60,000 | leased | |||||||||||
2504 N. Oak Grove, Unit B |
Springfield | MO | 65803 | 5,875 | leased | |||||||||||
500 Highway 49 South |
Richland | MS | 39218 | 72,634 | leased | |||||||||||
205 Vista Industrial Drive |
Arden | NC | 28704 | 60,000 | leased | |||||||||||
3020 Tucker Street Extension |
Burlington | NC | 27215 | 100,800 | leased | |||||||||||
4047 Perimeter West Drive |
Charlotte | NC | 28214 | 156,000 | leased | |||||||||||
4208 Murchison Road |
Fayetteville | NC | 28311 | 80,000 | leased | |||||||||||
1582 Startown Road, Bldg. #1 |
Lincolnton | NC | 28092 | 30,000 | leased |
3099 Finger Mill Road |
Lincolnton | NC | 28092 | 270,000 | leased | |||||||||||
190 Cochrane Road |
Lincolnton | NC | 28092 | 172,224 | leased | |||||||||||
1615 Wolfpack Lane Suite 121 |
Raleigh | NC | 27609 | 81,802 | leased | |||||||||||
250 Northstar Drive |
Rural Hall | NC | 27045 | 100,000 | leased | |||||||||||
2405 Wrightsville Avenue |
Wilmington | NC | 28403 | 58,700 | leased | |||||||||||
2820 Commerce Road |
Wilson | NC | 27893 | 88,263 | leased | |||||||||||
1415 W. Commerce Way |
Lincoln | NE | 68521 | 222,000 | leased | |||||||||||
50 Route 46 East |
Totowa | NJ | ,07512 | 150,678 | leased | |||||||||||
111 Ikea Drive |
Westampton | NJ | ,08060 | 112,324 | leased | |||||||||||
8701 San Mateo Blvd. |
Albuquerque | NM | 87113 | 64,864 | leased | |||||||||||
3101 N. Lamb Blvd. |
Las Vegas | NV | 89115 | 86,773 | leased | |||||||||||
250 Lillard Drive |
Sparks | NV | 89431 | 79,937 | leased | |||||||||||
121 Wilshire Boulevard |
Edgewood | NY | 11717 | 131,547 | leased | |||||||||||
401 Pixley Road |
Rochester | NY | 14624 | 70,400 | leased | |||||||||||
23371 Aurora Road |
Bedford Heights | OH | 44146 | 117,104 | leased | |||||||||||
4871 Corporate Street SW |
Canton | OH | 44706 | 122,792 | leased |
4520 LeSaint Court |
Fairfield | OH | 45014 | 85,158 | leased | |||||||||||
3701 South Thomas Road |
Oklahoma City | OK | 73179 | 94,373 | leased | |||||||||||
4223 N. Garnett Road |
Tulsa | OK | 74146 | 127,556 | leased | |||||||||||
16785 NE Mason Street, Suite B |
Portland | OR | 97230 | 64,000 | leased | |||||||||||
2291 Sweeney Drive |
Clinton | PA | 15026 | 91,203 | leased | |||||||||||
7360 Spartan Boulevard |
Charleston | SC | 29418 | 50,500 | leased | |||||||||||
917 Rosewood Drive |
Columbia | SC | 29201 | 88,858 | leased | |||||||||||
1611 Otis Way |
Florence | SC | 29501 | 58,709 | leased | |||||||||||
712 N. Main Street |
Mauldin | SC | 29662 | 72,600 | leased | |||||||||||
1009 East Amidon |
Sioux Falls | SD | 57104 | 93,298 | leased | |||||||||||
7150 Discovery Drive |
Chattanooga | TN | 37416 | 125,000 | leased | |||||||||||
916 Callahan Drive |
Knoxville | TN | 37912 | 75,000 | leased | |||||||||||
4370 S. Mendenhall Rd |
Memphis | TN | 38141 | 89,375 | leased | |||||||||||
521 Harding Industrial Drive |
Nashville | TN | 37211 | 130,000 | leased | |||||||||||
410 Century Court |
Piney Flats | TN | 37686 | 50,000 | leased | |||||||||||
9151 S. Georgia Street |
Amarillo | TX | 79118 | 80,000 | leased |
810 West Howard LaneTech Ridge Building four 3B |
Austin | TX | 78753 | 127,612 | leased | |||||||||||
1701 Vantage Drive, Ste. #102 & #103 |
Carrollton | TX | 75006 | 131,298 | leased | |||||||||||
1301 S. Navigation Blvd. |
Corpus Christi | TX | 78405 | 80,000 | leased | |||||||||||
12420 Mercantile, Suite 100 |
El Paso | TX | 79935 | 84,000 | leased | |||||||||||
860 Greens Parkway, Suite 100 |
Houston | TX | 77067 | 94,089 | leased | |||||||||||
8308 Upland Avenue |
Lubbock | TX | 79424 | 88,000 | leased | |||||||||||
2900 W. Bus Hwy. 83 |
McAllen | TX | 78501 | 60,000 | leased | |||||||||||
4093 Highway 67 North |
San Angelo | TX | 76903 | 111,182 | leased | |||||||||||
17230 N. Green Mountain Road |
San Antonio | TX | 78247 | 130,575 | leased | |||||||||||
1815 South 4650 West |
Salt Lake City | UT | 84104 | 118,886 | leased | |||||||||||
880 Acorn Drive |
Harrisonburg | VA | 22801 | 90,000 | leased | |||||||||||
10231 Harry J. Parrish Blvd. |
Mannassas | VA | 20110 | 124,800 | leased | |||||||||||
4554 Progress Rd. |
Norfolk | VA | 23502 | 79,565 | leased | |||||||||||
1806 Jefferson Davis |
Richmond | VA | 23224 | 99,700 | leased | |||||||||||
4702 American Tire Blvd |
Roanoke | VA | 24019 | 81,000 | leased | |||||||||||
485 Stafford Umberger Drive |
Wytheville | VA | 24382 | 36,550 | leased |
521 8th Street SW |
Auburn | WA | 98001 | 126,034 | leased | |||||||||||
601 108th Avenue NE (two adjacent Suites on Fourth Floor) |
Bellevue | WA | 98004 | 12,287 | leased | |||||||||||
15530 E. Euclid Avenue |
Spokane Valley | WA | 99216 | 110,622 | leased | |||||||||||
340 Mahn Court |
Oak Creek | WI | 53154 | 120,036 | leased | |||||||||||
300 Harris Drive |
Poca | WV | 25159 | 77,500 | leased | |||||||||||
1991 Dunlap Way |
Casper | WY | 82800 | 82,800 | leased |
Schedule 3.14
Capitalization and Subsidiaries
Grantor |
Interest Issued |
Record of Beneficial Owner |
Percentage Ownership |
|||||
American Tire Distributors Holdings, Inc. | 50 shares of Common Stock $0.01 par value | Accelerate Holdings Corp. | 100% | |||||
American Tire Distributors, Inc. | 1,000 shares of Common Stock; $0.01 par value | American Tire Distributors Holdings, Inc. | 100% | |||||
Am-Pac Tire Dist. Inc. | 1,200 shares of Common Stock; $0.00 par value | American Tire Distributors, Inc. | 100% | |||||
Tire Wholesalers, Inc. | 100 shares of Common Stock $0.00 par value |
American Tire Distributors, Inc. | 100% | |||||
ATD Acquisition Co. IV | 100 shares of Common Stock; $1.00 par value | American Tire Distributors, Inc. | 100% | |||||
Firestone of Denham Springs, Inc. | 3,300 shares of Common Stock $0.00 par value | American Tire Distributors, Inc. | 100% | |||||
ATD Acquisition Co. V Inc. | 1 share of Common Stock $0.00 par value | American Tire Distributors, Inc. | 100% | |||||
Triwest Trading (Canada) Ltd. | 10,000 Common Shares | ATD Acquisition Co. V Inc. | 100% | |||||
TriCan Tire Distributors Inc. | 100 Class A Common Shares | Triwest Trading (Canada) Ltd. | 100% |
Schedule 4.01(b)
Local Counsel
Canada
Jurisdiction: | Local Counsel: | |
British Columbia | Lawson Lundell LLP | |
Manitoba | Aikins, MacAuley & Thorvaldson LLP | |
New Brunswick | Stewart McKelvey | |
Nova Scotia | Stewart McKelvey | |
Saskatchewan | McDougall Gauley LLP |
Schedule 6.01
Existing Indebtedness
1. | Lease Agreement dated March 26, 2002, as amended on February 1, 2012, by and between HEF (NC-SC) QRS, 14-86, Inc., a Delaware corporation, as Landlord and American Tire Distributors Inc., a Delaware corporation, as Tenant representing a liability as express on American Tires balance sheet of $12,452,717.84 |
2. | Reimbursement obligations under Letter of Credit in favor of LaSalle Bank National Association in the aggregate amount of $1,644,500. |
3. | Reimbursement Obligations under Letter of Credit in favor of United States Fire Insurance in the aggregate amount of $560,000. |
4. | Reimbursement Obligations under Letter of Credit in favor of Universal Underwriters Insurance Company in the aggregate amount of $150,000. |
5. | Reimbursement Obligations under Letter of Credit in favor of XL Specialty Insurance Company in the aggregate amount of $5,228,000. |
6. | Reimbursement Obligations under Letter of Credit in favor of Universal Underwriters Insurance Company in the aggregate amount of $60,000. |
7. | Guarantees of certain leases of Winston Tire Company of $2.9 million at November 2012. |
8. | Financing obligation dated August 17, 2005 of American Tire Distributors, Inc. in favor of Space Providers of Asheville LLC for financing the Asheville, NC distribution center leasehold improvements. The remaining balance is $244.571.73. |
9. | Financing obligation dated June 30, 2011of American Tire Distributors, Inc. in favor of Golden Springs Development Company, LLC for financing the Santa Fe Springs, CA distribution center leasehold improvements. The remaining balance is $468,062.36. |
10. | Promissory Note dated December 22, 2011 of Tire Pros Francorp in favor of Tire Pros of Rhode Island, Inc. for the assignment of trademarks. The remaining balance is $300,000. |
11. | Promissory Note dated March 27, 2008 of The Bowlus Service Company dba North Central Tire in favor of Chris Hutteman for Noncompetition and Consulting Agreement. The remaining balance is $318,773. |
12. | Promissory Note dated March 20, 2008 of The Bowlus Service Company in favor of Webster Wholesale Tire, Inc in the original principal amount of $206,309. The remaining balance is $110,032.22. |
13. | Lease Agreement by and between Ally Financial Inc. and Tire Wholesalers, Inc. representing a liability as express on American Tires balance sheet of $16,407.35. |
14. | Indebtedness outstanding in respect of Interest Rate Swap Agreement entered into by American Tire Distributors, Inc. with Wells Fargo N.A. from time to time to manage exposure to fluctuations in interest rates. As of October 30, 2012, American Tire Distributors, Inc. had an Interest Rate Swap Agreement in place covering a notional amount of $50,000,000 with an interest rate of 1.105% maturing on February 24, 2013 and a fair value of $148,791. |
15. | Indebtedness outstanding in respect of Interest Rate Swap Agreement entered into by American Tire Distributors, Inc. with Bank of America N.A. from time to time to manage exposure to fluctuations in interest rates. As of October 30, 2012, American Tire Distributors, Inc. had an Interest Rate Swap Agreement in place covering a notional amount of $50,000,000 with an interest rate of 0.74% maturing on September 18, 2014 and a fair value of $444,769. |
16. | Indebtedness outstanding in respect of Interest Rate Swap Agreement entered into by American Tire Distributors, Inc. with Bank of America N.A. from time to time to manage exposure to fluctuations in interest rates. As of October 30, 2012, American Tire Distributors, Inc. had an Interest Rate Swap Agreement in place covering a notional amount of $50,000,000 with an interest rate of 1.00% maturing on September 18, 2015 and a fair value of $921,615. |
17. | Indebtedness outstanding in respect of Interest Rate Swap Agreement entered into by American Tire Distributors, Inc. with Bank of America N.A. from time to time to manage exposure to fluctuations in interest rates. As of October 30, 2012, American Tire Distributors, Inc. had an Interest Rate Swap Agreement in place covering a notional amount of $50,000,000 with an interest rate of 0.655% maturing on June 6, 2016 and a fair value of $339,103. |
18. | Indebtedness outstanding in respect of Interest Rate Swap Agreement entered into by American Tire Distributors, Inc. with Bank of America N.A. from time to time to manage exposure to fluctuations in interest rates. As of October 30, 2012, American Tire Distributors, Inc. had an Interest Rate Swap Agreement in place covering a notional amount of $50,000,000 with an interest rate of 0.655% maturing on June 6, 2016 and a fair value of $337,353. |
SCHEDULE 6.02
Existing Liens
Debtor |
Secured Party |
Jurisdiction |
File No. | Date Filed | Collateral | |||||
TriCan Tire Distributors Inc. | Xerox Canada Ltd. | Alberta, Canada | 08061935917 | 06/19/2008 | Equipment, other all present and future office equipment and software supplied or financed from time to time by the Secured Party (whether by lease, conditional sale or otherwise), whether or not manufactured by the Secured Party or any affiliate thereof. | |||||
TriCan Tire Distributors Inc. | Transportaction Lease Systems Inc. | Alberta, Canada | 09091721638 | 09/17/2009 | All present and future vehicles of whatever year, make and model, including, but not limited to, passenger automobiles, equipment, trucks and all attached equipment, trailers, portable buildings and forklifts that may be provided by the secured party to the debtor pursuant to a motor vehicle lease agreement made between the parties, and any proceeds thereof. | |||||
TriCan Tire Distributors Inc. | Xerox Canada Ltd. | Alberta, Canada | 10060126244 | 06/01/2010 | Equipment, other all present and future office equipment and software supplied or financed from time to time by the Secured Party (whether by lease, conditional sale or otherwise), whether or not manufactured by the Secured Party or any affiliate thereof. |
Debtor |
Secured Party |
Jurisdiction |
File No. | Date Filed | Collateral | |||||
Triwest Trading (Canada) Ltd. | Transportaction Lease Systems Inc. | Alberta, Canada | 01061308324 | 06/13/2011 Continued: |
Any and all vehicles of whatever year, make, or model, that the Secured Party may provide to the Debtor pursuant to a motor vehicle lease agreement made between the parties. | |||||
Triwest Trading (Canada) Ltd. | IOS Financial Services | Alberta, Canada | 10032219660 | 02/22/2010 | Goods subject to Lease No. 8449655001 (PRO 1107EX), together with all replacements and substitutions thereof and all parts, accessories, accessions and attachments thereto and all proceeds thereof | |||||
Triwest Trading (Canada) Ltd. | Jim Peplinskis Auto Leasing Ltd.
Jim Peplinskis Leasemaster National |
Alberta, Canada | 10113001448 | 11/30/2010 | Specific motor vehicle | |||||
Triwest Trading (Canada) Ltd. | Jim Peplinskis Auto Leasing Ltd.
Kim Peplinskis Leasemaster National |
Alberta, Canada | 10120300428 | 12/03/2010 | Specific motor vehicle | |||||
Triwest Trading (Canada) Ltd. | Jim Peplinskis Auto Leasing Ltd.
Kim Peplinskis Leasemaster National |
Alberta, Canada | 11010602657 | 01/06/2011 | Specific motor vehicle | |||||
Triwest Trading (Canada) Ltd. | Jim Peplinskis Auto Leasing Ltd. Kim Peplinskis Leasemaster National |
Alberta, Canada | 11010602761 | 01/06/2011 | Specific motor vehicle |
Debtor |
Secured Party |
Jurisdiction |
File No. | Date Filed | Collateral | |||||
Triwest Trading (Canada) Ltd. | Treadways, LLC | Alberta, Canada | 10030220921 | 03/02/2010 | All automotive tires, tire tubes and related products that have been or may be sold by the Secured Party to and purchased by the Debtor, directly or indirectly, products of such goods and accessions thereto, and all documents of title relating to such goods, and all proceeds of such goods.
NOTE: Indebtedness secured by such lien to be repaid in full on the Effective Date, no further transactions with Secured Party to be entered into on or after the Effective Date, and such lien to be terminated of record within ten (10) Business Days after the Effective Date (or such later date as may be agreed by Agent in its sole discretion). | |||||
Triwest Trading (Canada) Ltd. | Transportaction Lease Systems | Quebec, Canada | 09-0337771- 0001 |
06/08/2009 | The universality of all vehicles, present and future, provided to the lessee pursuant to the motor vehicle lease agreement between the lessor and the lessee, and including all replacements, supplements, or amendments thereto, together with any replacement or supplementary vehicle provided to the lessee in accordance with the terms of the said motor vehicle lease agreement, and including all accessories and equipment attached thereto from time to time. |
Debtor |
Secured Party |
Jurisdiction |
File No. | Date Filed | Collateral | |||||
American Tire Distributors, Inc. | Bridgestone/Firestone North American Tire, LLC | Delaware Secretary of State | 2016062 6 | 12/18/2001
Continued |
All of Debtors inventory manufactured or sold by or bearing the brand or trademark of secured party, wherever located, now owned or hereafter acquired. Collateral description is not location specific.
NOTE: Subject to Intercreditor Agreement dated August 14, 2011 by and between Secured Party and Agent, as amended | |||||
American Tire Distributors, Inc. | Cooper Tire & Rubber Company | Delaware Secretary of State | 4283267 5 | 10/08/2004
Continued |
All inventory of tires, tubes, tire tread rubber, tire rubber materials, or any other kindred products, whether or not manufactured by Cooper, if delivered, sold or distributed to Debtor by or through Secured Party or any of its wholly-owned subsidiaries.
NOTE: Subject to Vendor Lien Subordination Agreement dated October 8, 2004, between Agent and Cooper Tire & Rubber Company |
Debtor |
Secured Party |
Jurisdiction |
File No. | Date Filed | Collateral | |||||
American Tire Distributors, Inc. | NEC America, Inc. | Delaware Secretary of State | 4317420 0 | 11/05/2004
Continued |
Specific equipment, together with all accessories, additions and attachments, thereto, replacements and substitutions therefore and all proceeds thereof. | |||||
American Tire Distributors, Inc. | NEC America, Inc. | Delaware Secretary of State | 5070350 5 | 02/24/2005
Continued |
Specific equipment, together with all accessories, additions and attachments, thereto, replacements and substitutions therefore and all proceeds thereof. | |||||
American Tire Distributors, Inc. | General Electric Capital Corporation | Delaware Secretary of State | 5191801 1 | 06/17/2005
Continued |
Various forklift equipment, all substitutions for, products and proceeds of any of the foregoing, all accessions thereto, all accessories, attachments, parts, equipment, and repairs now hr hereafter attached or affixed to or used in connection with any of the foregoing property, all warehouse receipts, bills of lading and other documents covering foregoing property, all insurance and/or other proceeds of any type of the foregoing property. | |||||
American Tire Distributors, Inc. | General Electric Capital Corporation | Delaware Secretary of State | 5192426 6 | 06/20/2005
Continued |
Various forklift equipment, all substitutions for, products and proceeds of any of the foregoing, all accessions thereto, all accessories, attachments, parts, equipment, and repairs now hr hereafter attached or affixed to or used in connection with any of the foregoing property, all |
Debtor |
Secured Party |
Jurisdiction |
File No. | Date Filed | Collateral | |||||
warehouse receipts, bills of lading and other documents covering foregoing property, all insurance and/or other proceeds of any type of the foregoing property. | ||||||||||
American Tire Distributors, Inc. | General Electric Capital Corporation | Delaware Secretary of State | 5289373 4 | 09/13/2005
Continued |
Lease of equipment, all attachments, accessories, accessions, additions, replacements, exchanges and substitutions now or hereafter made a part of the equipment or attached hereto, and any and all insurance and other proceeds thereof. | |||||
American Tire Distributors, Inc. | General Electric Capital Corporation | Delaware Secretary of State | 5373687 4 | 11/28/2005
Continued |
Lease of equipment, all attachments, accessories, accessions, additions, replacements, exchanges and substitutions now or hereafter made a part of the equipment or attached hereto, and any and all insurance and other proceeds thereof. | |||||
American Tire Distributors, Inc. | General Electric Capital Corporation | Delaware Secretary of State | 5405701 5 | 12/22/2005
Continued |
Lease of equipment, all attachments, accessories, accessions, additions, replacements, exchanges and substitutions now or hereafter made a part of the equipment or attached hereto, and any and all insurance and other proceeds thereof. |
Debtor |
Secured Party |
Jurisdiction |
File No. | Date Filed | Collateral | |||||
American Tire Distributors, Inc. | General Electric Capital Corporation | Delaware Secretary of State | 6372722 9 | 10/25/2006
Continued; |
Lease of equipment, all attachments, accessories, accessions, additions, replacements, exchanges and substitutions now or hereafter made a part of the equipment or attached hereto, and any and all insurance and other proceeds thereof. | |||||
American Tire Distributors, Inc. | General Electric Capital Corporation | Delaware Secretary of State | 6395352 8 | 11/13/2006
Continued: |
Lease of equipment, all attachments, accessories, accessions, additions, replacements, exchanges and substitutions now or hereafter made a part of the equipment or attached hereto, and any and all insurance and other proceeds thereof. | |||||
American Tire Distributors, Inc. | General Electric Capital Corporation | Delaware Secretary of State | 6454196 7 | 12/27/2006
Continued: |
Lease of equipment, all attachments, accessories, accessions, additions, replacements, exchanges and substitutions now or hereafter made a part of the equipment or attached hereto, and any and all insurance and other proceeds thereof. | |||||
American Tire Distributors, Inc. | General Electric Capital Corporation | Delaware Secretary of State | 2007 0754753 | 02/28/2007
Continued: |
Lease of equipment, all attachments, accessories, accessions, additions, replacements, exchanges and substitutions now or hereafter made a part of the equipment or attached hereto, and any and all insurance and other proceeds thereof. |
Debtor |
Secured Party |
Jurisdiction |
File No. | Date Filed | Collateral | |||||
American Tire Distributors, Inc. | General Electric Capital Corporation | Delaware Secretary of State | 2007 1813319 | 05/17/2007
Continued: |
Lease of equipment, all attachments, accessories, accessions, additions, replacements, exchanges and substitutions now or hereafter made a part of the equipment or attached hereto, and any and all insurance and other proceeds thereof. | |||||
American Tire Distributors, Inc. | General Electric Capital Corporation | Delaware Secretary of State | 2007 1982775 | 05/25/2007
Continued: |
Lease of equipment, all attachments, accessories, accessions, additions, replacements, exchanges and substitutions now or hereafter made a part of the equipment or attached hereto, and any and all insurance and other proceeds thereof. | |||||
American Tire Distributors, Inc. | General Electric Capital Corporation | Delaware Secretary of State | 2007 2247137 | 06/14/2007
Continued: |
Lease of equipment, all attachments, accessories, accessions, additions, replacements, exchanges and substitutions now or hereafter made a part of the equipment or attached hereto, and any and all insurance and other proceeds thereof. | |||||
American Tire Distributors, Inc. | OFC Capital Corporation | Delaware Secretary of State | 2007 3623286 | 09/25/2007 | Lease of equipment, all attachments, accessories, accessions, additions, replacements, exchanges and substitutions now or hereafter made a part of the equipment or attached hereto, and any and all insurance and other proceeds thereof. |
Debtor |
Secured Party |
Jurisdiction |
File No. | Date Filed | Collateral | |||||
American Tire Distributors, Inc. | General Electric Capital Corporation | Delaware Secretary of State | 2008 0838563 | 03/10/2008 | Lease of equipment, all attachments, accessories, accessions, additions, replacements, exchanges and substitutions now or hereafter made a part of the equipment or attached hereto, and any and all insurance and other proceeds thereof. | |||||
American Tire Distributors, Inc. | General Electric Capital Corporation | Delaware Secretary of State | 2008 0869030 | 03/12/2008 | Lease of equipment, all attachments, accessories, accessions, additions, replacements, exchanges and substitutions now or hereafter made a part of the equipment or attached hereto, and any and all insurance and other proceeds thereof. | |||||
American Tire Distributors, Inc. | General Electric Capital Corporation | Delaware Secretary of State | 2008 1232055 | 04/08/2008 | Lease of equipment, all attachments, accessories, accessions, additions, replacements, exchanges and substitutions now or hereafter made a part of the equipment or attached hereto, and any and all insurance and other proceeds thereof. | |||||
American Tire Distributors, Inc. | Banc of America Leasing & Capital, LLC | Delaware Secretary of State | 2008 1462512 | 04/28/2008 | Specified leased equipment, together with certain other property and proceeds directly related to or arising from such equipment. | |||||
American Tire Distributors, Inc. | Banc of America Leasing & Capital, LLC | Delaware Secretary of State | 2008 1519931 | 05/01/2008 | Specified leased equipment, together with certain other property and proceeds directly related to or arising from such equipment. |
Debtor |
Secured Party |
Jurisdiction |
File No. | Date Filed | Collateral | |||||
American Tire Distributors, Inc. | General Electric Capital Corporation | Delaware Secretary of State | 2008 1551405 | 05/05/2008 | Lease of equipment, all attachments, accessories, accessions, additions, replacements, exchanges and substitutions now or hereafter made a part of the equipment or attached hereto, and any and all insurance and other proceeds thereof. | |||||
American Tire Distributors, Inc. | Banc of America Leasing & Capital, LLC | Delaware Secretary of State | 2008 1630639 | 05/12/2008 | Specified leased equipment, together with certain other property and proceeds directly related to or arising from such equipment. | |||||
American Tire Distributors, Inc. | Banc of America Leasing & Capital, LLC | Delaware Secretary of State | 2008 1707742 | 05/16/2008 | Specified leased equipment, together with certain other property and proceeds directly related to or arising from such equipment. | |||||
American Tire Distributors, Inc. | Banc of America Leasing & Capital, LLC | Delaware Secretary of State | 2008 1818242 | 05/28/2008 | Specified leased equipment, together with certain other property and proceeds directly related to or arising from such equipment. | |||||
American Tire Distributors, Inc. | Banc of America Leasing & Capital, LLC | Delaware Secretary of State | 2008 1978574 | 06/10/2008 | Specified leased equipment, together with certain other property and proceeds directly related to or arising from such equipment. | |||||
American Tire Distributors, Inc. | Banc of America Leasing & Capital, LLC | Delaware Secretary of State | 2008 2127171 | 06/20/2008 | Specified leased equipment, together with certain other property and proceeds directly related to or arising from such equipment. |
Debtor |
Secured Party |
Jurisdiction |
File No. | Date Filed | Collateral | |||||
American Tire Distributors, Inc. | Banc of America Leasing & Capital, LLC | Delaware Secretary of State | 2008 2250270 | 07/01/2008 | Specified leased equipment, together with certain other property and proceeds directly related to or arising from such equipment. | |||||
American Tire Distributors, Inc. | Banc of America Leasing & Capital, LLC | Delaware Secretary of State | 2008 2290664 | 07/03/2008 | Specified leased equipment, together with certain other property and proceeds directly related to or arising from such equipment. | |||||
American Tire Distributors, Inc. | Citicapital Commercial Leasing Corporation | Delaware Secretary of State | 2008 2506408 | 07/22/2008 | Lease of equipment, attachments, accessories, replacement parts, additions and all cash and non-cash proceeds thereof. | |||||
American Tire Distributors, Inc. | Banc of America Leasing & Capital, LLC | Delaware Secretary of State | 2008 2568150 | 07/25/2008 | Specified leased equipment, together with certain other property and proceeds directly related to or arising from such equipment. | |||||
American Tire Distributors, Inc. | Banc of America Leasing & Capital, LLC | Delaware Secretary of State | 2008 2720082 | 08/08/2008 | Specified leased equipment, together with certain other property and proceeds directly related to or arising from such equipment. | |||||
American Tire Distributors, Inc. | General Electric Capital Corporation | Delaware Secretary of State | 2008 2720850 | 08/08/2008 | Lease of equipment, all attachments, accessories, accessions, additions, replacements, exchanges and substitutions now or hereafter made a part of the equipment or attached hereto, and any and all insurance and other proceeds thereof. |
Debtor |
Secured Party |
Jurisdiction |
File No. | Date Filed | Collateral | |||||
American Tire Distributors, Inc. | Banc of America Leasing & Capital, LLC | Delaware Secretary of State | 2008 3011960 | 09/05/2008 | Specified leased equipment, together with certain other property and proceeds directly related to or arising from such equipment. | |||||
American Tire Distributors, Inc. | Banc of America Leasing & Capital, LLC | Delaware Secretary of State | 2008 3012208 | 09/05/2008 | Specified leased equipment, together with certain other property and proceeds directly related to or arising from such equipment. | |||||
American Tire Distributors, Inc. | Banc of America Leasing & Capital, LLC | Delaware Secretary of State | 2008 3045208 | 09/09/2008 | Specified leased equipment, together with certain other property and proceeds directly related to or arising from such equipment. | |||||
American Tire Distributors, Inc. | Banc of America Leasing & Capital, LLC | Delaware Secretary of State | 2008 3163894 | 09/18/2008 | Specified leased equipment, together with certain other property and proceeds directly related to or arising from such equipment. | |||||
American Tire Distributors, Inc. | Banc of America Leasing & Capital, LLC | Delaware Secretary of State | 2008 3238142 | 09/24/2008 | Specified leased equipment, together with certain other property and proceeds directly related to or arising from such equipment. | |||||
American Tire Distributors, Inc. | Banc of America Leasing & Capital, LLC | Delaware Secretary of State | 2008 3359922 | 10/03/2008 | Specified leased equipment, together with certain other property and proceeds directly related to or arising from such equipment. | |||||
American Tire Distributors, Inc. | Banc of America Leasing & Capital, LLC | Delaware Secretary of State | 2008 3481171 | 10/15/2008 | Specified leased equipment, together with certain other property and proceeds directly related to or arising from such equipment. |
Debtor |
Secured Party |
Jurisdiction |
File No. | Date Filed | Collateral | |||||
American Tire Distributors, Inc. | Banc of America Leasing & Capital, LLC | Delaware Secretary of State | 2008 3574207 | 10/23/2008 | Specified leased equipment, together with certain other property and proceeds directly related to or arising from such equipment. | |||||
American Tire Distributors, Inc. | Banc of America Leasing & Capital, LLC | Delaware Secretary of State | 2008 3634811 | 10/29/2008 | Specified leased equipment, together with certain other property and proceeds directly related to or arising from such equipment. | |||||
American Tire Distributors, Inc. | Banc of America Leasing & Capital, LLC | Delaware Secretary of State | 2008 3691423 | 11/03/2008 | Specified leased equipment, together with certain other property and proceeds directly related to or arising from such equipment. | |||||
American Tire Distributors, Inc. | Banc of America Leasing & Capital, LLC | Delaware Secretary of State | 2008 3816087 | 11/14/2008 | Specified leased equipment, together with certain other property and proceeds directly related to or arising from such equipment. | |||||
American Tire Distributors, Inc. | Banc of America Leasing & Capital, LLC | Delaware Secretary of State | 2008 3972161 | 12/01/2008 | Specified leased equipment, together with certain other property and proceeds directly related to or arising from such equipment. | |||||
American Tire Distributors, Inc. | Banc of America Leasing & Capital, LLC | Delaware Secretary of State | 2008 4331136 | 12/31/2008 | Specified leased equipment, together with certain other property and proceeds directly related to or arising from such equipment. | |||||
American Tire Distributors, Inc. | Banc of America Leasing & Capital, LLC | Delaware Secretary of State | 2009 0120920 | 01/13/2009 | Specified leased equipment, together with certain other property and proceeds directly related to or arising from such equipment. |
Debtor |
Secured Party |
Jurisdiction |
File No. | Date Filed | Collateral | |||||
American Tire Distributors, Inc. | Banc of America Leasing & Capital, LLC | Delaware Secretary of State | 2009 0139326 | 12/31/2008 | Specified leased equipment, together with certain other property and proceeds directly related to or arising from such equipment. | |||||
American Tire Distributors, Inc. | Banc of America Leasing & Capital, LLC | Delaware Secretary of State | 2009 0218807 | 01/22/2009 | Specified leased equipment, together with certain other property and proceeds directly related to or arising from such equipment. | |||||
American Tire Distributors, Inc. | Banc of America Leasing & Capital, LLC | Delaware Secretary of State | 2009 0252624 | 01/26/2009 | Specified leased equipment, together with certain other property and proceeds directly related to or arising from such equipment. | |||||
American Tire Distributors, Inc. | Banc of America Leasing & Capital, LLC | Delaware Secretary of State | 2009 0276862 | 01/27/2009 | Specified leased equipment, together with certain other property and proceeds directly related to or arising from such equipment. | |||||
American Tire Distributors, Inc. | Banc of America Leasing & Capital, LLC | Delaware Secretary of State | 2009 0303948 | 01/29/2009 | Specified leased equipment, together with certain other property and proceeds directly related to or arising from such equipment. | |||||
American Tire Distributors, Inc. | Crown Credit Company | Delaware Secretary of State | 2009 0699386 | 03/05/2009 | Specific equipment | |||||
American Tire Distributors, Inc. | Banc of America Leasing & Capital, LLC | Delaware Secretary of State | 2009 0828373 | 03/16/2009 | Specified leased equipment, together with certain other property and proceeds directly related to or arising from such equipment. | |||||
American Tire Distributors, Inc. | Crown Credit Company | Delaware Secretary of State | 2009 1163580 | 04/13/2009 | Specific equipment |
Debtor |
Secured Party |
Jurisdiction |
File No. | Date Filed | Collateral | |||||
American Tire Distributors, Inc. | Crown Credit Company | Delaware Secretary of State | 2009 1163630 | 04/13/2009 | Specific equipment | |||||
American Tire Distributors, Inc. | Crown Credit Company | Delaware Secretary of State | 2009 1451100 | 05/07/2009 | Specific equipment | |||||
American Tire Distributors, Inc. | Wells Fargo Bank, N.A. | Delaware Secretary of State | 2009 1653481 | 05/26/2009 | Lease of equipment, equipment parts, accessories, substitutions, additions, accessions, replacements thereto and therefore, proceeds thereof, installment payments, insurance proceeds, other proceeds and payments due or to become due or arising from or relating to said equipment. | |||||
American Tire Distributors, Inc. | Crown Credit Company | Delaware Secretary of State | 2009 1682894 | 05/28/2009 | Specific equipment | |||||
American Tire Distributors, Inc. | Summit Funding Group, Inc.
Partial Assignments to: MB Financial Bank, N.A., Republic Bank and Prime Alliance Bank |
Delaware Secretary of State | 2009 2169487 | 06/29/2009 | Equipment leased pursuant to Master Lease Agreement No. 2401 dated April 9, 2009 | |||||
American Tire Distributors, Inc. | Cisco Systems Capital Corporation | Delaware Secretary of State | 2009 2654561 | 08/18/2009 | Lease of equipment, insurance, warranty, rental and other claims and rights to payment, and chattel paper arising out of such equipment, all books and records and proceeds relating to the foregoing, substitutions, replacements, upgrades, repairs, parts, and attachments, improvements, and accessions thereto. |
Debtor |
Secured Party |
Jurisdiction |
File No. | Date Filed | Collateral | |||||
American Tire Distributors, Inc. | River Capital Leasing, Ltd. | Delaware Secretary of State | 2009 3530448 | 11/04/2009 | Lease of equipment, substitutions, replacements, accessions thereto and insurance proceeds thereof. | |||||
American Tire Distributors, Inc. | Cisco Systems Capital Corporation | Delaware Secretary of State | 2010 0550867 | 02/18/2010 | Lease of equipment, insurance, warranty, rental and other claims and rights to payment, and chattel paper arising out of such equipment, all books and records and proceeds relating to the foregoing, substitutions, replacements, upgrades, repairs, parts, and attachments, improvements, and accessions thereto. | |||||
American Tire Distributors, Inc. | River Capital Leasing, Ltd. | Delaware Secretary of State | 2010 1027345 | 03/25/2010 | Lease of equipment, substitutions, replacements, accessions thereto and insurance proceeds thereof. | |||||
American Tire Distributors, Inc. | Toyota Motor Credit Corporation | Delaware Secretary of State | 2010 1074826 | 03/29/2010 | Lease of equipment | |||||
American Tire Distributors, Inc. | Winthrop Resources Corporation
Partial Assignments to Bank of the West, Trinity Division |
Delaware Secretary of State | 2010 1211733 | 03/31/2010 | Lease of equipment, hardware, equipment, furniture, fixtures, intangibles, licenses, software, all accessories, attachments, additions, substitutions, and or replacements of the foregoing, together with all other assets, property, substitutions, replacements, accessions, process, rent, revenue, insurance claims, proceeds related to the equipment |
Debtor |
Secured Party |
Jurisdiction |
File No. | Date Filed | Collateral | |||||
American Tire Distributors, Inc. | Winthrop Capital
Partial Assignment to Banc of America Leasing & Capital, LLC |
Delaware Secretary of State | 2010 1467947 | 04/27/2010 | Lease of equipment | |||||
American Tire Distributors, Inc. | River Capital Leasing, Ltd. | Delaware Secretary of State | 2010 1674104 | 05/13/2010 | Lease of equipment, all substitutions, replacements, and accessions thereto and insurance thereon and all proceeds of any nature thereof. | |||||
American Tire Distributors, Inc. | M&I Marshall & Ilsley Bank | Delaware Secretary of State | 2010 1846678 | 05/26/2010 | Lease of equipment, all substitutions, replacements, and accessions thereto and insurance thereon and all proceeds of any nature thereof. | |||||
American Tire Distributors, Inc. | M&I Marshall & Ilsley Bank | Delaware Secretary of State | 2010 2224271 | 06/25/2010 | Lease of equipment, all substitutions, replacements, and accessions thereto and insurance thereon and all proceeds of any nature thereof. | |||||
American Tire Distributors, Inc. | M&I Marshall & Ilsley Bank | Delaware Secretary of State | 2010 2789331 | 08/10/2010 | Lease of equipment, all substitutions, replacements, and accessions thereto and insurance thereon and all proceeds of any nature thereof. | |||||
American Tire Distributors, Inc. | M&I Marshall & Ilsley Bank | Delaware Secretary of State | 2010 2789364 | 08/10/2010 | Lease of equipment, all substitutions, replacements, and accessions thereto and insurance thereon and all proceeds of any nature thereof. | |||||
American Tire Distributors, Inc. | Banc of America Leasing & Capital, LLC | Delaware Secretary of State | 2010 3342163 | 09/24/2010 | Lease of equipment |
Debtor |
Secured Party |
Jurisdiction |
File No. | Date Filed | Collateral | |||||
American Tire Distributors, Inc. | M&I Marshall & Ilsley Bank | Delaware Secretary of State | 2010 3426115 | 10/01/2010 | Lease of equipment, all substitutions, replacements, and accessions thereto and insurance thereon and all proceeds of any nature thereof. | |||||
American Tire Distributors, Inc. | Winthrop Capital | Delaware Secretary of State | 2010 3528241 | 10/11/2010 | Lease of equipment | |||||
American Tire Distributors, Inc. | Toyota Motor Credit Corporation | Delaware Secretary of State | 2010 3702994 | 10/22/2010 | Lease of equipment | |||||
American Tire Distributors, Inc. | River Capital Leasing, Ltd. | Delaware Secretary of State | 2010 3995416 | 11/15/2010 | Lease of equipment, all substitutions, replacements, and accessions thereto and insurance thereon and all proceeds of any nature thereof. | |||||
American Tire Distributors, Inc. | Cisco Systems Capital Corporation | Delaware Secretary of State | 2011 0188790 | 01/19/2011 | Lease of equipment, insurance, warranty, rental and other claims and rights to payment, and chattel paper arising out of such equipment, all books and records and proceeds relating to the foregoing, substitutions, replacements, upgrades, repairs, parts, and attachments, improvements, and accessions thereto. | |||||
American Tire Distributors, Inc. | Toyota Motor Credit Corporation | Delaware Secretary of State | 2011 3400895 | 09/01/2011 | Lease of equipment | |||||
American Tire Distributors, Inc. | Winthrop Capital | Delaware Secretary of State | 2011 3412304 | 09/02/2011 | Lease of equipment |
Debtor |
Secured Party |
Jurisdiction |
File No. | Date Filed | Collateral | |||||
American Tire Distributors, Inc. | Winthrop Capital | Delaware Secretary of State | 2011 3456368 | 09/08/2011 | Lease of equipment | |||||
American Tire Distributors, Inc. | Toyota Motor Credit Corporation | Delaware Secretary of State | 20112906800 | 10/11/2011 | Lease of equipment | |||||
American Tire Distributors, Inc. | Bank of the West, Trinity Division | Delaware Secretary of State | 2011 4161132 | 10/27/2011 | Lease of equipment | |||||
American Tire Distributors, Inc. | Bank of the West, Trinity Division | Delaware Secretary of State | 2011 4850163 | 12/16/2011 | Lease of equipment | |||||
American Tire Distributors, Inc. | Winthrop Capital | Delaware Secretary of State | 2012 0335499 | 01/26/2012 | Lease of equipment | |||||
American Tire Distributors, Inc. | Winthrop Capital | Delaware Secretary of State | 2012 0335671 | 01/26/2012 | Lease of equipment | |||||
American Tire Distributors, Inc. | Winthrop Capital | Delaware Secretary of State | 2012 2149088 | 06/05/2012 | Lease of equipment | |||||
American Tire Distributors, Inc. | Winthrop Capital | Delaware Secretary of State | 2012 3106806 | 08/10/2012 | Lease of equipment | |||||
American Tire Distributors, Inc. | CISCO Systems Capital Corporation | Delaware Secretary of State | 2012 3563097 | 09/14/2012 | Lease of equipment, all insurance, warranty, rental and other claims and rights to payment and chattel payment arising out of such equipment, all books and records relating to the foregoing. Together with all substitutions, replacements, upgrades, repairs, parts and attachments, improvements and accessions thereto. |
Debtor |
Secured Party |
Jurisdiction |
File No. | Date Filed | Collateral | |||||
Am-Pac Tire Dist., Inc. | Bridgestone/Firestone, Inc. | California Secretary of State | 9903960563 | 02/01/1999
Continued |
All of Debtors inventory manufactured or sold by or bearing the brand or trademark of secured party, wherever located, now owned or hereafter acquired. All proceeds therefrom, including accounts, chattel paper, contract rights
NOTE: Subject to Intercreditor Agreement dated August 14, 2001 by and between Secured Party and Agent, as amended. | |||||
Am Pac Tire Dist., Inc. | NMHG Financial Services, Inc. | California Secretary of State | 0025260359 | 09/07/2000
Continued |
Lease of equipment, all accessions, additions, replacements, and substitutions thereto and therefor and all proceeds including insurance proceeds, thereof. | |||||
Am-Pac Tire Dist. Inc. | Inter-Tel Leasing, Inc. | California Secretary of State | 07-7136889998 | 11/14/2007 | Lease of equipment, substitutions, modifications and replacements | |||||
Tire Wholesalers, Inc. | Bridgestone Americas Tire Operations, LLC | Washington Department of Licensing | 95-100-0303 | 04/10/1995
Continued: |
All of Debtors inventory manufactured or sold by or bearing the brand or trademark or secured party, wherever located, now owned or hereafter acquired. All proceeds therefrom, including accounts, chattel paper, contract rights, general intangibles, instruments, insurance proceeds, and deposit accounts and other rights to payment, and Debtors books and records, to secure payment of all Debtors indebtedness owed to Secured Party.
|
Debtor |
Secured Party |
Jurisdiction |
File No. | Date Filed | Collateral | |||||
NOTE: Subject to Intercreditor Agreement dated August 14, 2001 by and between Secured Party and Agent, as amended. |
2. | Fixture Filings: |
Debtor |
Secured Party |
Jurisdiction |
File No. | Date Filed | Collateral/ Filing History | |||||
Firestone of Denham Springs, Inc. | Hancock Bank of Louisiana | Iberville Parish, Louisiana | Book 475,
Page 168 |
07/25/2008 | Multiple Indebtedness Mortgage (fixture filing) |
Schedule 6.04
Existing Investments
1. | American Tire Distributors Holdings, Inc. owns 1,000 shares of Common Stock, $0.01 par value, of American Tire Distributors, Inc. |
2. | American Tire Distributors, Inc. owns 1,200 shares of Common Stock, $0.00 par value, of Am-Pac Tire Dist. Inc. |
3. | Am-Pac Tire Dist. Inc. owns 7,000 shares of Common Stock, $0.00 par value, of Tire Pros Francorp. |
4. | American Tire Distributors, Inc. owns 100 shares of Tire Wholesalers, Inc. |
5. | American Tire Distributors, Inc. owns 100 shares of ATD Acquisition Co. IV. |
6. | ATD Acquisition Co. IV owns 3,300 shares of Firestone of Denham Springs, Inc. |
7. | American Tire Distributors, Inc. owns 1 shares of ATD Acquisition Co. V Inc. |
8. | Investments in American Car Care Centers, Inc., with a reported redemption value of $992,982.34 as November 2012 in the name of American Tire Distributors, Inc., Am-Pac Tire Dist Inc. and Tire Wholesalers, Inc. |
9. | Investments in Del-Nat Corporation Debentures in the aggregate principal amount of approximately $316,368.35 as of November 2012, plus accrued interest. |
Schedule 6.05
Specified Asset Sales
The Company intends to list for sale its properties located at 51 Moreland Avenue, Simi Valley, CA , 332 Dodd Boulevard, Rome, GA and 4301 Wilkinson Blvd, Charlotte, NC.
Schedule 6.09
Transactions with Affiliates
1. | Shared Services Support Agreement, dated May 3, 2010, between American Tire Distributors, Inc. and Tire Pros Francorp. |
2. | Transaction and Monitoring Fee Letter, dated as of May 28, 2010, between TPG Capital, L.P. and American Tire Distributors, Inc. |
Schedule 6.10
Existing Restrictions
None.
EXHIBIT A
[FORM OF]
ASSIGNMENT AND ASSUMPTION
This Assignment and Assumption (the Assignment and Assumption) is dated as of the Effective Date set forth below and is entered into by and between [Insert name of Assignor] (the Assignor) and [Insert name of Assignee] (the Assignee). Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below (as further amended, supplemented or otherwise modified from time to time, the Credit Agreement), receipt of a copy of which is hereby acknowledged by the Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.
For an agreed consideration, the Assignor hereby irrevocably sells and assigns to the Assignee, and the Assignee hereby irrevocably purchases and assumes from the Assignor, subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Agent as contemplated below (i) all of the Assignors rights and obligations in its capacity as a Lender under the Credit Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of the Assignor under the respective facilities identified below (including any letters of credit, guarantees, and swingline loans included in such facilities) and (ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of the Assignor (in its capacity as a Lender) against any Person, whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned pursuant to clauses (i) and (ii) above being referred to herein collectively as the Assigned Interest). Such sale and assignment is without recourse to the Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by the Assignor.
1. | Assignor: |
|
||||
2. | Assignee: |
|
||||
[and is an Affiliate/Approved Fund of [identify Lender]1] | ||||||
3. | Borrower(s) |
|
||||
4. | Agent: | Bank of America, N.A., as the administrative agent and the collateral agent under the Credit Agreement. | ||||
Credit Agreement: | The Sixth Amended and Restated Credit Agreement dated as of November , 2012, among American Tire Distributors, Inc., a Delaware corporation (the Company), American Tire Distributors Holdings, Inc., a Delaware corporation (Holdings), ATD Acquisition Co. V Inc., a corporation organized under the laws of Canada, each subsidiary of the Company from time to time party thereto, the Lenders parties thereto, and Bank of America, N.A., as administrative agent and collateral agent for the Lenders thereunder (the Agent). |
1 | Select as applicable. |
Assigned Interest:
Aggregate Amount of [Canadian][U.S.] Commitment/Loans |
Amount of [Canadian][U.S.] Commitment/Loans Assigned |
CUSIP | ||||||||||
$ | $ | |||||||||||
$ | $ | |||||||||||
$ | $ |
Each notice or other communication hereunder shall be in writing, shall be sent by messenger, by telecopy or facsimile transmission, or by first-class mail, shall be deemed given when sent and shall be sent as follows:
(a) | If to Assignee, to the following address (or to such other address as Assignee may designate from time to time): |
(b) | If to Assignor, to the following address (or to such other address as Assignor may designate from time to time): |
Payments hereunder shall be made by wire transfer of immediately available [Canadian][United States] Dollars as follows:
If to Assignee, to the following account (or to such other account as Assignee may designate from time to time):
ABA No. | ||||||
Account No. | ||||||
Reference: |
2
If to Assignor, to the following account (or to such other account as Assignor may designate from time to time):
ABA No. | ||||||
Account No. | ||||||
Reference: |
Effective Date: , 20 [TO BE INSERTED BY AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]
The terms set forth in this Assignment and Assumption are hereby agreed to:
ASSIGNOR
[NAME OF ASSIGNOR] | ||
By: | ||
Name: | ||
Title: |
ASSIGNEE
[NAME OF ASSIGNEE] | ||
By: | ||
Name: | ||
Title: |
3
Consented to and Accepted: | ||
BANK OF AMERICA, N.A. as Agent | ||
By: | ||
Name: | ||
Title: | ||
[APPLICABLE ISSUING BANK],2 as Issuing Bank | ||
By: | ||
Name: | ||
Title: | ||
[APPLICABLE ISSUING BANK] as Issuing Bank | ||
By: | ||
Name: | ||
Title: | ||
[Consented to:]3 | ||
[AMERICAN TIRE DISTRIBUTORS, INC.] | ||
By: | ||
Name: | ||
Title: |
2 | Pursuant to Section 9.04, each Applicable Issuing Bank is required to consent to an assignment under the Credit Agreement. |
3 | To be added only if the consent of the Borrower is required by the terms of the Credit Agreement. |
4
STANDARD TERMS AND CONDITIONS FOR
ASSIGNMENT AND ASSUMPTION
1. Representations and Warranties.
1.1 Assignor. The Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of any lien, encumbrance or other adverse claim, (iii) its [Canadian][U.S.] Commitment, and the outstanding balances of its [Canadian][U.S.] Revolving Loans, in each case without giving effect to assignments thereof which have not become effective, are as set forth herein, and (iv) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of the Company, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by the Company, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document.
1.2 Assignee. The Assignee (a) represents and warrants that (i) it is an Eligible Assignee and has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it satisfies the requirements, if any, specified in the Credit Agreement that are required to be satisfied by it in order to acquire the Assigned Interest and become a Lender, (iii) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of the Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it has received a copy of the Credit Agreement, together with copies of the most recent financial statements referred to in Sections 3.04(a) and 3.04(b) or delivered pursuant to Section 5.01 thereof, as applicable, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase the Assigned Interest on the basis of which it has made such analysis and decision independently and without reliance on the Agent or any other Lender, and (v) if it is a Foreign Lender, attached to the Assignment and Assumption is any documentation required to be delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by the Assignee; and (b) agrees that (i) it will, independently and without reliance on the Agent, the Assignor 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 the Loan Documents, (ii) it appoints and authorizes the Agent to take such action on its behalf and to exercise such powers under the Credit Agreement as are delegated to the Agent, by the terms thereof, together with such powers as are reasonably incidental thereto, and (iii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender.
2. Payments. From and after the Effective Date, the Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignor for amounts which have accrued to but excluding the Effective Date and to the Assignee for amounts which have accrued from and after the Effective Date.
3. General Provisions. This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment
and Assumption by facsimile shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption. This Assignment and Assumption shall be construed in accordance with and governed by the laws of the State of New York.
2
EXHIBIT B
[FORM OF]
BORROWING BASE CERTIFICATE
[See Attached]
[To be finalized and provided by Bank of America and Borrowers.]
TRIWEST TRADING (CANADA) LTD.
PRO FORMA CONSOLIDATED MONTHLY BORROWING BASE
10/31/12
1. Accounts Receivable Balance from previous certificate: |
$ | | ||||||||||||||||||
|
|
|||||||||||||||||||
a. Plus: Total Additions |
$ | | ||||||||||||||||||
b. Less: Total Reductions |
$ | | ||||||||||||||||||
2. New Accounts Receivable Balance as of this certificate: |
44,789,187 | |||||||||||||||||||
|
|
|||||||||||||||||||
3. Less: Total Ineligibles per attached exclusion sheet dated 31-Oct-12 |
$ | | ||||||||||||||||||
|
|
|||||||||||||||||||
4. Total Eligible Accounts Receivable |
$ | 44,789,187 | ||||||||||||||||||
|
|
|||||||||||||||||||
Advance Rate |
60.00 | % | ||||||||||||||||||
5. Total Available Accounts Receivable before Dilution Reserve: |
$ | 26,873,512 | ||||||||||||||||||
|
|
|||||||||||||||||||
6. Less: Dilution Reserve |
0.00 | % | $ | | ||||||||||||||||
|
|
|||||||||||||||||||
7. Total Accounts Receivable Availability: |
$ | 26,873,512 | ||||||||||||||||||
|
|
|||||||||||||||||||
8. Total Tire Inventory |
$ | 57,651,001 | ||||||||||||||||||
|
|
|||||||||||||||||||
9. Total Non-Tire Inventory |
$ | | ||||||||||||||||||
|
|
|||||||||||||||||||
Advance Rate |
40.00 | % | ||||||||||||||||||
10. Total Inventory Availability (Line 8 + 9) |
$ | 23,060,400 | ||||||||||||||||||
|
|
|||||||||||||||||||
11. Total Accounts Receivable & Inventory Availability: (Line 7 + 10) |
$ | 49,933,912 | ||||||||||||||||||
|
|
|||||||||||||||||||
12. Less Rent Reserves and Availability reserves (as designated by Agent) |
||||||||||||||||||||
Rent reserves |
50,000 | |||||||||||||||||||
Provincial taxes: |
||||||||||||||||||||
PST Payable |
6,531 | |||||||||||||||||||
GST Payable |
1,769,287 | |||||||||||||||||||
|
|
|||||||||||||||||||
Total |
1,825,818 | $ | 1,825,818 | |||||||||||||||||
13. Subtotal Formula Gross Availability (Line 11-13) |
$ | 48,108,094 | ||||||||||||||||||
14. Total Revolving Credit Commitment - For Canadian Initial Borrowing Base, lesser of Formula Gross Availability and $40,000,000 |
$ | 40,000,000 | ||||||||||||||||||
15. Lessor of Line 14 or 15 |
$ | 40,000,000 | ||||||||||||||||||
16. Outstanding Revolver Balance |
| |||||||||||||||||||
17. Outstanding Letters of Credit |
||||||||||||||||||||
None |
|
Expiration Date N/A |
|
|||||||||||||||||
$ | | |||||||||||||||||||
|
|
|||||||||||||||||||
18. Total Outstanding Revolver and Letters of Credit |
$ | | ||||||||||||||||||
19. Net Availability or Overadvance: |
$ | 40,000,000 |
(A) Formula availability equals availability as defined in subsection (b) of the definition of Borrowing Base per the Sixth Amended and Restated Credit Agreement dated 11/30/12.
(B) Commitment availability equals availability as defined in subsection (a) of the definition of Borrowing Base per Sixth Amended and Restated Credit Agreement dated 11/30/12.
The undersigned acknowledges that it has, for value received, pledged, sold, assigned and transferred to Bank of America, N.A. as Administrative Agent (1) the claims or accounts receivable described and set forth on this statement or in the statements attached hereto, together with all monies now due or to become due thereon, all guaranties and security therefore, and all right, title and interest of the undersigned in the merchandise, including the right of stoppage in transit, with full power to collect and/or compromise the same or otherwise deal with the same in its own name or otherwise as though it were absolute owner thereof for all purposes, and (2) all other Collateral under and as such term is defined in the Loan and Security Agreement to which the undersigned and said Administrative Agent are parties. Said claims, accounts, money, merchandise and other Collateral have been assigned as collateral security for indebtedness and liabilities of the undersigned to the Administrative Agent and certain other Lenders as more fully provided in the aforesaid Loan and Security Agreement, subject to all the covenants, terms and provisions thereof.
American Tire Distributors, Inc. | ||||||
By: | /s/ Jason T. Yaudes | |||||
Jason T. Yaudes | ||||||
Client: JHH | Executive VP and CFO |
EXHIBIT C
[FORM OF]
COMPLIANCE CERTIFICATE
To: | The Lenders parties to the |
Credit Agreement described below |
This Compliance Certificate is furnished pursuant to that certain Sixth Amended and Restated Credit Agreement dated as of November , 2012, among American Tire Distributors, Inc., a Delaware corporation (the Company), American Tire Distributors Holdings, Inc., a Delaware corporation (Holdings), ATD Acquisition Co. V Inc., a corporation organized under the laws of Canada, each subsidiary of the Company from time to time party thereto, the Lenders parties thereto, and Bank of America, N.A., as administrative agent and collateral agent for the Lenders thereunder (the Agent). Unless otherwise defined herein, capitalized terms used in this Compliance Certificate have the meanings ascribed thereto in the Credit Agreement.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. I am the duly elected of the Company and a Financial Officer of the Company;
2. I have reviewed the terms of the Credit Agreement and I have made, or have caused to be made under my supervision, a review in reasonable detail of the transactions and financial condition of the Company and its Subsidiaries during the accounting period covered by the attached financial statements;
3. The examinations described in paragraph 2 did not disclose the existence during or at the end of the accounting period covered by the attached financial statements, and I have no knowledge of the existence, as of the date of this Compliance Certificate, of any condition or event which constitutes a Default or Event of Default[, except as set forth below the details thereof and any actions taken or proposed to be taken with respect thereto];
4. Schedule I attached hereto sets forth reasonably detailed calculations and the basis of any cost savings added back to EBITDA pursuant to the provisions of clause (a)(xii) of the definition thereof;
5. [For annual and quarterly certificates, add: Schedule II attached hereto sets forth reasonably detailed calculations of the Fixed Charge Coverage Ratio (whether or not a Trigger Event then exists) as the end of the accounting period covered by the attached financial statements;]
6. [For annual certificates, add: Schedule III sets forth a list of names of all Immaterial Subsidiaries, each Subsidiary set forth on Schedule III individually qualifies as an Immaterial Subsidiary and all Domestic Subsidiaries and all Canadian Subsidiaries listed as Immaterial Subsidiaries in the aggregate comprise less than 10% of the Total Assets of the Company and the Subsidiaries at the end of the accounting period covered by the attached financial statements and represented (on a contribution basis) less than 10% of EBITDA for such period;]
7. [For annual certificates, add: Schedule IV sets forth a list of names of all Unrestricted Subsidiaries and each Subsidiary set forth on Schedule IV individually qualifies as an Unrestricted Subsidiary;]
8. [For annual and quarterly certificates, add: Schedule V sets forth a list of Permitted Acquisitions consummated during the preceding fiscal quarter, each described in reasonable detail.]
The description below sets forth the exceptions, if any, to paragraph 3 hereof by listing, in detail, the nature of the condition or event, the period during which it has existed and the action which the Company has taken, is taking, or proposes to take with respect to each such condition or event:
|
|
|
The foregoing certifications, together with the information set forth in the Schedules hereto and the financial statements delivered with this Compliance Certificate in support hereof, are made and delivered this day of , 20 .
AMERICAN TIRE DISTRIBUTORS, INC., as Borrower Agent | ||
By: |
| |
Name: |
| |
Title: |
|
2
SCHEDULE I
to Compliance Certificate
Calculation of EBITDA Adjustments
EBITDA calculation: | ||||||
Net Income for the applicable period: |
$ | |||||
plus, (a) without duplication and to the extent already deducted (and not added back) in arriving at such Net Income, the sum of the following amounts for the applicable period: |
||||||
(i) | Interest Expense for the applicable period: | $ | ||||
(ii) | provision for taxes based on income, profits or capital, including federal, foreign, state, franchise, excise and similar taxes paid or accrued during such period (including in respect of repatriated funds): | $ | ||||
(iii) | depreciation and amortization (including amortization of intangible assets established through purchase accounting and amortization of deferred financing fees or costs): | $ | ||||
(iv) | Non-Cash Charges: | $ | ||||
(v) | extraordinary, unusual or non-recurring charges (including fees and expenses relating thereto): | $ | ||||
(vi) | cash restructuring charges, accruals or reserves (including restructuring costs related to acquisitions before and after the Effective Date) incurred during any period on or prior to the second anniversary of the Effective Date; provided that, the aggregate amount of restructuring charges, accruals or reserves incurred under this clause (vi) in such Test Period shall not exceed, when combined with the aggregate amount of cost savings added pursuant to clause (xii) below in such Test Period and the aggregate amount of any Pro Forma Adjustments made in any such Test Period, 25% of EBITDA for any such Test Period ending on or prior to November 16, 2014, and 20% of EBITDA for any Test Period thereafter (in each case, calculated without giving effect to any adjustments made pursuant to this clause (vi), clause (xii) below, or Pro Forma Adjustments): | $ | ||||
(vii) | the amount of any minority interest expense (or income (loss) allocable to non-controlling interests) consisting of Subsidiary income attributable to minority equity interests of third parties in any non-wholly-owned Subsidiary deducted (and not added back in such period to Net Income): | $ |
(viii) | the amount of management, monitoring, consulting and advisory fees, (including termination and transaction fees) and related indemnities and expenses paid or accrued in such period to (or on behalf of) the Sponsor, to the extent otherwise permitted by Sections 6.09 and 6.11(c): | $ | ||||
(ix) | losses on asset sales, disposals or abandonments (other than asset sales, disposals or abandonments in the ordinary course of business): | $ | ||||
(x) | any costs or expenses incurred pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or agreement or any equity subscription or equity holder agreement, to the extent that such costs or expenses are funded with cash proceeds contributed during such period to the capital of the Company or Net Cash Proceeds of an issuance of Qualified Equity Interests: | $ | ||||
(xi) | cash receipts (or any netting arrangements resulting in reduced cash expenditures) not representing EBITDA or Net Income in any period to the extent non-cash gains relating to such income were deducted in the calculation of EBITDA pursuant to paragraph (b) below for any previous period and not added back: | $ | ||||
(xii) | in connection with any restructuring of Holdings and its Subsidiaries not in the ordinary course, the amount of cost savings resulting from, or expected by the Company in good faith to be realized as a result of, actions taken or committed to be taken pursuant to a factually supportable plan, in each case in connection with such restructuring prior to the time that EBITDA is to be determined for such period (which cost savings shall be added to EBITDA until fully realized and calculated on a Pro Forma Basis as though such cost savings had been realized on the first day of the relevant period), net of the amount of actual benefits realized from such actions; provided that (A) such cost savings are reasonably identifiable and factually supportable, as certified to the Agent on a Pro Forma Adjustment Certificate, (B) no cost savings shall be added pursuant to this clause (xii) to the extent duplicative of any expenses or charges relating to such cost savings that are included in clause (vi) above or in the definition of the term Pro Forma Adjustment and (C) the aggregate amount of cost savings added pursuant to this clause (xii) shall not exceed for any Test Period, (i) the actual cost savings expected in good faith to be realized as a result of such actions during such Test Period commencing with the date EBITDA is being determined (as opposed to the annualized impact of cost savings) and (ii) when combined with the aggregate amount of restructuring charges, accruals or reserves incurred under clause (vi) above in such Test Period and the aggregate amount of any Pro Forma Adjustments made in any such Test Period, | $ |
2
25% of EBITDA for any such Test Period ending on or prior to November 16, 2014, and 20% of EBITDA for any Test Period thereafter (in each case, calculated without giving effect to any adjustments made pursuant to clause (vi) above, this clause (xii), or Pro Forma Adjustments)): |
||
less, (b) without duplication and to the extent included in arriving at such Net Income, the sum of the following amounts for such period: |
||
(i) non-cash gains (excluding any non-cash gain to the extent it represents the reversal of an accrual or reserve for a potential cash item that reduced Net Income or EBITDA in any prior period): |
$ | |
(ii) gains on asset sales, disposals and abandonments (other than asset sales, disposals and abandonments in the ordinary course of business): |
$ | |
(iii) the amount of any minority interest income (or income (loss) allocable to non-controlling interests) consisting of Subsidiary loss attributable to minority equity interests of third parties in any non-wholly owned Subsidiary added (and not deducted) in such period in arriving at Net Income: |
$ | |
(iv) cash expenditures (or any netting arrangements resulting in increased cash expenditures) not deducted in arriving at EBITDA or Net Income in any period to the extent non-cash losses relating to such income were added in the calculation of EBITDA pursuant to paragraph (a) above for any previous period and not deducted: |
$ | |
(v) extraordinary, unusual and non-recurring gains (less all fees and expenses relating thereto): |
$ | |
EBITDA for the applicable period: |
$ |
3
SCHEDULE II
to Compliance Certificate
Calculations of the Fixed Charge Coverage Ratio of
the Company and its Subsidiaries
Fixed Charge Coverage Ratio calculation: | ||
The ratio of: |
||
(i)(A) EBITDA of the Company and its Subsidiaries for the most recent Test Period ended on or prior to such date of determination: |
$ | |
(B) plus only for purposes of the calculation of the Fixed Charge Coverage Ratio under, and as provided in, Section 7.02, Permitted Cure Securities: |
$ | |
(C) minus taxes based on income, profits or capital, including federal, foreign, state, franchise, excise and similar taxes (including in respect of repatriated funds), net of cash refunds received, of the Company and its Subsidiaries paid in cash during such Test Period: |
$ | |
(D) minus Unfinanced Capital Expenditures made by the Company and its Subsidiaries during such Test Period: |
$ | |
to: |
||
(ii) Fixed Charges payable by the Company and its Subsidiaries in cash during such Test Period |
$ | |
Fixed Charge Coverage Ratio for the applicable period: |
$ |
SCHEDULE III
to Compliance Certificate
Immaterial Subsidiaries
SCHEDULE IV
to Compliance Certificate
Unrestricted Subsidiaries
SCHEDULE V
to Compliance Certificate
Permitted Acquisitions
EXHIBIT D
[FORM OF]
JOINDER AGREEMENT
THIS JOINDER AGREEMENT (this Agreement), dated as of , , 20 , is entered into between , a (the New Subsidiary) and BANK OF AMERICA, N.A., as Agent, under that certain Sixth Amended and Restated Credit Agreement dated as of November , 2012, among American Tire Distributors, Inc., a Delaware corporation (the Company), American Tire Distributors Holdings, Inc., a Delaware corporation (Holdings), ATD Acquisition Co. V Inc., a corporation organized under the laws of Canada, each subsidiary of the Company from time to time party thereto, the Lenders parties thereto, and Bank of America, N.A., as administrative agent and collateral agent for the Lenders thereunder (the Agent). All capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Credit Agreement.
The New Subsidiary and the Agent, for the benefit of the Lenders, hereby agree as follows:
1. The New Subsidiary hereby acknowledges, agrees and confirms that, by its execution of this Agreement, the New Subsidiary will be deemed to be a Loan Party under the Credit Agreement and a [Canadian Borrower][Canadian Guarantor][U.S. Borrower][Canadian Obligations Guarantor][U.S. Guarantor] for all purposes of the Credit Agreement and shall have all of the obligations of a Loan Party and a [Canadian Borrower][Canadian Guarantor][U.S. Borrower][Canadian Obligations Guarantor][U.S. Guarantor] thereunder as if it had executed the Credit Agreement. The New Subsidiary hereby ratifies, as of the date hereof, and agrees to be bound by, all of the terms, provisions and conditions contained in the Credit Agreement, including without limitation (a) all of the representations and warranties of the Loan Parties set forth in Article III of the Credit Agreement (to the extent made or deemed made on or after the effective date hereof), (b) all of the covenants set forth in Articles V and VI of the Credit Agreement, [and] (c) [all of the terms and conditions set forth in the Credit Agreement to the same extent as each of the other [Canadian Borrowers][Canadian Guarantors][U.S. Borrowers][U.S. Guarantors] as if it had been a party thereto as a [Canadian Borrower][Canadian Guarantor][U.S. Borrower][U.S. Guarantor] and does hereby assume each of the obligations imposed upon a [Canadian Borrower][Canadian Guarantor][U.S. Borrower][U.S. Guarantor] under the Credit Agreement, and [(d)] [all of the [Canadian Guaranteed Obligations][U.S. Guaranteed Obligations] set forth in Article X of the Credit Agreement]. [Without limiting the generality of the foregoing terms of this paragraph 1, the New Subsidiary, subject to the limitations set forth in Section 10.09 of the Credit Agreement, hereby absolutely and unconditionally guarantees, jointly and severally with the other Loan Guarantors, to the Agent and the Lenders, the prompt payment of the [Canadian Guaranteed Obligations][U.S. Guaranteed Obligations] in full when due (whether at stated maturity, upon acceleration or otherwise) to the extent of and in accordance with Article X of the Credit Agreement].
2. If required, the New Subsidiary is, simultaneously with the execution of this Agreement, executing and delivering such Collateral Documents (and such other documents and instruments) as requested by the Agent in accordance with the Credit Agreement including, without limitation, a joinder agreement with respect to the Security Agreement.
3. The New Subsidiary hereby agrees that each reference in the Credit Agreement to a [Canadian Borrower][Canadian Guarantor][U.S. Borrower][Canadian Obligations Guarantor][U.S. Guarantor] shall also mean and be a reference to the New Subsidiary.
4. [The New Subsidiary hereby waives acceptance by the Agent and the Lenders of the guaranty by the New Subsidiary upon the execution of this Agreement by the New Subsidiary].
5. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument.
6. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the New Subsidiary has caused this Agreement to be duly executed by its authorized officer, and the Agent, for the benefit of the Lenders, has caused the same to be accepted by its authorized officer, as of the day and year first above written.
[NEW SUBSIDIARY] | ||
By: | ||
Name: | ||
Title: | ||
Acknowledged and accepted:
| ||
BANK OF AMERICA, N.A., as Agent | ||
By: | ||
Name: | ||
Title: |
2
EXHIBIT E
[FORM OF]
LETTER OF CREDIT REQUEST
[Applicable Issuing Bank],1
as Issuing Bank
Attention: | [Name] |
[Address] |
Fax: [] |
with a copy to: | Bank of America, N.A., |
as Agent for the Lenders referred to below, |
Attention: | [Name] |
[ ] |
Fax: [] |
[Date]
Ladies and Gentlemen:
We hereby request that []2, as an Issuing Bank, in its individual capacity, issue a [Standby][Commercial] Letter of Credit on []3, which Letter of Credit shall be denominated in [United States][Canadian] Dollars, shall be in the aggregate amount of []4 and shall be for the account of []5. For the purposes of this Letter of Credit Request, unless otherwise defined herein, all capitalized terms used herein and defined in that certain Sixth Amended and Restated Credit Agreement dated November __, 2012, among American Tire Distributors, Inc., a Delaware corporation (the Company), American Tire Distributors Holdings, Inc., a Delaware corporation (Holdings), ATD Acquisition Co. V Inc., a corporation organized under the laws of Canada, each subsidiary of the Company from time to time party thereto, the Lenders parties thereto, and Bank of America, N.A., as administrative agent and collateral agent for the Lenders thereunder (the Agent), shall have the respective meaning assigned to such terms in the Credit Agreement. The beneficiary of the requested Letter of Credit is []6, and such Letter of Credit will be in support of []7 and will have a stated expiration date of []8.
1 | Insert name and address of the Applicable Issuing Bank. |
2 | Insert name of the Applicable Issuing Bank. |
3 | Insert date of issuance, which must be a Business Day. |
4 | Insert aggregate initial amount of the Letter of Credit. |
5 | Insert name of account party, which must be the Company or, so long as the Company is a joint and several co-applicant, a subsidiary of the Company. |
6 | Insert name and address of beneficiary. |
7 | Insert brief description of obligation(s) to be supported by the Letter of Credit. |
8 | Date may not be later than the date referred to in Section 2.06(c) of the Credit Agreement. |
AMERICAN TIRE DISTRIBUTORS, INC. | ||
By: |
||
Name: |
||
Title: |
2
EXHIBIT F-1
[FORM OF]
BORROWING REQUEST
Bank of America, N.A.,
as Agent for the Lenders referred to below,
[ ]
Attention: []
[Date]1
Ladies and Gentlemen:
Reference is made to the Sixth Amended and Restated Credit Agreement dated as of November __, 2012, among American Tire Distributors, Inc., a Delaware corporation (the Company), American Tire Distributors Holdings, Inc., a Delaware corporation (Holdings), ATD Acquisition Co. V Inc., a corporation organized under the laws of Canada, each subsidiary of the Company from time to time party thereto, the Lenders parties thereto, and Bank of America, N.A., as administrative agent and collateral agent for the Lenders thereunder (the Agent) (as amended, supplemented or otherwise modified from time to time, the Credit Agreement). Terms defined in the Credit Agreement are used herein with the same meanings.
The undersigned Borrower Agent hereby gives you notice pursuant to Section 2.03 of the Credit Agreement that it requests a Borrowing under the Credit Agreement, and in that connection sets forth below the terms on which such Borrowing is requested to be made:
(A) Date of Borrowing (which shall be a Business Day) |
||||
(B) Principal Amount of Borrowing2 |
||||
(C) Type of Borrowing3 |
1 | Must be notified in writing (a) in the case of an Interest Period Loan other than a Canadian BA Rate Loan, not later than 12:00 noon, New York City time, two (2) Business Days before the date of the proposed Borrowing, (b) in the case of a Canadian BA Rate Loan, not later than 12:00 noon, Toronto, Ontario time, three (3) Business Days before the date of the proposed Borrowing, or (c) in the case of a Floating Rate Loan (including any such notice of a Floating Rate Loan to finance the reimbursement of an LC Disbursement as contemplated by Section 2.06(e) of the Credit Agreement), not later than 12:00 noon, New York City time, or with respect to Canadian Prime Rate Loans or Canadian Base Rate Loans, 12:00 noon, Toronto, Ontario time, on the date of the proposed Borrowing. |
2 | Not less than an aggregate principal amount as indicated in Section 2.02(c) and in an integral multiple as indicated therein. |
3 | Specify a Floating Rate Loan or an Interest Period Loan (and if not specified, such Borrowing shall be deemed a request for (A) ABR Loans if requested for or on behalf of a U.S. Borrower, and (B) Canadian Prime Rate Loans if requested for and on behalf of a Canadian Borrower, unless the request specifies such Loans are to be denominated in Dollars in which case it shall be deemed a request for Canadian Base Rate Loans). |
(D) Currency of Borrowing4 |
||||
(E) Interest Period5 |
||||
(F) Account Number and Location |
||||
(G) Identity of Borrower for Borrowing |
[AMERICAN TIRE DISTRIBUTORS, INC.] | ||
By: |
||
Name: |
||
Title: |
4 | If not specified, such Borrowing shall be deemed a request for (A) ABR Loans in Dollars if on behalf of a U.S. Borrower, and (B) Canadian Prime Rate Loans in Canadian Dollars if on behalf of a Canadian Borrower. |
5 | The initial Interest Period applicable to an Interest Period Loan shall be subject to the definition of Interest Period, and, if not specified, the Interest Period requested shall be deemed a request for an Interest Period Loan with an Interest Period of one months duration. |
EXHIBIT F-2
[FORM OF]
SWINGLINE LOAN REQUEST
Bank of America, N.A.,
as Agent for the Lenders referred to below,
[ ]
Attention: []
[Date]1
Ladies and Gentlemen:
Reference is made to the Sixth Amended and Restated Credit Agreement dated as of November , 2012, among American Tire Distributors, Inc., a Delaware corporation (the Company), American Tire Distributors Holdings, Inc., a Delaware corporation (Holdings), ATD Acquisition Co. V Inc., a corporation organized under the laws of Canada, each subsidiary of the Company from time to time party thereto, the Lenders parties thereto, and Bank of America, N.A., as administrative agent and collateral agent for the Lenders thereunder (the Agent) (as amended, supplemented or otherwise modified from time to time, the Credit Agreement). Terms defined in the Credit Agreement are used herein with the same meanings.
The undersigned Borrower Agent hereby gives you notice pursuant to Section 2.05 of the Credit Agreement that it requests a Swingline Loan under the Credit Agreement, and in that connection sets forth below the terms on which such Swingline Loan is requested to be made:
(A) Date of Swingline Loan (which shall be a Business Day) |
||||
(B) Principal Amount2 and Currency3 of Swingline Loan |
1 | Must be notified by telephone (confirmed by facsimile), not later than 1:00 p.m., New York City time, or, with respect to Canadian Swingline Loans, 1:00 p.m., Toronto, Ontario time, on the day of a proposed Swingline Loan to such Borrower. |
2 | The aggregate principal amount of outstanding U.S. Swingline Loans shall not exceed $85,000,000, and the aggregate principal amount of outstanding Canadian Swingline Loans shall not exceed the Dollar Equivalent of $6,000,000. |
3 | The currency shall be Dollars in the case of any Swingline Loan made to a U.S. Borrower or U.S. Dollars or Canadian Dollars in the case of a Swingline Loan made to a Canadian Borrower. |
(C) Currency of Swingline Loan4 |
||||
(D) Account Number and Location |
[AMERICAN TIRE DISTRIBUTORS, INC.] | ||
By: |
||
Name: |
||
Title: |
4 | If not specified, such Swingline Loan shall be deemed a request for (A) ABR Loans in Dollars if on behalf of a U.S. Borrower, and (B) Canadian Prime Rate Loans in Canadian Dollars if on behalf of a Canadian Borrower. |
EXHIBIT G-1
[FORM OF]
CANADIAN REVOLVING NOTE
U.S. $[ ] | New York, New York [], 20[] |
FOR VALUE RECEIVED, the undersigned, , a organized under the laws of (Canadian Borrower), hereby unconditionally promises to pay to [ ] (the Canadian Revolving Lender) or its registered assigns, at the office of Bank of America, N.A. (the Agent) at [ ], on the dates and in the amounts set forth in the Sixth Amended and Restated Credit Agreement dated as of November __, 2012 (as the same may be amended, supplemented or otherwise modified from time to time, the Credit Agreement), among American Tire Distributors, Inc., a Delaware corporation (the Company), American Tire Distributors Holdings, Inc., a Delaware corporation (Holdings), Canadian Borrower, each subsidiary of the Company from time to time party thereto, the Lenders parties thereto, and Bank of America, N.A., as administrative agent and collateral agent for the Lenders thereunder (the Agent), in immediately available funds, the aggregate unpaid principal amount of all Canadian Revolving Loans made by the Canadian Revolving Lender to Canadian Borrower pursuant to the Credit Agreement and unconditionally promises to pay interest from the date of such Canadian Revolving Loans on the principal amount thereof from time to time outstanding, in like funds, at said office, at the rate or rates per annum and payable on the dates provided in the Credit Agreement. Terms used but not defined herein shall have the meanings assigned to them in the Credit Agreement.
Principal of and interest on this promissory note from time to time outstanding shall be due and payable as provided in the Credit Agreement. This promissory note is issued pursuant to and evidences Canadian Revolving Loans under the Credit Agreement, to which reference is made for a statement of the rights and obligations of the Canadian Revolving Lender and the duties and obligations of Canadian Borrower. The Credit Agreement contains provisions for acceleration of the maturity of this promissory note upon the happening of certain stated events, and for the borrowing, prepayment and reborrowing of amounts upon specified terms and conditions.
The holder of this promissory note is hereby authorized by Canadian Borrower to record on a schedule annexed to this promissory note (or on a supplemental schedule) the amounts owing with respect to Canadian Revolving Loans, and the payment thereof. Failure to make any notation, however, shall not affect the rights of the holder of this promissory note or any obligations of Canadian Borrower hereunder or under any other Loan Documents.
Time is of the essence of this promissory note. Canadian Borrower and all endorsers, sureties and guarantors of this promissory note hereby severally waive demand, presentment for payment, protest, notice of protest, notice of intention to accelerate the maturity of this promissory note, diligence in collecting, the bringing of any suit against any party, and any notice of or defense on account of any extensions, renewals, partial payments, or changes in any manner of or in this promissory note or in any of its terms, provisions and covenants, or any releases or substitutions of any security, or any delay, indulgence or other act of any trustee or any holder hereof, whether before or after maturity. Canadian Borrower agrees to pay, and to save the holder of this promissory note harmless against, any liability for the payment of all costs and expenses (including without limitation reasonable attorneys fees) if this promissory note is collected by or through an attorney-at-law.
In no contingency or event whatsoever shall the amount paid or agreed to be paid to the holder of this promissory note for the use, forbearance or detention of money advanced hereunder exceed the highest lawful rate permitted under applicable law. If any such excess amount is inadvertently paid by Canadian Borrower or inadvertently received by the holder of this promissory note, such excess shall be returned to Canadian Borrower or credited as a payment of principal, in accordance with the Credit Agreement. It is the intent hereof that Canadian Borrower not pay or contract to pay, and that holder of this promissory note not receive or contract to receive, directly or indirectly in any manner whatsoever, interest in excess of that which may be paid by Canadian Borrower under applicable law.
THIS PROMISSORY NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
[ ], as Canadian Borrower |
||||
By: |
||||
Name: |
||||
Title: |
EXHIBIT G-2
[FORM OF]
U.S. REVOLVING NOTE
$[ ] | New York, New York [], 20[] |
FOR VALUE RECEIVED, the undersigned, AMERICAN TIRE DISTRIBUTORS, INC., a Delaware corporation (the Company), AM-PAC TIRE DIST. INC., a California corporation, and certain Domestic Subsidiaries that are borrowers pursuant to Section 5.11(a) of the Credit Agreement (collectively, the U.S. Borrowers), hereby unconditionally and jointly and severally promise to pay to [ ] (the U.S. Revolving Lender) or its registered assigns, at the office of Bank of America, N.A. (the Agent) at [ ], on the dates and in the amounts set forth in the Sixth Amended and Restated Credit Agreement dated as of November __, 2012 (as the same may be amended, supplemented or otherwise modified from time to time, the Credit Agreement), among the Company, American Tire Distributors Holdings, Inc., a Delaware corporation (Holdings), ATD Acquisition Co. V Inc., a corporation organized under the laws of Canada, each subsidiary of the Company from time to time party thereto, the Lenders parties thereto, and Bank of America, N.A., as administrative agent and collateral agent for the Lenders thereunder (the Agent), in lawful money of the United States of America in immediately available funds, the aggregate unpaid principal amount of all U.S. Revolving Loans made by the U.S. Revolving Lender to the U.S. Borrowers pursuant to the Credit Agreement and unconditionally and jointly and severally promise to pay interest from the date of such U.S. Revolving Loans on the principal amount thereof from time to time outstanding, in like funds, at said office, at the rate or rates per annum and payable on the dates provided in the Credit Agreement. Terms used but not defined herein shall have the meanings assigned to them in the Credit Agreement.
Principal of and interest on this promissory note from time to time outstanding shall be due and payable as provided in the Credit Agreement. This promissory note is issued pursuant to and evidences U.S. Revolving Loans under the Credit Agreement, to which reference is made for a statement of the rights and obligations of U.S. Revolving Lender and the duties and obligations of the U.S. Borrowers. The Credit Agreement contains provisions for acceleration of the maturity of this promissory note upon the happening of certain stated events, and for the borrowing, prepayment and reborrowing of amounts upon specified terms and conditions.
The holder of this promissory note is hereby authorized by the U.S. Borrowers to record on a schedule annexed to this promissory note (or on a supplemental schedule) the amounts owing with respect to U.S. Revolving Loans, and the payment thereof. Failure to make any notation, however, shall not affect the rights of the holder of this promissory note or any obligations of the U.S. Borrowers hereunder or under any other Loan Documents.
Time is of the essence of this promissory note. Each U.S. Borrower and all endorsers, sureties and guarantors of this promissory note hereby severally waive demand, presentment for payment, protest, notice of protest, notice of intention to accelerate the maturity of this promissory note, diligence in collecting, the bringing of any suit against any party, and any notice of or defense on account of any extensions, renewals, partial payments, or changes in any manner of or in this promissory note or in any of its terms, provisions and covenants, or any releases or substitutions of any security, or any delay, indulgence or other act of any trustee or any holder hereof, whether before or after maturity. The U.S. Borrowers jointly and severally agree to pay, and to save the holder of this promissory note harmless against, any liability for the payment of all costs and expenses (including without limitation reasonable attorneys fees) if this promissory note is collected by or through an attorney-at-law.
In no contingency or event whatsoever shall the amount paid or agreed to be paid to the holder of this promissory note for the use, forbearance or detention of money advanced hereunder exceed the highest lawful rate permitted under applicable law. If any such excess amount is inadvertently paid by the U.S. Borrowers or inadvertently received by the holder of this promissory note, such excess shall be returned to the U.S. Borrowers or credited as a payment of principal, in accordance with the Credit Agreement. It is the intent hereof that the U.S. Borrowers not pay or contract to pay, and that holder of this promissory note not receive or contract to receive, directly or indirectly in any manner whatsoever, interest in excess of that which may be paid by the U.S. Borrowers under applicable law.
THIS PROMISSORY NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
AMERICAN TIRE DISTRIBUTORS, INC., as a U.S. Borrower | ||
By: |
||
Name: |
||
Title: |
||
AM-PAC TIRE DIST., INC., as a U.S. Borrower | ||
By: |
||
Name: |
||
Title: |
||
[ ], as a U.S. Borrower | ||
By: |
||
Name: |
||
Title: |
EXHIBIT H
Form of Vendor Lien Subordination Agreement
This VENDOR LIEN SUBORDINATION AGREEMENT is made on , 201_, between BANK OF AMERICA, N.A., a national banking association, in its capacities as administrative and collateral agent (together with its successors in such capacities, the Agent) for the Lenders (as hereinafter defined), and , a (the Trade Creditor).
Recitals:
American Tire Distributors, Inc., a Delaware corporation (ATD), Am-Pac Tire Dist. Inc., a California corporation (Am-Pac), ATD Acquisition Co. V Inc., a corporation organized under the laws of Canada (Canadian Borrower), and each other subsidiary of ATD party thereto in its capacity as a borrower (together with ATD, Am-Pac, Canadian Borrower, and each other Person that hereafter becomes a Borrower under and as defined in the Credit Agreement are collectively referred to herein as the Borrowers) or as a guarantor (collectively with the Borrowers, the Loan Parties), are parties to a certain Sixth Amended and Restated Credit Agreement dated as of November , 2012 (as further amended, amended and restated, supplemented or otherwise modified from time to time, the Credit Agreement) with the financial institutions party thereto from time to time (the Lenders), the Agent and the other parties named therein.
Pursuant to the terms of the Credit Agreement, the Lenders have heretofore made and may from time to time hereafter make loans and other extensions of credit to the Borrowers, which loans and extensions of credit directly and indirectly benefit all of the Loan Parties. As security for the repayment by the Borrowers of such loans and other extensions of credit, each Loan Party has granted or will hereafter grant to the Agent, for its benefit and the benefit of the Lenders, a security interest, and hypothec on, in substantially all of such Loan Partys personal property, including all of such Loan Partys Inventory (as hereinafter defined) and all proceeds thereof.
Pursuant to the terms of [Name and date of Trade Creditors Security Agreement] (as amended to date and as the same may be further amended, restated, modified or supplemented from time to time, the Trade Security Agreement), each Loan Party has granted or may hereafter grant to the Trade Creditor a security interest in, and hypothec on, all Inventory (as hereinafter defined) consisting of tires sold to such Loan Party by the Trade Creditor and bearing any brand name or trademark used by the Trade Creditor now or in the future (such Inventory is referred to herein as the Branded Inventory).
The Borrowers have requested that the Lenders extend credit to or for the benefit of the Loan Parties based, in part, on the value of the Branded Inventory, which extensions of credit will directly and indirectly benefit the Trade Creditor. As an inducement to the Lenders to so extend credit, the Loan Parties and the Trade Creditor have agreed to enter into this Agreement with the Agent for the purpose of establishing the priorities of the Trade Creditors and the Agents respective Liens on the Branded Inventory and to set forth certain other agreements between the Trade Creditor and the Agent.
Accordingly, in consideration of the foregoing premises, the mutual covenants and conditions herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby expressly acknowledged, the parties hereto, intending to be bound hereby, agree as follows:
1. Definitions; Rules of Construction.
(a) In addition to the terms defined in the recitals hereto, as used in this Agreement, the following terms shall have the following meanings for the purposes of this Agreement:
Account shall have the meaning given to the term account in the UCC or in the PPSA, as applicable.
Bankruptcy Case shall mean any case or proceeding hereafter commenced by or against any Loan Party under any applicable Insolvency Law.
Bankruptcy Code shall mean title 11 of the United States Code.
Business Day shall mean any day other than a Saturday, Sunday or day on which banks are authorized or required to be closed under the laws of the State of New York.
Chattel Paper shall have the meaning given to the term chattel paper in the UCC or in the PPSA, as applicable.
Collateral shall mean and collectively include all of the following property of each Loan Party, whether now existing or hereafter created or acquired (and whether acquired prior to or during the pendency of any Bankruptcy Case), wherever located: all Accounts, Inventory (including all Branded Inventory), General Intangibles, Documents, Instruments and Chattel Paper, and the proceeds and products of all of the foregoing.
Document shall have the meaning given to the term document in the UCC or document of title in the PPSA, as applicable.
Enforcement Action shall mean and include any remedy available to Lenders under any of the Senior Creditor Documents or applicable law to enforce collection of any of the Senior Obligations following the occurrence of any Event of Default, and any remedy available to the Trade Creditor under any of the Trade Creditor Documents or applicable law to enforce collection of any the Trade Obligations following the occurrence of an Event of Default, including, in each case, (a) the commencement of any action, suit or other proceeding against a Loan Party to enforce payment of any of the Senior Obligations or Trade Obligations; (b) the repossession, foreclosure upon or other act to realize upon any of the Collateral; (c) any notification by a party to any account debtor on any Account to remit payments with respect to such Account to the notifying party; and (d) any involuntary petition for relief against a Loan Party under an applicable Insolvency Law or a petition, proceeding, or suit for the appointment of a receiver, interim receiver, trustee, or other custodian for a Loan Party or any of a Loan Partys assets.
Event of Default shall mean an event or condition that constitutes a default or an event of default under the Senior Credit Documents or the Trade Creditor Documents.
General Intangibles shall have the meaning given to the term general intangibles in the UCC or in the PPSA, as applicable, and shall include all tax refund claims, patents, patent applications, copyrights, trademarks, tradenames, trade secrets, service marks and choses in action.
Insolvency Law shall means the Bankruptcy Code, the Bankruptcy and Insolvency Act (Canada), the Companies Creditors Arrangement Act (Canada) or other applicable bankruptcy, insolvency, receivership, winding up, arrangement, or similar law now or hereafter in effect.
Instrument shall have the meaning given to the term instrument in the UCC or in the PPSA, as applicable.
Inventory shall have the meaning given to the term inventory in the UCC or in the PPSA, as applicable.
Lien shall mean any security interest, hypothec, statutory lien, judgment lien, common law lien, equitable lien, prior claim, or other interest in, or charge or encumbrance on, any of the Collateral.
Person shall mean any natural person, sole proprietorship, corporation, partnership, limited liability company, unlimited liability company, joint venture, business trust, other business entity, or any governmental unit, agency, bureau or political subdivision.
PPSA shall mean the Personal Property Security Act (Ontario) and the regulations promulgated thereunder, as amended from time to time, provided if validity, perfection and effect of perfection and non-perfection of the Agents security interest in or Lien on any Collateral of any Canadian Loan Party are governed by the personal property security laws of any jurisdiction other than Ontario, PPSA shall mean those personal property security laws (including the Civil Code of Quebec) in such other jurisdiction for the purposes of the provisions hereof relating to such validity, perfection, and effect of perfection and non-perfection and for the definitions related to such provisions, as from time to time in effect.
Senior Creditor Documents shall mean and include the Credit Agreement and all other instruments or agreements now or hereafter evidencing or securing the payment of the whole or any part of the Senior Obligations, executed by a Loan Party in favor of the Agent, for its benefit and the benefit of the Lenders and their affiliates.
Senior Obligations shall mean and include all liabilities and obligations of the Loan Parties to the Agent, and the Lenders and their affiliates, whether now or hereafter created, incurred or arising, and whether direct or indirect, absolute or contingent, primary or secondary, due or to become due, joint or several, or incurred during the pendency of a Bankruptcy Case or thereafter, including all liabilities now or at any time or times hereafter owing to the Agent, the Lenders and their affiliates under any of the Senior Creditor Documents.
Trade Creditor Documents shall mean and include the Trade Security Agreement and all other instruments or agreements now or hereafter evidencing or securing the payment of the whole or any part of the Trade Obligations.
Trade Debt shall mean, at any time, the outstanding trade debt then owing to the Trade Creditor by the Loan Parties arising out of the Loan Parties purchases of Branded Inventory on open account.
Trade Obligations shall mean and include the Trade Debt and all other liabilities and obligations of the Borrowers to the Trade Creditor, whether now or hereafter created, incurred or arising, including all liabilities now or at any time hereafter owing to the Trade Creditor under any of the Trade Creditor Documents.
UCC shall mean the Uniform Commercial Code (or any successor statute) as adopted and in force in the State of New York or, when the laws of any other state govern the method or manner of the creation or perfection of any security interest in any of the Collateral, the Uniform Commercial Code (or any successor statute) of such state.
(b) All references to any instrument or agreement, including any of the Trade Creditor Documents or the Senior Creditor Documents, shall mean and include all amendments and modifications thereto and renewals and restatements thereof; all references to any statute shall mean and include all amendments thereto and all regulations issued pursuant thereto; and the words including and include shall mean including, without limitation and include, without limitation.
2. Consents to Liens. The Trade Creditors Lien on the Branded Inventory as security for the Trade Obligations is a permitted Lien under the Credit Agreement; the existence of such Lien does not constitute an Event of Default under any of the Senior Creditor Documents. The Trade Creditor shall not request, accept or receive any Lien or other interest in or on any of the Collateral except for Branded Inventory and to the extent that the Trade Creditor currently has a Lien on other Collateral, the Trade Creditor is hereby deemed to have released, discharged, and terminated such Lien and agrees to execute any and all documentation requested by the Agent to evidence such release, discharge, and termination. Without limiting the generality of the foregoing, the Trade Creditor acknowledges and agrees that it shall not have a Lien on any proceeds of the Branded Inventory. The Trade Creditor hereby consents to each Loan Partys grant of Liens on all of the Collateral to the Agent, for its benefit, the Lenders and their affiliates, as security for the Senior Creditor Obligations and agrees that the existence of any such Liens shall not constitute an Event of Default under any of the Trade Creditor Documents.
3. Priority of Liens.
(a) The Trade Creditor and the Agent agree at all times, whether before, after or during the pendency of any Bankruptcy Case and notwithstanding the priorities which would ordinarily result from the order of granting or perfection or opposability of any Liens, the order of filing, registering, publishing, or recording of any financing statements or similar registrations, or the priorities that would otherwise apply under applicable law, that (i) the Agents Liens on the Collateral constitute first priority Liens on such property to secure the Senior Obligations and shall be superior to any Lien or other interest of the Trade Creditor in or on the same property arising pursuant to the Trade Creditor Documents, by operation of law or otherwise; and (ii) any Lien or other interest at any time acquired by the Trade Creditor in or on any of the Collateral shall be subordinate to the Liens of the Agent therein or thereon, and the Trade Creditor hereby cedes priority and preference of rank of its Liens to the Agents Liens on such Collateral.
(b) For purposes of the foregoing priorities, any claim of a right of setoff or compensation by the Trade Creditor shall be treated in all respects as a Lien and no claim to right of setoff or compensation by the Trade Creditor shall be asserted to defeat or diminish the rights or priorities provided for herein in favor of the Agent.
(c) If for any reason any Lien granted or conveyed by a Loan Party to the Agent pursuant to the Senior Creditor Documents or otherwise is set aside or otherwise declared ineffective, in whole or in part, by any court of competent jurisdiction, and if as a consequence thereof the Trade Creditor becomes entitled to receive any proceeds from any of the Collateral or on account of the Trade Creditors Lien on any of the Collateral, then any such payments or proceeds received by the Trade Creditor shall be used by it to purchase a junior participation in the Senior Obligations pursuant to a junior participation agreement in form and content satisfactory to the Agent but in all events providing that the Lenders retained interest in the Senior Obligations (including both principal and interest) and all
costs and expenses incurred by the Agent and the Lenders (including attorneys fees) in attempting to collect the Senior Obligations or to realize upon any of the Collateral shall be paid in full before the Trade Creditor shall be entitled to any payment on account of its junior participation and the Trade Creditors junior participation will be without recourse of any kind to the Agent or any Lender except for the Agents or any Lenders gross negligence or willful misconduct after the date of the Trade Creditors purchase of such junior participation.
(d) In no event shall the Trade Creditor institute, or join as a party in the institution of, or directly or indirectly assist in the prosecution of, any action, suit or proceeding seeking a determination that the Lien of the Agent on any of the Collateral is invalid, unperfected, unopposable, or avoidable, or is or should be subordinated to the interests of any other Person. In no event shall the Agent or any Lender institute, or join as a party in the institution of, or directly or indirectly assist in the prosecution of, any action, suit or proceeding seeking a determination that the Lien of the Trade Creditor on any of the Collateral is invalid, unperfected, unopposable, or avoidable, or is or should be subordinated to the interests of any Person other than the Agent under the terms hereof.
(e) If at any time the Agent shall subordinate, in whole or in part, its Lien upon any of the Collateral to or in favor of any other Person, the priority of the Agents Lien on the Collateral with respect to the Lien of the Trade Creditor shall not be affected thereby and the Agents Lien shall continue to be superior to the Trade Creditors Lien on the Collateral as provided in paragraph 3(a) of this Agreement.
4. Standby as to Certain Actions. The Trade Creditor agrees that it will not ask for, demand, sue for, collect, take, receive, or repossess any of the Branded Inventory or other Collateral from any Loan Party by setoff, compensation, or in any other manner, or otherwise take any Enforcement Action with respect to the whole or any part of the Collateral, whether by judicial action or under power of sale, by enforcement of hypothecary recourse, by self-help repossession or otherwise, unless and until all of the Senior Obligations have been paid finally and in full and the Lenders commitments to extend further credit to or for the benefit of the Borrowers have been terminated. If the Trade Creditor, in violation of the terms hereof, initiates any Enforcement Action against a Loan Party or any of the Collateral, the Agent may interpose this Agreement and demand specific performance of the terms hereof.
5. Agents Rights Exclusive. The Agent, on behalf of the Lenders, shall have the exclusive right to collect, foreclose upon, enforce a hypothecary recourse in respect of, sell, transfer, liquidate or otherwise dispose of any or all of the Collateral as provided in the Senior Creditor Documents or by applicable law, in the manner deemed appropriate by the Agent and the Lenders, without regard to any Liens of the Trade Creditor thereon, and the Trade Creditor will not hinder the Agents actions in enforcing its remedies or taking any Enforcement Action with respect to the Collateral; provided, however, that after payment in full of all of the Senior Obligations and the termination of the Lenders commitments to extend further credit to or for the benefit of the Borrowers, the Agent shall deliver to the Trade Creditor (unless otherwise restricted by applicable law or by any order issued by a court in the proper exercise of its jurisdiction and subject in all events to the Agents receipt of an indemnification from the Trade Creditor of all liabilities arising from such delivery) for application to the Trade Obligations any proceeds remaining from the sale or other disposition of the Collateral. To the fullest extent permitted by applicable law, the Trade Creditor waives any requirement on the part of the Agent or any Lender to conduct any sale or other disposition of any of the Collateral in a commercially reasonable manner, and the Agent shall be fully authorized to sell or otherwise dispose of any or all of the Collateral in the manner deemed appropriate by the Agent and the Lenders, including by the exercise of any right the Agent may have to accept any or all of the Collateral in total or partial satisfaction of any of the Senior Obligations in accordance with the UCC, PPSA, or otherwise.
6. Receipt of Monies by Trade Creditor. The Trade Creditor agrees that should it receive any money from the sale, liquidation, casualty or other disposition of, or as a result of its Lien, on any of the Collateral, it will (unless otherwise restricted by law) hold the same in trust and as mandatary for the Agent and the Lenders and promptly pay over the same to the Agent for application to the Senior Obligations (unless otherwise restricted by law or by any order issued by a court in the proper exercise of its jurisdiction).
7. Agreement on Certain Bankruptcy Matters.
(a) Without impairing, abrogating or in any way affecting the Agents or any Lenders rights hereunder, including the relative priorities established by paragraph 3 hereof, Agent may during any Bankruptcy Case give or withhold its consent to any Loan Partys or any bankruptcy trustees, receivers, interim receivers, or similar custodians use or consumption of any Collateral (including cash proceeds of any Accounts or other Collateral), or may provide financing or otherwise extend credit to any Loan Party or any bankruptcy trustee, receiver, interim receiver, or similar custodian, secured by a first priority Lien upon any or all of the Collateral, whether acquired by such Loan Party prior to or after the commencement of such Bankruptcy Case, and by its execution of this Agreement, the Trade Creditor shall be deemed to have consented to such Borrowers or any bankruptcy trustees, receivers, interim receivers, or similar custodians use of any such Collateral if and to the extent consented to by the Agent and the applicable Lenders and to any financing proposed to be provided by the Lenders (or any of them) to a Loan Party or any bankruptcy trustee, receiver, interim receiver, or similar custodian that is secured by a Lien upon any or all of the Collateral during the pendency of any such Bankruptcy Case. Any Lien at any time acquired by the Trade Creditor on any of the Collateral, whether such Collateral is created, acquired or arises at any time prior to or after any such Bankruptcy Case, shall be subject to all of the terms of this Agreement and shall be subordinate in priority to all Liens at any time granted to or obtained by the Agent with respect to any such Collateral, including Liens granted to or conferred upon the Agent to secure financing in any Bankruptcy Case.
(b) If the applicable Lenders consent to the sale of any of the Collateral during any Bankruptcy Case (whether such sale is to be made pursuant to 11 U.S.C. § 363, pursuant to a plan of reorganization or pursuant to or as permitted by any other Insolvency Law or otherwise), then the Trade Creditor shall be deemed to have consented to any such sale and shall, if requested to do so by the Agent in connection with any such sale, promptly execute and deliver to the Agent a release, discharge, and termination of the Trade Creditors Liens with respect to the Collateral to be sold.
(c) If the Agent or any Lender shall be required in any Bankruptcy Case to return, refund or repay to a Loan Party or any trustee, receiver, interim receiver, monitor, or other similar custodian or committee appointed in the Bankruptcy Case any payment or proceeds of any Collateral in connection with any action, suit or proceeding alleging that the Agent or such Lenders receipt of such payments or proceeds was a transfer voidable under applicable law (including an Insolvency Law), then the Agent or such Lender shall not be deemed ever to have received such proceeds for purposes of this Agreement in determining whether and when all of the Senior Obligations have been paid in full.
8. Agreement to Release Liens. The Trade Creditor agrees that it will (if requested to do so by the Agent after and during the continuance of an Event of Default under the Senior Creditor Documents) release, discharge, and terminate its Liens on any Collateral in connection with and in order to facilitate any orderly liquidation sale of such Collateral by any Loan Party or any bankruptcy trustee, receiver, interim receiver, monitor, or other similar custodian for such Loan Party, and promptly upon the request of the Agent, it will execute and deliver such documents, instruments and agreements as are necessary to effectuate such release, discharge, and termination and to evidence such release, discharge, and termination in the appropriate public records, provided that the net proceeds from any such sale or other disposition are to be applied in reduction of the Senior Obligations (with any excess after the Senior Obligations have been paid in full to be turned over to the Trade Creditor, to the extent not otherwise prohibited by applicable law).
9. Waiver of Marshalling; Application of Payments and Proceeds. The Trade Creditor hereby waives any right to require the Agent to marshall any security or Collateral or otherwise to compel the Agent or any Lender to seek recourse against or satisfaction of the indebtedness to it from one source before seeking recourse or satisfaction from another source. The Agent shall be authorized to apply any and all payments, collections and proceeds of Collateral received by it to such portion of the Senior Obligations as Agent may lawfully elect consistent with the provisions of the Senior Creditor Documents.
10. Provisions Concerning Insurance. Proceeds of the Collateral include insurance proceeds, and therefore the priorities set forth in paragraph 3 hereof govern the ultimate disposition of casualty insurance proceeds. The Agent shall have the sole and exclusive right, as against the Trade Creditor, to adjust settlement of insurance claims in the event of any covered loss, theft or destruction of the Collateral. All proceeds of such insurance shall inure to the Agent to the extent of the Senior Obligations, and the Trade Creditor shall cooperate (if necessary), at the Agents expense, in a reasonable manner in effecting the payment of insurance proceeds to the Agent. The Agent shall have the right (as between the parties hereto) to determine whether such proceeds will be applied to its claim or used to rebuild, replace or repair the affected Collateral. If such proceeds are applied to Senior Obligations, any proceeds remaining after payment in full of the Senior Obligations and expenses of collection, provided that Lenders commitments to extend further credit to or for the benefit of the Borrowers shall have been terminated, shall be promptly remitted to the Trade Creditor for application to the Trade Obligations or to the Loan Parties, as applicable.
11. Notices. All notices, requests and demands to or upon a party hereto shall be in writing and shall be delivered by hand, sent by certified or registered mail, return receipt requested or by telecopier and shall be deemed to have been validly served, given or delivered when delivered against receipt or four (4) Business Days after deposit in the mail, certified, return receipt requested, postage prepaid, or, in the case of telecopy notice, when received at the office of the noticed party, in each case addressed as follows:
(a) if to the Agent: | Bank of America, N.A. 300 Galleria Parkway, Suite 800 Atlanta, Georgia 30339 Attention: American Tire Loan Administration Manager Telecopier No.: ( ) | |||
(b) if to the Trade Creditor: | ||||
Attention: Telecopier No.: ( ) |
or to such other address as each party may designate for itself by like notice given in accordance with this paragraph. Any written notice that is not sent in conformity with the provisions hereof shall nevertheless be effective on the date that such notice is actually received by the noticed party. The Trade Creditor
hereby agrees that any requirement for the giving of notice by the Agent under the UCC, the PPSA, or otherwise in connection with any exercise by the Agent of any of its and Lenders rights or remedies with respect to the Collateral shall be satisfied by the giving of written notice at least five (5) days prior to the date on which such rights or remedies are to be exercised by the Agent, provided that nothing herein shall be deemed to require the giving of any such notice when such notice is not required by applicable law.
12. No Duties Imposed Upon Agent or any Lender. The rights granted to the Agent in this Agreement are solely for its protection and nothing herein contained imposes on the Agent or any Lender any duties with respect to any of the Collateral. None of the Agent or any Lender has any duty to preserve rights against prior parties on any instrument or chattel paper received from any Borrower as collateral security for any of the Senior Obligations.
13. Relationship of Parties. This Agreement is entered into solely for the purposes set forth above, and neither party assumes any responsibility to the other party to advise such other party of information known to such party regarding the financial condition of any Loan Party or regarding the Collateral, or of any other circumstances bearing upon the risk of nonpayment of the obligations of such Loan Party, under the Trade Creditor Documents, or the Senior Creditor Documents. Each party shall be responsible for managing its relationship with the Loan Parties and neither party shall be deemed the agent or mandatary of the other for any purpose. The Trade Creditor, on one hand, and the Agent and the Lenders, on the other hand, each may alter, amend, supplement, release, discharge or otherwise modify any terms of the Trade Creditor Documents or of the Senior Creditor Documents, respectively, without notice to or the consent of the other.
14. No Debt Subordination. Nothing in this Agreement shall be construed to be or operate as a subordination of any of the Senior Obligations to the Trade Obligations, or vice versa.
15. Additional Credit Extensions; Amendments to Senior Creditor Documents; Amendments to Trade Creditor Documents. The Trade Creditor acknowledges, understands and agrees that Lenders may make loans to or for the benefit of the Borrowers from time to time, pursuant to the Senior Creditor Documents or otherwise, and all such loans shall constitute part of the Senior Obligations and shall be secured by all of the Collateral, and nothing herein shall restrict in any manner or in any way the right of the Borrowers to obtain additional credit from the Lenders or the right of the Lenders to make available such additional credit to the Borrowers as the Lenders in their sole discretion may elect. The Agent, the Lenders and the Loan Parties may amend, modify, supplement or waive any of the provisions of the Senior Creditor Documents without notice to or the consent of the Trade Creditor and without in any manner affecting this Agreement or any of the Agents or any the Lenders rights hereunder. Without the prior written consent of the Lenders, neither Trade Creditor nor any of the Loan Parties may amend or otherwise modify the terms of any Trade Creditor Document in any material respect or in any respect that could reasonably be expected to be adverse to the interests of the Agent and the Lenders.
16. Indemnity. The Trade Creditor agrees to indemnify, defend and hold the Agent and each Lender harmless from and against any loss, damage, cost, claim or expense, including court costs and attorneys fees, incurred or sustained by the Agent and such Lender in connection with any remittances of proceeds of any Collateral made pursuant to the terms hereof from the Agent to Trade Creditor, to the extent that such remittance of proceeds subsequently is determined by a court of competent jurisdiction to have been prohibited by applicable law, avoidable under any Insolvency Law, or in violation of the rights of any other creditor of any Loan Party when made. The foregoing indemnity shall survive any termination of this Agreement.
17. Independent Credit Investigations. None of the parties hereto nor any of their respective directors, officers, agents, employees, successors or assigns shall be responsible to the others or to any other Person for any Loan Partys solvency, financial condition or ability to repay any of the Trade Obligations or any of the Senior Obligations, or for statements of any Loan Party, oral or written, or for the validity, sufficiency or enforceability of any of the Trade Creditor Documents or any of the Senior Creditor Documents, or the validity or priority of any Liens granted by any Loan Party to either party in connection with any of the Trade Creditor Documents or any of the Senior Creditor Documents. Each party hereto has entered into its agreements with the Loan Parties based upon its own independent investigation, and makes no warranty or representation to the other party nor does it rely upon any representation of the other party with respect to matters identified or referred to in this paragraph.
18. No Rights Conferred Upon the Loan Parties. Nothing herein shall be construed to confer any rights upon the Loan Parties. Without limiting the generality of the foregoing, if any party hereto shall enforce its rights or remedies in violation of this Agreement, the Loan Parties shall not be authorized to use such violation as a defense to any right or remedy exercised by such party, nor assert such violation as a counterclaim or basis of setoff or recoupment against such party, unless the other party hereto consents in writing and itself asserts that the exercise of right or remedy is in violation of this Agreement.
19. Governing Law. This Agreement shall be interpreted, and the rights and obligations of the parties hereto determined, in accordance with the internal laws of the State of New York without giving effect to the conflict of laws principles thereof, other than Section 5-1401 of the New York General Obligations Law.
20. No Third Party Beneficiaries. Nothing contained in this Agreement shall be deemed to indicate that this Agreement has been entered into for the benefit of any Person other than the parties hereto.
21. Conflict with Documents. The provisions of this Agreement are intended by the parties to control any conflicting provisions in the Senior Creditor Documents or the Trade Creditor Documents, including any covenants prohibiting further borrowing or encumbrances of Collateral.
22. Counterparts; Electronic Signatures. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts taken together shall constitute but one and the same instrument. Any manually executed signature delivered by a party by facsimile or other electronic transmission shall be deemed to be an original signature hereto.
23. Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. In no event, however, shall either party hereto transfer or assign any Lien that it may have on any of the Collateral to any Person unless the transferee or assignee thereof shall first agree in writing to be bound by the terms of this Agreement the same as if an original signatory hereto. Notwithstanding the immediately preceding sentence, any Person whose loans or advances to Borrowers (or any of them) hereafter are used to refinance and pay in full the Senior Obligations shall be deemed for all purposes hereof to be the successor to the Agent, and from and after the date of any such refinancing in satisfaction in full of the Senior Obligations such Person shall be deemed a party hereto in the place and stead of the Agent as if such Person had been the original signatory hereto, and all loans, advances, liabilities, debit balances, covenants and duties at any time or times owed by the Loan Parties to such successor to the Agent, whether direct or indirect, absolute or contingent, secured or unsecured, due or to become due, then existing or thereafter arising, including any renewals, extensions, modifications, or replacements of any of the foregoing, shall be deemed for all purposes hereunder to constitute and be Senior Obligations.
24. Further Assurances. Each of the parties hereto agrees to execute such amendments to financing statements and other documents as may be necessary to reflect of record the existence of this Agreement and the relative priorities established pursuant to paragraph 3 hereof. Without limiting the generality of the foregoing, the Trade Creditor agrees that any UCC-1 or PPSA financing statement or other document filed of record or registered to evidence, perfect, or render opposable the Trade Creditors Lien on any of the Branded Inventory shall conspicuously state that the Lien perfected or rendered opposable thereby is subordinate in priority to all Liens at any time granted to or conferred upon the Agent with respect to the Collateral.
25. Severability. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.
26. Entire Agreement; Amendments. This Agreement expresses the entire understanding and agreement of the parties hereto with respect to the subject matter hereof and supersedes all prior understandings and agreements of the parties regarding the same subject matter. This Agreement may not be amended or modified except by a writing signed by the parties hereto.
27. Jury Trial Waiver. The Trade Creditor and the Agent each hereby waives all rights to a trial by jury in connection with any action, suit or other proceeding arising out of or related to this Agreement.
[Remainder of page intentionally left blank; signatures begin on following page.]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written.
BANK OF AMERICA, N.A., as Agent | ||||
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as Trade Creditor | ||||
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ACKNOWLEDGMENT AND AGREEMENT
Each of the undersigned hereby accepts and acknowledges receipt of a copy of the foregoing Vendor Lien Subordination Agreement and consents to and agrees to be bound by all provisions thereof, including, without limitation, the agreements between the Agent, on behalf of Lenders, and Trade Creditor with respect to the payment by each to the other of certain proceeds derived from the liquidation of the Collateral.
Each of the undersigned further acknowledges and agrees that the Vendor Lien Subordination Agreement may be modified or amended at any time or times without notice to or the consent of any of the undersigned.
Each of the undersigned agrees to indemnify, defend and hold the Agent and each Lender harmless from and against any loss, damage, cost, claim or expense, including court costs and attorneys fees, incurred or sustained by the Agent and such Lender in connection with any remittances of proceeds of any Collateral made pursuant to the terms of the Vendor Lien Subordination Agreement from the Agent to the Trade Creditor, to the extent that such remittance of proceeds subsequently is determined by a court of competent jurisdiction to have been prohibited by applicable law, avoidable under any Insolvency Law, or in violation of the rights of any other creditor of any of the undersigned when made. The foregoing indemnity shall survive any termination of the Vendor Lien Subordination Agreement.
Capitalized terms used in this Acknowledgment and Agreement without definition have the meaning specified in the foregoing Vendor Lien Subordination Agreement unless the context otherwise requires.
As of , 20 . | ||||||
AMERICAN TIRE DISTRIBUTORS, INC. | ||||||
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AM-PAC TIRE DIST. INC. | ||||||
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ATD ACQUISITION CO. V INC. | ||||||
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TRIWEST TRADING (CANADA) LTD. | ||||||
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EXHIBIT I
[FORM OF]
MORTGAGE
[See Attached]
EXHIBIT I
[FORM OF]
MORTGAGE
SECOND MORTGAGE, ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT AND FINANCING STATEMENT
(Collateral is or includes fixtures)
(To be filed in Real Property Records)
dated as of [As of Date]
by
[MORTGAGOR NAME],
as Mortgagor,
to
BANK OF AMERICA, N.A.,
as Administrative Agent and Collateral Agent
for the benefit of the Secured Parties referred to herein, as Mortgagee
Property:
This Instrument was prepared by the Attorney named below
[in consultation with counsel in the State in which the Property is located]
and, when recorded, recorded counterparts should be returned to:
[Parker, Hudson, Rainer & Dobbs LLP
1500 Marquis Two Tower
285 Peachtree Center Avenue, NE
Atlanta, Georgia 30303
Attn: Bobbi Acord Noland]
THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS AND SECURES OBLIGATIONS CONTAINING PROVISIONS FOR CHANGES IN INTEREST RATES.
TABLE OF CONTENTS
Page | ||||||
ARTICLE I. DEFINITIONS | 1 | |||||
Section 1.01 | Definitions |
1 | ||||
Section 1.02 | Interpretation |
6 | ||||
ARTICLE II. CONVEYANCE OF ENCUMBERED PROPERTY |
6 | |||||
Section 2.01 | Grant |
6 | ||||
ARTICLE III. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE MORTGAGOR |
7 | |||||
Section 3.01 | Title |
7 | ||||
Section 3.02 | Finance Documents |
7 | ||||
Section 3.03 | Payment of Taxes, Liens and Charges |
8 | ||||
Section 3.04 | Insurance |
8 | ||||
Section 3.05 | Casualty; Restoration of Casualty Damage |
8 | ||||
Section 3.06 | Condemnation/Eminent Domain |
9 | ||||
Section 3.07 | Assignment of Leases and Rents |
9 | ||||
Section 3.08 | Restrictions on Transfers and Encumbrances |
10 | ||||
Section 3.09 | Security Agreement |
10 | ||||
Section 3.10 | Filing and Recording |
11 | ||||
Section 3.11 | Further Assurances |
11 | ||||
Section 3.12 | Additions to Encumbered Property |
12 | ||||
Section 3.13 | No Claims Against the Mortgagee |
12 | ||||
ARTICLE IV. DEFAULTS AND REMEDIES |
12 | |||||
Section 4.01 | Events of Default |
12 | ||||
Section 4.02 | Demand for Payment |
12 | ||||
Section 4.03 | Rights to Take Possession, Operate and Apply Revenues |
13 | ||||
Section 4.04 | Right to Cure the Mortgagors Failure to Perform |
13 | ||||
Section 4.05 | Right to a Receiver |
14 | ||||
Section 4.06 | Foreclosure and Sale |
14 | ||||
Section 4.07 | Other Remedies |
15 | ||||
Section 4.08 | Application of Sale of Proceeds and Rents |
15 | ||||
Section 4.09 | The Mortgagor as Tenant Holding Over |
16 | ||||
Section 4.10 | Waiver of Appraisement, Valuation, Stay, Extension and Redemption Laws |
16 | ||||
Section 4.11 | Discontinuance of Proceedings |
16 | ||||
Section 4.12 | Suits to Protect the Encumbered Property |
16 | ||||
Section 4.13 | Filing Proofs of Claim |
16 | ||||
Section 4.14 | Possession by the Mortgagee |
17 | ||||
Section 4.15 | Waiver |
17 | ||||
Section 4.16 | Remedies Cumulative |
17 |
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Table of Contents (cont.)
Page | ||||||
ARTICLE V. MISCELLANEOUS |
17 | |||||
Section 5.01 | Partial Invalidity |
17 | ||||
Section 5.02 | Notices |
18 | ||||
Section 5.03 | Successors and Assigns |
19 | ||||
Section 5.04 | Satisfaction and Cancellation. |
19 | ||||
Section 5.05 | Other Finance Documents |
19 | ||||
Section 5.06 | Subrogation |
20 | ||||
Section 5.07 | Mortgagee Powers |
20 | ||||
Section 5.08 | Enforceability of Mortgage |
20 | ||||
Section 5.09 | Amendments |
20 | ||||
Section 5.10 | Applicable Law |
21 | ||||
Section 5.11 | Waiver of Jury Trial |
21 | ||||
Section 5.12 | Intercreditor Agreements |
21 | ||||
Section 5.13 | Local Law Provisions |
21 |
Exhibits:
Exhibit A Legal Description
Exhibit B Permitted Encumbrances
SECOND MORTGAGE, ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT AND FINANCING STATEMENT
COLLATERAL IS OR INCLUDES FIXTURES
THIS SECOND MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FINANCING STATEMENT (as amended, restated, modified or supplemented from time to time, this Mortgage) is dated as of [As of Date] and is made by [MORTGAGOR NAME], a [State][Entity], as mortgagor, having an office at [Mortgagor Notice Address] (the Mortgagor), to BANK OF AMERICA, N.A., as administrative agent and collateral agent for the benefit of the Secured Parties (as defined below), having an office at 300 Galleria Parkway, Suite 800, Atlanta, Georgia 30339 (in such capacity, together with its successors, substitutes and assigns, the Mortgagee).
American Tire Distributors Holdings, Inc., a Delaware corporation (Holdings), American Tire Distributors, Inc., a Delaware corporation (the Company), and certain subsidiaries of the Company from time to time party thereto have entered into a Sixth Amended and Restated Credit Agreement, dated as of , 2012 (as amended, restated, modified or supplemented from time to time and including any agreement extending the maturity of, refinancing or otherwise amending, amending and restating or otherwise modifying or restructuring all or any portion of the obligations of Borrowers (as defined therein) under such agreement or any successor agreement, the Credit Agreement), among the Borrowers, the Mortgagee, and Lenders (as defined therein) from time to time party thereto.
In connection with the Credit Agreement, Mortgagee, the Company, Holdings and certain subsidiaries of the Company have entered into that certain Second Amended and Restated Pledge and Security Agreement dated as of , 2012 (as amended, restated, modified or supplemented from time to time the Security Agreement), pursuant to which Grantors (as defined therein) agreed to grant a continuing security interest to Mortgagee for the benefit of the Secured Parties in and to the Collateral (as defined in the Security Agreement) to secure the Finance Obligations (as defined below). The Mortgagor is one of the Finance Parties, and will receive not insubstantial benefits from the credit accommodations made and to be made by the Secured Parties under the Finance Documents (as defined below). If furtherance of the above, the Mortgagor has agreed to mortgage, grant a lien on and a grant a security interest in the Encumbered Property to secure the Finance Obligations.
Accordingly, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.01 Definitions. Terms used herein without definition which are defined in the introductory section thereof or in the Credit Agreement or the Security Agreement shall have the respective meanings set forth therein, as applicable. The following additional terms, as used herein, have the following meanings:
Discharge of Finance Obligations means, except to the extent otherwise provided in Section 2.07 of the Lien Subordination and Intercreditor Agreement, (i) payment in full in cash of the principal of and interest (including interest accruing on or after the commencement of any Insolvency or Liquidation Proceeding, whether or not a claim for such interest is, or would be, allowed in such Insolvency or Liquidation Proceeding) and premium, if any, on all Indebtedness outstanding under the Finance Documents and termination of all commitments to lend or otherwise extend credit under the
Finance Documents, (ii) payment in full in cash of all other Finance Obligations that are due and payable or otherwise accrued and owing at or prior to the time such principal and interest are paid (including legal fees and other expenses, costs or charges accruing on or after the commencement of any Insolvency or Liquidation Proceeding, whether or not a claim for such fees, expenses, costs or charges is, or would be, allowed in such Insolvency or Liquidation Proceeding) and (iii) termination of all Secured Hedge Agreements and the payment in full in cash of all matured obligations, and the cash collateralization (in an amount reasonably satisfactory to the Mortgagee) of all unmatured obligations, under all Secured Hedge Agreements.
Encumbered Property means (but excluding any and all [Excluded Property]):
(i) all of the Mortgagors right, title and interest in and to the parcel or parcels of land located in County, , as more particularly described on Exhibit A hereto (the Land), together with any after-acquired estate of the Mortgagor in the Land, and together with all rights appurtenant thereto, including without limitation, all strips and gores within or adjoining the Land, all estate, right, title, interest, claim or demand of the Mortgagor in the streets, roads, sidewalks, alleys and ways adjacent thereto (whether or not vacated and whether public or private and whether open or proposed), all easements over adjoining land granted by any easement agreements, covenants or restrictive agreements, all of the tenements, hereditaments, easements, reciprocal easement agreements, rights pursuant to any trackage agreement, rights to the use of common drive entries, rights-of-way and other rights, privileges and appurtenances thereunto belonging or in any way pertaining thereto, all reversions, remainders, dower and right of dower, curtesy and right of curtesy, all of the air space and right to use air space above such property, all transferable development rights arising therefrom or transferred thereto, all water and water rights and water rights applications (whether riparian, littoral, appropriative or otherwise, and whether or not appurtenant), all pumps, pumping plants, pipes, flumes and ditches thereunto appertaining, all rights and ditches for irrigation, all utility rights, sewer rights, and shares of stock evidencing the same, all oil, gas and other minerals and mineral substances (which term shall include all gypsum, anhydrite, coal, lignite, hydrocarbon or other fossil materials or substances, fissionable materials or substances and all other minerals of any kind or character, whether gaseous, liquid or hard minerals, whether similar or dissimilar to those named, whether now or hereafter found to exist and whether associated with the surface or mineral estate) in, on or under the Land or produced, saved or severed from the Land, all mineral, mining, gravel, oil, gas, hydrocarbon rights and other rights to produce or share in the production of anything related to such property, all drainage, crop, timber, agricultural, and horticultural rights with respect to such property, and all other appurtenances appurtenant to such property, including without limitation, any now or hereafter belonging or in any way appertaining thereto, and all claims or demands of the Mortgagor, either at law or in equity, in possession or expectancy, now or hereafter acquired, of, in or to the same (the Land and all of the foregoing being sometimes referred to herein collectively as the Real Estate);
(ii) all of the Mortgagors right, title and interest in and to all buildings, improvements, fixtures and other structures or improvements of any kind now or hereafter erected or located upon the Land, including, but not limited to, all building materials, water, sanitary and storm sewers, drainage, electricity, steam, gas, telephone and other utility facilities, parking areas, roads, driveways, walks and other site improvements, together in each case with and all additions and betterments thereto and all renewals, substitutions and replacements thereof, owned or to be owned by the Mortgagor or in which the Mortgagor has or shall acquire an interest, to the extent of the Mortgagors interest therein, now or hereafter erected or located upon the Land (collectively, the Improvements and, together with the Real Estate the Premises);
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(iii) all of the Mortgagors right, title and interest in and to the following (collectively, the Personal Property):
(A) all personal property and fixtures of every kind and nature whatsoever which are now or hereafter located on, attached to, incorporated in (regardless of where located) or affixed to the Premises or the Improvements or used or useful in connection with the ownership, construction, maintenance, repair, reconstruction, alteration, addition, improvement, operation, mining, use or occupancy of the Premises or the Improvements, including, without limitation, all goods, inventory, construction materials, equipment, mining equipment, tools, tooling, furniture, furnishings, fittings, fixtures, supplies, computers and computer programs, carpeting, draperies, blinds, window treatments, racking and shelving systems, heating, lighting, plumbing, ventilating, air conditioning, refrigerating, incinerating and/or compacting plants, systems and equipment, elevators, escalators, appliances, stoves, ranges, refrigerators, vacuum, window washing and other cleaning and building service systems, call systems, sprinkler systems and other fire prevention and extinguishing apparatus and materials, cables, antennae, pipes, ducts, conduits, machinery, apparatus, motors, dynamos, engines, compressors, generators, boilers, stokers, furnaces, pumps, tanks, appliances, garbage systems and pest control systems and all of Mortgagors present and future goods, equipment and fixtures (as such terms are defined in the UCC) and other personal property, including without limitation any such personal property and fixtures which are leased, but expressly excluding any such leased personal property and fixtures whose further encumbrance is prohibited under the terms of its underlying lease, and all repairs, attachments, betterments, renewals, replacements, substitutions and accessions thereof and thereto; and
(B) Reserved;
(iv) to the extent assignable, all approvals, authorizations, building permits, certificates of occupancy, zoning variances, use permits, certifications, entitlements, exemptions, franchises, licenses, orders, variances, plat plan approvals, environmental approvals, air pollution permits and other authorizations to construct and to operate, sewer and waste discharge permits, national pollutant discharge elimination system permits, water permits, zoning and land use entitlements and all other permits, whether now existing or hereafter issued to or obtained by or on behalf of the Mortgagor, that relate to or concern in any way the Premises or the Improvements and are given or issued by any governmental or quasi-governmental authority, whether now existing or hereafter created (as the same may be amended, modified, renewed or extended from time to time, and including all substitutions and replacements therefor), all rights under and pursuant to all construction, service, engineering, consulting, management, access, supply, leasing, architectural and other similar contracts relating in any way to the design, construction, management, operation, occupancy and/or use of the Premises and Improvements, all rights under all purchase agreements, sales agreements, option contracts, land contracts and contracts for the sale of oil, gas and other minerals or any of them, that relate to or concern in any way the Premises or the Improvements, all abstracts of title, architectural, engineering or construction drawings, plans, specifications, operating manuals, computer programs, computer data, maps, surveys, soil tests, feasibility studies, appraisals, environmental studies, engineering reports and similar materials relating to any portion of or all of the Premises and Improvements, and all payment and performance bonds or warranties or guarantees relating to the Premises or the Improvements, all to the extent assignable (collectively, the Permits, Plans and Contracts);
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(v) to the extent assignable, the Mortgagors interest in and rights under all leases, occupancy agreements or licenses (under which the Mortgagor is landlord or licensor) and subleases (under which the Mortgagor is sublandlord), concession, franchise, management, mineral or other agreements relating to the use or occupancy of the Premises or the Improvements or any part thereof for any purpose, or the extraction or taking of any gas, oil, water or other minerals from the Premises, whether now or hereafter existing or entered into (including any use or occupancy arrangements created pursuant to Section 365(d) of the Bankruptcy Code or otherwise in connection with the commencement or continuance of any bankruptcy, reorganization, arrangement, insolvency, dissolution, receivership or similar proceedings, or any assignment for the benefit of creditors, in respect of any tenant or occupant of any portion of the Premises or the Improvements), and all guaranties thereof and all amendments, modifications, supplements, extensions or renewals thereof (collectively, the Leases), and all rents, issues, profits, revenues, charges, fees, receipts, royalties, proceeds from the sale of oil, gas and/or other minerals (whether gaseous, liquid or hard minerals, whether similar or dissimilar to those named and whether associated with the surface or mineral estate), accounts receivable, cash or security deposits and other deposits (subject to the prior right of the tenants making such deposits) and income, and other benefits now or hereafter derived from any portion of the Premises or the Improvements or the use or occupancy thereof (including any payments received pursuant to Section 502(b) of the Bankruptcy Code or otherwise in connection with the commencement or continuance of any bankruptcy, reorganization, arrangement, insolvency, dissolution, receivership or similar proceedings, or any assignment for the benefit of creditors, in respect of any tenant or other occupants of any portion of the Premises or the Improvements and all claims as a creditor in connection with any of the foregoing) and all payments of a similar nature, now or hereafter, including during any period of redemption, derived from the Premises or the Improvements or any other portion of the Encumbered Property and all proceeds from the cancellation, surrender, sale or other disposition of the Leases (collectively, the Rents);
(vi) all of the Mortgagors right, title and interest in and to all refunds or rebates of real and personal property taxes or charges in lieu of taxes, heretofore or now or hereafter assessed or levied against all or any of the Premises, the Improvements, the Personal Property, the Leases, the Rents and the Permits, Plans and Contracts, including interest thereon, and the right to receive the same, whether such refunds or rebates relate to fiscal periods before or during the term of this Mortgage;
(vii) all of the Mortgagors right, title and interest in and to all insurance policies and the proceeds thereof, now or hereafter in effect with respect to all or any of the Premises, the Improvements, the Personal Property, the Leases, the Rents and the Permits, Plans and Contracts, and all unearned premiums and premium refunds, accrued, accruing or to accrue under such insurance policies, and subject to the terms and provisions of the Credit Agreement, all awards made for any taking of or damage to all or any of the Premises, the Improvements, the Personal Property, the Leases, the Rents and the Permits, Plans and Contracts by eminent domain, or by any purchase in lieu thereof, and all awards resulting from a change of grade of streets or for severance damages, and all other proceeds of the conversion, voluntary or involuntary, of all or any of the Premises, Improvements, the Personal Property, the Leases, the Rents and the Permits, Plans and Contracts, into cash or other liquidated claims, and all judgments, damages, awards, settlements and compensation (including interest thereon) heretofore or hereafter made to the present and all subsequent owners of the Premises, Improvements, the Personal Property, the Leases, the Rents and the Permits, Plans and Contracts, or any part thereof for any injury to or decrease in the value thereof for any reason;
(viii) Reserved;
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(ix) all accessions, additions or attachments to, and proceeds or products of, any of the foregoing.
Event of Default means one or more Events of Default, as such term is defined in any Finance Document.
Finance Document means the Credit Agreement, the Security Agreement, any Loan Document (as defined in the Credit Agreement) and any other document or instrument in connection therewith, and Finance Documents means all of them, collectively.
Finance Obligations means, at any date, any and all Obligations (as defined in the Credit Agreement) of any Finance Party under any Finance Document.
Finance Party means, the Company, Holdings, each Borrower and each other Person (as defined in the Credit Agreement) now or hereafter obligated to the Secured Parties under any Finance Document, and Finance Parties means any two or more of them, collectively.
Impositions shall mean all taxes, water rates, sewer rents, fees, assessments, levies, utility charges, insurance premiums payable on any insurance the Mortgagee is required to maintain hereunder, amounts required to be paid to obtain or renew permits and other similar charges (whether or not required by a governmental body) which are now or hereafter assessed, levied or imposed against the Encumbered Property (or any part thereof) or the Mortgagees interest therein and all water rates, sewer rents, ground rents, maintenance charges and other charges now or hereafter assessed, levied or imposed against the Encumbered Property (or any part thereof) or the Mortgagees interest therein or incurred in the ownership, operation, occupancy, maintenance and use of the Encumbered Property.
Insolvency or Liquidation Proceeding means (i) any voluntary or involuntary case or proceeding under the Bankruptcy Code or any other Debtor Relief Law with respect to any Finance Party, (ii) any other voluntary or involuntary insolvency, reorganization or bankruptcy case or proceeding or any receivership, liquidation, reorganization or other similar case or proceeding with respect to any Finance Party or with respect to a material portion of its assets, (iii) any liquidation, dissolution, reorganization or winding up of any Finance Party whether voluntary or involuntary and whether or not involving insolvency or bankruptcy or (iv) any assignment for the benefit of creditors or any other marshalling of assets and liabilities of any Finance Party.
Intercreditor Agreements means, collectively the Noteholder Collateral Agency Agreement and the Lien Subordination and Intercreditor Agreement.
Lien Subordination and Intercreditor Agreement means the Lien Subordination and Intercreditor Agreement, dated as of May 28, 2010 among the ABL Collateral Agent (as defined therein), the Notes Collateral Agent (as defined therein), the Issuer and each other party thereto (as amended, restated, modified or supplemented from time to time).
Noteholder Collateral Agency Agreement means the Intercreditor and Collateral Agency Agreement, dated as of May 28, 2010, among the Initial Grantors (as defined in the Lien Subordination and Intercreditor Agreement), the direct or indirect Subsidiaries of the Company from time to time party thereto, the Trustee (as defined in the Lien Subordination and Intercreditor Agreement), the other Secured Debt Representatives (as defined in the Lien Subordination and Intercreditor Agreement) from time to time party thereto and the Noteholder Collateral Agent (as defined in the Lien Subordination and Intercreditor Agreement), as amended, restated, adjusted, waived, renewed, extended, supplemented or otherwise modified from time to time, in accordance with each applicable Secured Document (as defined in the Lien Subordination and Intercreditor Agreement).
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Secured Parties means, collectively, the Mortgagee and the other Persons the Finance Obligations owing to which are or are purported to be secured by the Collateral (as defined in the Credit Agreement) under the terms of the Finance Documents.
UCC means at any time the Uniform Commercial Code as the same may from time to time be in effect in the state where the Premises are located, provided that, if, by reason of mandatory provisions of law, the validity, perfection or the effect of perfection or non-perfection of any security interest granted herein is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the state where the Premises are located then, as to the validity or perfection of such security interest, UCC shall mean the Uniform Commercial Code in effect in such other jurisdiction for purposes of the provisions hereof relating to such validity or perfection or effect of perfection or non-perfection.
Section 1.02 Interpretation. As used in this Mortgage, the singular shall include the plural as the context requires and the following words and phrases shall have the following meanings: (i) including shall mean including but not limited to; (ii) provisions shall mean provisions, terms, covenants and/or conditions; (iii) lien shall mean lien, charge, encumbrance, security interest, mortgage, deed of trust; (iv) obligation shall mean obligation, duty, covenant and/or condition; and (v) any of the Encumbered Property shall mean the Encumbered Property or any part thereof or interest therein. Any act that the Mortgagee is permitted to perform hereunder may be performed at any time and from time to time by the Mortgagee or any person or entity designated by the Mortgagee. Any act which is prohibited to the Mortgagor hereunder is also prohibited to all lessees of any of the Encumbered Property. Each appointment of the Mortgagee as attorney-in-fact for the Mortgagor under this Mortgage is irrevocable, with power of substitution and coupled with an interest. Subject to the applicable provisions hereof, the Mortgagee has the right to refuse to grant its consent, approval or acceptance or to indicate its satisfaction, in its sole discretion, whenever such consent, approval, acceptance or satisfaction is required hereunder.
ARTICLE II.
CONVEYANCE OF ENCUMBERED PROPERTY
Section 2.01 Grant. To secure the full and punctual payment of the Finance Obligations in accordance with the terms thereof (including the performance of all of the obligations of the Mortgagor hereunder), the Mortgagor hereby grants, bargains, sells, transfers, sets over, assigns and conveys as security, grants a security interest in, hypothecates, mortgages, pledges and sets over to the Mortgagee, the Encumbered Property, subject only to the Permitted Encumbrances.
TO HAVE AND HOLD the same, together with all privileges, hereditaments, easements and appurtenances thereunto belonging, to the Mortgagee and the Mortgagees successors and assigns to secure the Finance Obligations; provided, always, and this instrument is upon the express condition that should the Finance Obligations be paid according to the tenor and effect thereof when the same shall be due and payable and should the Mortgagor timely and fully discharge its obligations hereunder, this Mortgage and the estate hereby granted shall cease and become void.
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ARTICLE III.
REPRESENTATIONS, WARRANTIES AND
COVENANTS OF THE MORTGAGOR
The Mortgagor agrees, covenants, represents and warrants as follows:
Section 3.01 Title.
(a) The Mortgagor has good and insurable fee simple title to the Land and the Improvements, subject to the Permitted Encumbrances. The Mortgagor has valid leasehold interests in, all of the other Encumbered Property. This Mortgage is and will remain a valid and enforceable first lien on, and security interest in, the Encumbered Property until payment and performance in full of the Finance Obligations subject to no Liens other than the exceptions and encumbrances set forth in Exhibit B attached hereto and any Liens permitted pursuant to Section 6.02 of the Credit Agreement (collectively, the Permitted Encumbrances).
(b) Intentionally deleted.
(c) The Mortgagor will forever warrant, defend and preserve its title to the Encumbered Property, the rights of the Mortgagee therein under this Mortgage and the validity and priority of the lien of this Mortgage thereon against the claims of all persons and parties except those having rights under the Permitted Encumbrances to the extent of those rights until payment and performance in full of the Finance Obligations.
Section 3.02 Finance Documents.
(a) This Mortgage is given pursuant to the Indenture and the other Finance Documents. Each and every term and provision of the Indenture and the other Finance Documents (except for the governing law provisions thereof), including the rights, remedies, obligations, covenants, conditions, agreements, indemnities, representations and warranties of the parties thereto shall be considered as if a part of this Mortgage.
(b) If any remedy or right of the Mortgagee pursuant hereto is acted upon by the Mortgagee or if any actions or proceedings (including any bankruptcy, insolvency or reorganization proceedings) are commenced in which the Mortgagee is made a party and is obliged to defend or uphold or enforce this Mortgage or the rights of the Mortgagee hereunder or the terms of any Lease, the Mortgagor will pay all sums, including reasonable attorneys fees and disbursements, actually incurred (not as imposed by statute) by the Mortgagee related to the exercise of any remedy or right of the Mortgagee pursuant hereto or for the expense of any such action or proceeding together with all statutory or other costs, disbursements and allowances, plus interest thereon accruing from the date such cost is incurred (and payable five (5) business days from the date of written demand for payment thereof) until such sums are paid at the Default Rate, and such sums and the interest thereon shall, to the extent permissible by law, be a lien on the Encumbered Property prior to any right, title to, interest in or claim upon the Encumbered Property attaching or accruing subsequent to the recording of this Mortgage and shall be secured by this Mortgage to the extent permitted by applicable law.
(c) Any payment of amounts due under this Mortgage not made on or before the due date for such payments shall accrue interest daily without notice from the due date until paid at the Default Rate, and such interest at the Default Rate shall be immediately due upon demand by the Mortgagee, and shall, to the extent permissible by law, be a lien on the Encumbered Property prior to any right, title to, interest in or claim upon the Encumbered Property attaching or accruing subsequent to the recording of this Mortgage and shall be secured by this Mortgage to the extent permitted by applicable law.
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Section 3.03 Payment of Taxes, Liens and Charges.
(a) The Mortgagor will pay and discharge from time to time prior to the time when the same shall become delinquent, and before any interest or penalty accrues thereon or attaches thereto, all Impositions, imposed upon or assessed against the Encumbered Property or any part thereof or upon the Rents from the Encumbered Property or arising in respect of the occupancy, use or possession thereof.
(b) In the event of the passage of any state, Federal, municipal or other governmental law, order, rule or regulation subsequent to the date hereof (i) deducting from the value of real property for the purpose of taxation any lien or encumbrance thereon or in any manner changing or modifying the laws now in force governing the taxation of this Mortgage or debts secured by mortgages or deeds of trust (other than laws governing income, franchise and similar taxes generally) or the manner of collecting taxes thereon and (ii) imposing a tax to be paid by the Mortgagee, either directly or indirectly, on this Mortgage, or any other Finance Documents or to require an amount of taxes to be withheld or deducted therefrom, the Mortgagor will promptly notify the Mortgagee of such event. In such event the Mortgagor shall (i) agree to enter into such further instruments as may be reasonably necessary or desirable to obligate the Mortgagor to make any applicable additional payments, and (ii) the Mortgagor shall make all such additional payments.
(c) Mortgagor shall have the right to contest the amount or validity, in whole or in part, of any Impositions, or to seek a reduction in the valuation of the Encumbered Property, or any part thereof, as assessed for real estate or personal property tax purposes, by appropriate proceedings diligently conducted in good faith. Following the occurrence and during the continuance of an Event of Default, Mortgagor may commence such proceedings, however, only after payment of such Impositions, unless such payment would bar any such proceedings or interfere materially and adversely with the prosecution thereof, in which event Mortgagor may postpone or defer payment of such Impositions provided it gives Mortgagee timely notice of same. Upon such postponement or deferral, on Mortgagees demand, (i) Mortgagor shall provide security, for the duration of such proceedings (including any appeals), in such form and amount as shall, in Mortgagees reasonable judgment, assure the discharge of Mortgagors obligations hereunder and of any additional charge, penalty or expense incurred as a result of such proceedings; and (ii) if the Encumbered Property or any part thereof shall, in Mortgagees reasonable judgment, be in imminent danger of being forfeited or lost by reason of such postponement or deferral, Mortgagor shall immediately pay or cause to be paid the Impositions.
(d) If required by the Mortgagee during the continuance of an Event of Default, the Mortgagor shall pay the Mortgagee monthly, together with and in addition to the payments of principal of, premium, if any, and interest on any Finance Obligation, an amount determined by the Mortgagee to be necessary to enable the Mortgagee to pay all Impositions one month before it becomes due. If the total payments made to the Mortgagee pursuant to the preceding sentence are less than the amount required to pay any Imposition one month before it becomes due, the Mortgagor shall pay the Mortgagee, on demand, the amount necessary to make up such deficiency. If there is an excess of such payments, the excess will reduce subsequent payments required under this Section 3.03. To the extent permitted by applicable law, the Mortgagee shall not be required to pay interest on any sums held pursuant to this Section 3.03. If an Event of Default has occurred, the Mortgagee may at its option apply any amounts received pursuant to this Section 3.03 to the payment of the Finance Obligations in such order as the Mortgagee may elect.
Section 3.04 Insurance. The Mortgagor will keep the Encumbered Property insured against such risks in the manner required by the other Finance Documents.
Section 3.05 Casualty; Restoration of Casualty Damage. The Mortgagor shall give the Mortgagee prompt written notice of any fire or other casualty to all or any material portion of the Encumbered Property (a Casualty). In the event of a Casualty, the Net Cash Proceeds with respect to any such Casualty shall be paid and applied in accordance with the Finance Documents.
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Section 3.06 Condemnation/Eminent Domain. The Mortgagor shall notify the Mortgagee promptly upon obtaining knowledge of any pending or threatened condemnation or taking of all or any material portion of the Encumbered Property (a Condemnation). In the event of a Condemnation, all Net Cash Proceeds shall be paid and applied in accordance with the Finance Documents.
Section 3.07 Assignment of Leases and Rents.
(a) The Mortgagor hereby irrevocably, unconditionally and absolutely grants, transfers and assigns to the Mortgagee all of its right, title and interest in and to all Leases, together with any and all extensions and renewals thereof for purposes of securing and discharging the Finance Obligations. The Mortgagor has not assigned or executed any assignment of, and will not assign or execute any assignment of, any Lease or its respective Rents to anyone other than to the Mortgagee, other than in connection with the ABL Collateral Documents.
(b) Following the occurrence and during the continuation of an Event of Default, without the Mortgagees prior written consent, which shall not be unreasonably withheld, conditioned or delayed, the Mortgagor will not (i) enter into, modify in any material respect, amend in any material respect, terminate or consent to the cancellation or surrender of any Lease if such entrance, modification, amendment, termination or consent would, in the reasonable judgment of the Mortgagee, be adverse in any material respect to the Secured Parties, the value of the Encumbered Property or the liens and security interests created by this Mortgage or (ii) except for an assignment or subletting which is expressly permitted under the terms of the Lease, consent to an assignment of any tenants interest in any Lease or to a subletting thereof covering a material portion of the Encumbered Property, except, in each case, as may be permitted by this Mortgage or the other Finance Documents.
(c) The Mortgagor has assigned and transferred to the Mortgagee all of the Mortgagors right, title and interest in and to the Rents now or hereafter arising, it being intended that this assignment establish, subject to Section 3.07(d) below, an absolute transfer and assignment of all Rents and all Leases to the Mortgagee and not merely to grant a security interest therein. Such assignment to the Mortgagee shall not be construed to bind the Mortgagee to the performance of any of the covenants, conditions or provisions contained in any Lease or otherwise impose any obligation upon the Mortgagee except that the Mortgagee shall be accountable for any Rents actually received pursuant to the aforesaid assignment. Notwithstanding the foregoing, the Mortgagor shall have the license and right, subject to automatic revocation as provided in Section 3.07(d) below, to operate and rent, lease or let all or any portion of the Encumbered Property and to collect all of the Rents. As provided in Section 3.07(d) below, the license granted by this Section 3.07(c) is subject to automatic revocation and thereafter the Mortgagee may, in the Mortgagors name and stead (with or without first taking possession of any of the Encumbered Property personally or by receiver as provided herein) operate the Encumbered Property and rent, lease or let all or any portion of any of the Encumbered Property to any party or parties at such rental and upon such terms as the Mortgagee shall, in its sole discretion, determine, and may collect and have the benefit of all of such Rents arising from or accruing at any time thereafter or that may thereafter become due.
(d) As long as no Event of Default has occurred or is continuing, the license granted under Section 3.07(c) above shall be effective and the Mortgagee shall not exercise any of its rights under Section 3.07(c) above, and the Mortgagor shall receive and collect the Rents accruing under any Lease pursuant to the revocable license granted therein; but upon the occurrence and during the continuance of
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any Event of Default, the license granted under Section 3.07(c) above shall be deemed to be automatically revoked and shall terminate automatically without notice and the Mortgagee shall be entitled to all of the Rents without the necessity of the Mortgagees taking any action whatsoever, and the Rents shall thereupon be deemed to be cash collateral for all purposes, including without limitation for purposes of Section 363 of the Bankruptcy Code. Upon the occurrence and during the continuance of any Event of Default, the Mortgagee may receive and collect all Rents and enter upon the Premises and Improvements through its officers, agents, employees or attorneys for such purpose and for the operation and maintenance thereof. Upon the occurrence and during any continuance of an Event of Default, the Mortgagor hereby irrevocably authorizes and directs each tenant, if any, and each successor, if any, to the interest of any tenant under any Lease, respectively, to rely upon any notice of a claimed Event of Default sent by the Mortgagee to any such tenant or any of such tenants successors in interest, and thereafter to pay Rents to the Mortgagee without any obligation or right to inquire as to whether an Event of Default actually exists and even if notice to the contrary is received from the Mortgagor, who shall have no right or claim against any such tenant or successor in interest for any such Rents so paid to the Mortgagee. Each tenant or any of such tenants successors in interest from whom the Mortgagee or any officer, agent, attorney or employee of the Mortgagee shall have collected any Rents, shall be authorized to pay Rents to the Mortgagor only after such tenant or any of such tenants successors in interest shall have received written notice from the Mortgagee that the Event of Default is no longer continuing, which notice the Mortgagee shall be obligated to give if the Mortgagee determines in its reasonable discretion that such Event of Default is no longer continuing (or if ordered by a court or arbitrator with jurisdiction), unless and until a further notice of an Event of Default is given by the Mortgagee to such tenant or any of such tenants successors in interest.
(e) The Mortgagee will not become a mortgagee in possession so long as it does not enter and take actual possession of the Encumbered Property. In addition, the Mortgagee shall not be responsible or liable for performing any of the obligations of the landlord under any Lease, for any waste by any tenants, or others, for any dangerous or defective conditions of any of the Encumbered Property, for negligence in the management, upkeep, repair or control of any of the Encumbered Property or any other act or omission by any other person, except in the event the Mortgagee takes possession of the Encumbered Property, but only for occurrences or non-occurrences arising or accruing subsequent to such taking of possession of the Encumbered Property.
(f) The Mortgagor shall furnish to the Mortgagee, within 30 days after a request by the Mortgagee to do so, a written statement containing the names of all tenants, subtenants and concessionaires of the Premises or Improvements, the terms of any Lease, the space occupied and the rentals or license fees payable thereunder.
(g) If an Event of Default occurs, and if there is any applicable law requiring the Mortgagee to take actual or constructive possession of the Premises (or some action equivalent thereto, such as securing the appointment of a receiver) in order for the Mortgagee to perfect or activate its rights and remedies as set forth herein, the Mortgagor hereby waives the benefits of any such laws to the maximum extent allowable.
Section 3.08 Restrictions on Transfers and Encumbrances. Except as permitted hereby or by the Finance Documents, the Mortgagor shall not directly or indirectly sell, convey, alienate, mortgage, pledge, encumber or create, consent to or suffer the creation of any lien or charge upon any interest in or any part of the Encumbered Property.
Section 3.09 Security Agreement. This Mortgage is both a mortgage and grant of real property and a grant of a security interest in personal property, and shall constitute and serve as a security agreement within the meaning of the UCC. The Mortgagor hereby grants unto the Mortgagee
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for the benefit of the Secured Parties a security interest in and to all the Encumbered Property described in this Mortgage that is not real property, and substantially contemporaneously with the recording of this Mortgage, the Mortgagor has filed or will file UCC financing statements, and will file continuation statements prior to the lapse thereof, at the appropriate offices in the state in which the Premises are located and otherwise may be required or advisable to perfect the security interest granted by this Mortgage in all the Encumbered Property that is not real property. The Mortgagor hereby appoints the Mortgagee as its true and lawful attorney-in-fact and agent, for the Mortgagor and in its name, place and stead, in any and all capacities, to execute any document and to file the same in the appropriate offices (to the extent it may lawfully do so), and to perform each and every act and thing requisite and necessary to be done to perfect the security interest hereby granted. The Mortgagee shall have all rights with respect to the part of the Encumbered Property that is the subject of a security interest afforded by the UCC in addition to, but not in limitation of, the other rights afforded the Mortgagee hereunder. The Mortgagor agrees, to the extent permitted by law, that: (i) all of the goods described within the definition of the word Personal Property are or are to become fixtures on the Land; (ii) this Mortgage upon recording or registration in the real estate records of the proper office shall constitute a financing statement filed as a fixture filing within the meaning of Section 9-502(c) of the UCC; (iii) the Mortgagor is the record owner of the Premises; and (iv) the addresses of Mortgagor and Mortgagee are as set forth in Section 5.02 of this Mortgage. Additionally, this Mortgage shall constitute a financing statement covering fixtures and/or minerals or the like (including oil and gas) and/or accounts resulting from the sale thereof at the wellhead or minehead and, as such, shall be filed for record in the real estate records of each county in which the Land, or any part thereof, is located.
Section 3.10 Filing and Recording. The Mortgagor will cause this Mortgage, any other security instrument creating a security interest in or evidencing the lien hereof upon the Encumbered Property and each instrument of further assurance to be filed, registered or recorded in such manner and in such places as may be required by any present or future law in order to publish notice of and to protect fully the liens and security interests of the Mortgagee hereby granted in and upon the Encumbered Property. The Mortgagor will pay all filing, registration or recording fees, and all expenses incidental to the execution and acknowledgment of this Mortgage, any mortgage supplemental hereto, any security instrument with respect to the Encumbered Property, and any instrument of further assurance and all Federal, state, county and municipal recording, documentary or intangible taxes and other taxes, duties, imposts, assessments and charges arising out of or in connection with the execution, delivery and recording of this Mortgage, any mortgage supplemental hereto, any security instrument with respect to the Encumbered Property or any instrument of further assurance.
Section 3.11 Further Assurances. Upon demand by the Mortgagee, the Mortgagor will, at the sole cost of the Mortgagor and without expense to the Mortgagee, do, execute, acknowledge and deliver all such further acts, deeds, conveyances, deeds of trust, assignments, notices of assignment, transfers and assurances as the Mortgagee shall from time to time reasonably require as necessary for the assuring, conveying, assigning, transferring and confirming unto the Mortgagee the property and rights hereby conveyed or assigned or intended now or hereafter so to be, or which the Mortgagor may be or may hereafter become bound to convey or assign to the Mortgagee, or for carrying out the intention or facilitating the performance of the terms of this Mortgage, or for filing, registering or recording this Mortgage, and on demand, the Mortgagor will also execute and deliver and hereby appoints the Mortgagee as its true and lawful attorney-in-fact and agent for the Mortgagor and in its name, place and stead, in any and all capacities, to execute and file to the extent it may lawfully do so, one or more financing statements, chattel mortgages or comparable security instruments reasonably required by the Mortgagee to evidence or perfect the liens and security interests hereby granted and to perform each and every act and thing requisite and necessary to be done to accomplish the same.
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Section 3.12 Additions to Encumbered Property. All right, title and interest of the Mortgagor in and to all extensions, improvements, betterments, renewals, substitutes and replacements of, and all additions and appurtenances to, the Encumbered Property hereafter acquired by or released to the Mortgagor or constructed, assembled or placed by the Mortgagor upon the Premises or the Improvements, and all conversions of the security constituted thereby, immediately upon such acquisition, release, construction, assembling, placement or conversion, as the case may be, and in each such case without any further mortgage, conveyance, assignment or other act by the Mortgagor, shall become subject to the liens and security interests of this Mortgage as fully and completely and with the same effect as though now owned by the Mortgagor and specifically described in the grant of the Encumbered Property above, but at any and all times the Mortgagor will execute and deliver to the Mortgagee any and all such further assurances, mortgages, conveyances or assignments thereof as the Mortgagee may reasonably require for the purpose of expressly and specifically subjecting the same to the liens and security interests of this Mortgage.
Section 3.13 No Claims Against the Mortgagee. Nothing contained in this Mortgage shall constitute any consent or request by the Mortgagee, express or implied, for the performance of any labor or services or the furnishing of any materials or other property in respect of the Encumbered Property or any part thereof, nor as giving the Mortgagor any right, power or authority to contract for or permit the performance of any labor or services or the furnishing of any materials or other property in such fashion as would permit the making of any claim against the Mortgagee in respect thereof.
ARTICLE IV.
DEFAULTS AND REMEDIES
Section 4.01 Events of Default. It shall be an Event of Default under this Mortgage if any Event of Default shall exist under any Finance Document.
Section 4.02 Demand for Payment. Upon the occurrence and during the continuation of any Event of Default, in addition to any other rights and remedies the Mortgagee may have pursuant to the Finance Documents, or as provided at law or in equity, and without limitation, the Finance Obligations and all other amounts payable with respect to the Notes, the Indenture, this Mortgage and all other Finance Documents shall become due and payable as provided therein. The Mortgagor shall pay to the Mortgagee within the time period set forth in the Finance Documents (or if no time period is specified therein, promptly after written demand by Mortgagee) all such amounts and such further amounts as shall be reasonably incurred (without regard to statutory presumption) to cover the costs and expenses of collection, including reasonable attorneys fees, disbursements and expenses incurred by the Mortgagee. The Mortgagor hereby waives notice of presentment, demand, protest, acceleration and notice of acceleration to the maximum extent permitted by applicable law. In case the Finance Parties shall fail forthwith to pay such amounts or any amounts due under the Finance Documents or any provision of this Mortgage within the time period set forth in the Finance Documents (or if no time period is specified therein, promptly after written demand by Mortgagee), the Mortgagee, in addition to any other rights or remedies provided herein or at law or equity, shall be entitled and empowered to institute an action or proceedings at law or in equity for the collection of the sums so due and unpaid, to prosecute any such action or proceedings to judgment or final decree, to enforce any such judgment or final decree against the Mortgagor and to collect, in any manner provided by law, all moneys adjudged or decreed to be payable.
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Section 4.03 Rights to Take Possession, Operate and Apply Revenues.
(a) If an Event of Default shall occur and be continuing, the Mortgagor shall, upon demand of the Mortgagee, forthwith surrender to the Mortgagee actual possession of the Encumbered Property and, if and to the extent permitted by applicable law, the Mortgagee itself, or by such officers or agents as it may appoint, may then enter and take possession of all the Encumbered Property with or without the appointment of a receiver or an application therefor, exclude the Mortgagor and its agents and employees wholly therefrom, and have access to the books, papers and accounts of the Mortgagor.
(b) If the Mortgagor shall for any reason fail to surrender or deliver the Encumbered Property or any part thereof after such demand by the Mortgagee, the Mortgagee may obtain a judgment or decree conferring upon the Mortgagee the right to immediate possession or requiring the Mortgagor to deliver immediate possession of the Encumbered Property to the Mortgagee, to the entry of which judgment or decree the Mortgagor hereby specifically consents. The Mortgagor will pay to the Mortgagee, upon demand, all reasonable expenses of obtaining such judgment or decree, including compensation to the Mortgagees attorneys (for reasonable fees actually incurred (not as imposed by statute)) and agents with interest thereon at the Default Rate; and all such expenses and compensation shall, until paid, be secured by this Mortgage.
(c) If an Event of Default shall occur and be continuing, the Mortgagee may hold, store, use, operate, manage and control the Encumbered Property, conduct the business thereof and, from time to time, (i) make all necessary, proper and reasonable maintenance, repairs, renewals, replacements, additions, betterments and improvements thereto and thereon, (ii) purchase or otherwise acquire additional fixtures, personalty and other property, (iii) insure or keep the Encumbered Property insured, (iv) manage and operate the Encumbered Property and exercise all the rights and powers of the Mortgagor to the same extent as the Mortgagor could in its own name or otherwise with respect to the same or (v) enter into any and all agreements with respect to the exercise by others of any of the powers herein granted to the Mortgagee, all as may from time to time be directed or determined by the Mortgagee to be in its best interest and the Mortgagor hereby appoints the Mortgagee as its true and lawful attorney-in-fact and agent, for the Mortgagor and in its name, place and stead, in any and all capacities, to perform any of the foregoing acts. Regardless of whether or not the Mortgagee has entered or taken possession, the Mortgagee may collect and receive all the Rents, issues, profits and revenues from the Encumbered Property, including those past due as well as those accruing thereafter, and, after deducting (i) all expenses of taking, holding, managing and operating the Encumbered Property (including compensation for the services of all persons employed for such purposes), (ii) the costs of all such maintenance, repairs, renewals, replacements, additions, betterments, improvements, purchases and acquisitions, (iii) the costs of insurance, (iv) such taxes, assessments and other similar charges as the Mortgagee may at its option pay, (v) other proper charges upon the Encumbered Property or any part thereof and (vi) the compensation, expenses and disbursements of the attorneys and agents of the Mortgagee, the Mortgagee shall apply the remainder of the moneys and proceeds so received first to the payment of the Mortgagee for the payment in full and satisfaction of the Finance Obligations, and second, if there is any surplus, to the Mortgagor, subject to the entitlement of others thereto under applicable law.
(d) Whenever, before any sale of the Encumbered Property under Section 4.06 hereof, Discharge of Finance Obligations shall have occurred, the Mortgagee will surrender possession of the Encumbered Property back to the Mortgagor, its successors or assigns. The same right of taking possession shall, however, arise again if any subsequent Event of Default shall occur and be continuing.
Section 4.04 Right to Cure the Mortgagors Failure to Perform. During the continuance of an Event of Default, without notice to Mortgagor, should the Mortgagor fail in the payment, performance or observance of any term, covenant or condition required by this Mortgage or any other Finance Document (with respect to the Encumbered Property), the Mortgagee may pay, perform or observe the same, and all payments made or costs or expenses incurred by the Mortgagee in connection
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therewith shall be secured hereby and shall be, without demand, immediately repaid by the Mortgagor to the Mortgagee with interest thereon at the Default Rate. The Mortgagee shall make the determination as to the necessity for any such actions and of the amounts to be paid. The Mortgagee is hereby empowered to enter and to authorize others to enter upon the Premises or the Improvements or any part thereof for the purpose of performing or observing any such defaulted term, covenant or condition without having any obligation to so perform or observe and without thereby becoming liable to the Mortgagor, to any person in possession holding under the Mortgagor or to any other person.
Section 4.05 Right to a Receiver. If an Event of Default shall occur and be continuing, the Mortgagee, upon application to a court of competent jurisdiction, shall be entitled as a matter of right to the appointment of a receiver to take possession of and to operate the Encumbered Property and to collect and apply the Rents. The Mortgagor hereby consents to such appointment and acknowledges and agrees that the Mortgagee shall be entitled to such appointment without notice and without regard for the adequacy of security for the Finance Obligations or the solvency of the Mortgagor or any party liable for the Finance Obligations. The receiver shall have all of the rights and powers permitted under the laws of the state wherein the Encumbered Property is located. The Mortgagor will pay to the Mortgagee upon demand all expenses, including receivers fees, attorneys fees and disbursements that are actually incurred (not as imposed by statute), costs and agents compensation incurred pursuant to the provisions of this Section 4.05; and all such expenses shall be secured by this Mortgage and shall be, without demand, immediately repaid by the Mortgagor to the Mortgagee with interest thereon at the Default Rate.
Section 4.06 Foreclosure and Sale.
(a) If an Event of Default shall occur and be continuing, the Mortgagee may elect to sell the Encumbered Property or any part of the Encumbered Property by exercise of the power of foreclosure or of sale granted to the Mortgagee by applicable law, this Mortgage or any other Finance Document. In such case, the Mortgagee may commence a civil action to foreclose this Mortgage, in accordance with applicable law, to satisfy any Finance Obligation. The Mortgagee or an officer appointed by a judgment of foreclosure to sell the Encumbered Property, may sell all or such parts of the Encumbered Property as may be chosen by the Mortgagee at the time and place of sale fixed by it in a notice of sale, either as a whole or in separate lots, parcels or items as the Mortgagee shall deem expedient, and in such order as it may determine, at public auction to the highest bidder. The Mortgagee or an officer appointed by a judgment of foreclosure to sell the Encumbered Property may postpone any foreclosure or other sale of all or any portion of the Encumbered Property by public announcement at such time and place of sale, and from time to time as permitted by applicable law thereafter may postpone such sale by public announcement or subsequently noticed sale. Except as otherwise required by applicable law, without further notice, the Mortgagee or an officer appointed to sell the Encumbered Property may make such sale at the time fixed by the last postponement, or may, in its discretion, give a new notice of sale. Any person, including the Mortgagor or the Mortgagee or any designee or affiliate thereof, may purchase any portion of the Encumbered Property at such sale. If the Mortgagee, or any affiliate of the Mortgagee, is the highest bidder at any foreclosure sale, the Mortgagee may credit the Finance Obligations for the amount of the Mortgagees bid in lieu of a cash payment. Mortgagor authorizes and empowers the Mortgagee to execute and deliver to the purchaser or purchasers at any such foreclosure sale, good and sufficient deed(s) and/or bill(s) of sale of the Encumbered Property, or the part thereof foreclosed upon, all with covenants of general warranty binding on Mortgagor and Mortgagors successors and assigns.
(b) The Encumbered Property may be sold subject to unpaid taxes and the Permitted Encumbrances, and after deducting all the reasonable actual costs, fees and expenses of the Mortgagee, including, without limitation, costs of evidence of title in connection with the sale, the Mortgagee or an officer that makes any sale shall apply the proceeds of sale in the manner set forth in Section 4.08 hereof.
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(c) Any foreclosure or other sale of less than the whole of the Encumbered Property or any defective or irregular sale made hereunder shall not exhaust the power of foreclosure or of sale provided for herein; and subsequent sales may be made hereunder until Discharge of Finance Obligations shall have occurred, or the entirety of the Encumbered Property has been sold.
(d) If an Event of Default shall occur and be continuing, the Mortgagee may instead of, or in addition to, exercising the rights described in Section 4.06(a) above and either with or without entry or taking possession as herein permitted, proceed by a suit or suits in law or in equity or by any other appropriate proceeding or remedy (i) to specifically enforce payment of some or all of the terms of the Finance Documents or the performance of any term, covenant, condition or agreement of this Mortgage or any other right or (ii) to pursue any other remedy available to it, at law or in equity, all as the Mortgagee shall determine most effectual for such purposes.
Section 4.07 Other Remedies.
(a) In case an Event of Default shall occur and be continuing, the Mortgagee may also exercise, to the extent not prohibited by applicable law, any or all of the remedies available to a secured party under the UCC, including, to the extent not prohibited by applicable law, the following:
(i) in the case of personal property, exercise those rights and remedies under the Security Agreement;
(ii) to make such payments and do such acts as the Mortgagee may deem necessary to protect its security interest in the Personal Property including paying, purchasing, contesting or compromising any encumbrance, charge or lien that is prior or superior to the security interest granted hereunder, and, in exercising any such powers or authority, paying all expenses incurred in connection therewith; or
(iii) to enter upon any or all of the Premises or Improvements to exercise the Mortgagees rights hereunder.
(b) In connection with a sale of the Encumbered Property and the application of the proceeds of sale as provided in Section 4.08 of this Mortgage, the Mortgagee shall be entitled to enforce payment of and to receive up to the principal amount of the Finance Obligations, plus all other charges, payments and costs due under this Mortgage, and to recover a deficiency judgment for any portion of the aggregate principal amount of the Finance Obligations remaining unpaid, with interest.
Section 4.08 Application of Sale of Proceeds and Rents.
(a) After any foreclosure sale of all or any of the Encumbered Property, the Mortgagee shall receive the proceeds of sale, no purchaser shall be required to see to the application of the proceeds, and the Mortgagee shall apply the proceeds of the sale together with any Rents that may have been collected and any other sums that then may be held by the Mortgagee under this Mortgage as set forth in Article IV of the Noteholder Collateral Agency Agreement.
(b) It is understood that nothing contained in this Mortgage shall exculpate the Mortgagor as to, or otherwise limit the liability of the Mortgagor for, any deficiency between the amount of the proceeds of the Encumbered Property and the amount of the Finance Obligations, unless otherwise expressly provided in this Mortgage or any of the other Finance Documents.
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Section 4.09 The Mortgagor as Tenant Holding Over. If the Mortgagor remains in possession of any of the Encumbered Property after any foreclosure sale by the Mortgagee, at the Mortgagees election the Mortgagor shall be deemed a tenant holding over and shall forthwith surrender possession to the purchaser or purchasers at such sale or be summarily dispossessed or evicted according to provisions of law applicable to tenants holding over.
Section 4.10 Waiver of Appraisement, Valuation, Stay, Extension and Redemption Laws.
(a) The Mortgagor will not object to any sale of the Encumbered Property made in accordance with the terms and conditions hereof, and for itself and all who may claim under it, the Mortgagor waives, to the extent that it lawfully may, all right to have the Encumbered Property marshaled or to have the Encumbered Property sold as separate estates, parcels, tracts or units in the event of any foreclosure of this Mortgage.
(b) To the full extent permitted by the law of the state wherein the Encumbered Property is located or other applicable law, neither the Mortgagor nor anyone claiming through or under it shall or will set up, claim or seek to take advantage of any appraisement, valuation, stay, extension, homestead-exemption or redemption laws now or hereafter in force in order to prevent or hinder the enforcement or foreclosure of this Mortgage, the absolute sale of the Encumbered Property or the final and absolute putting of the purchasers into possession thereof immediately after any sale; and the Mortgagor, for itself and all who may at any time claim through or under it, hereby waives to the full extent that it may lawfully do so, the benefit of all such laws and any and all right to have the assets covered by the security interest created hereby marshaled upon any foreclosure of this Mortgage.
Section 4.11 Discontinuance of Proceedings. In case the Mortgagee shall proceed to enforce any right, power or remedy under this Mortgage by foreclosure, entry or otherwise, and such proceedings shall be discontinued or abandoned for any reason, or shall be determined adversely to the Mortgagee, then and in every such case the Mortgagor and the Mortgagee shall be restored to their former positions and rights hereunder, and all rights, powers and remedies of the Mortgagee shall continue as if no such proceeding had been taken.
Section 4.12 Suits to Protect the Encumbered Property. The Mortgagee shall have power (i) to institute and maintain suits and proceedings to prevent any impairment of the Encumbered Property by any acts which may be unlawful or in violation of this Mortgage, (ii) to preserve or protect its interest in the Encumbered Property and in the Rents arising therefrom and (iii) to restrain the enforcement of or compliance with any legislation or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid if the enforcement of or compliance with such enactment, rule or order would impair the security or be prejudicial to the interest of the Mortgagee hereunder.
Section 4.13 Filing Proofs of Claim. In case of any receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment, composition or other proceedings affecting the Mortgagor, the Mortgagee shall, to the extent permitted by applicable law, be entitled to file such proofs of claim and other documents as may be necessary or advisable in order to have the claims of the Mortgagee allowed in such proceedings for the Finance Obligations secured by this Mortgage at the date of the institution of such proceedings and for any interest accrued, late charges and additional interest or other amounts due or that may become due and payable hereunder after such date.
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Section 4.14 Possession by the Mortgagee. Notwithstanding the appointment of any receiver, liquidator or trustee of the Mortgagor, any of its property or the Encumbered Property, the Mortgagee shall be entitled, to the extent not prohibited by applicable law, to remain in possession and control of all parts of the Encumbered Property now or hereafter granted under this Mortgage in accordance with the terms hereof and applicable law.
Section 4.15 Waiver.
(a) No delay or failure by the Mortgagee to exercise any right, power or remedy accruing upon any Event of Default shall exhaust or impair any such right, power or remedy or be construed to be a waiver of any such Event of Default or acquiescence therein unless otherwise expressly consented to in writing by the Mortgagee; and every right, power and remedy given by this Mortgage to the Mortgagee may be exercised from time to time and as often as may be deemed expedient by the Mortgagee. No consent or waiver by the Mortgagee to or of any Event of Default by the Mortgagor in the performance of the Finance Obligations shall be deemed or construed to be a consent or waiver to or of any other Event of Default in the performance of the same or any other Finance Obligations by the Mortgagor hereunder. No failure on the part of the Mortgagee to complain of any act or failure to act or to declare an Event of Default, irrespective of how long such failure continues, shall constitute a waiver by the Mortgagee of its rights hereunder or impair any rights, powers or remedies consequent on any future Event of Default by the Mortgagor.
(b) Even if the Mortgagee (i) grants some forbearance or an extension of time for the payment of any sums secured hereby, (ii) takes other or additional security for the payment of any sums secured hereby, (iii) waives or does not exercise some right granted herein or under the Finance Documents, (iv) releases a part of the Encumbered Property from this Mortgage, (v) agrees to change some of the terms, covenants, conditions or agreements of any of the Finance Documents, (vi) consents to the filing of a map, plat or replat affecting the Premises, (vii) consents to the granting of an easement or other right affecting the Premises or (viii) makes or consents to an agreement subordinating the Mortgagees lien on the Encumbered Property hereunder; no such act or omission shall preclude the Mortgagee from exercising any other right, power or privilege herein granted or intended to be granted in the event of any Event of Default then made or of any subsequent Event of Default; nor, except as otherwise expressly provided in an instrument executed by the Mortgagee, shall this Mortgage be altered thereby. In the event of the sale or transfer by operation of law or otherwise of all or part of the Encumbered Property, the Mortgagee is hereby authorized and empowered to deal with any vendee or transferee with reference to the Encumbered Property secured hereby, or with reference to any of the terms, covenants, conditions or agreements hereof, as fully and to the same extent as it might deal with the original parties hereto and without in any way releasing or discharging any liabilities, obligations or undertakings.
Section 4.16 Remedies Cumulative. No right, power or remedy conferred upon or reserved to the Mortgagee by this Mortgage is intended to be exclusive of any other right, power or remedy, and each and every such right, power and remedy shall be cumulative and concurrent and in addition to any other right, power and remedy given hereunder or now or hereafter existing at law or in equity or by statute.
ARTICLE V.
MISCELLANEOUS
Section 5.01 Partial Invalidity. If any provision hereof or of any of the other Finance Documents is invalid or unenforceable in any jurisdiction or under any circumstances, the other provisions hereof or of those Finance Documents shall remain in full force and effect in such jurisdiction
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and the remaining provisions hereof will be liberally construed in favor of the Mortgagee in order to carry out the provisions hereof and of such other Finance Documents. The invalidity of any provision of this Mortgage in any jurisdiction or under any circumstances will not affect the validity or enforceability of any such provision in any other jurisdiction or under any other circumstances. If any lien, encumbrance or security interest evidenced or created by this Mortgage is invalid or unenforceable, in whole or in part, as to any part of the Finance Obligations, or is invalid or unenforceable, in whole or in part, as to any part of the Encumbered Property, such portion, if any, of the Finance Obligations as is not secured by all of the Encumbered Property hereunder shall be paid prior to the payment of the portion of the Finance Obligations and shall, unless prohibited by applicable laws or unless Mortgagee, in its sole and absolute discretion, otherwise elects, be deemed to have been first paid on and applied to payment in full of the unsecured or partially secured portion of the Finance Obligations, and the remainder to the secured portion of the Finance Obligations.
Section 5.02 Notices. Unless otherwise specified herein, all notices, demands, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile transmission or similar writing) and shall be given to such party (i) at its address set forth below or (ii) such other facsimile number or telex number such other address, facsimile number or telex number as the party entitled to such notice shall have specified by at least ten days prior notice given to the other parties in the manner provided herein.
(a) | To the Mortgagee: |
Bank of America, N.A., as Agent |
300 Galleria Parkway |
Suite 300 |
Atlanta, Georgia 30339 |
Attention: American Tire Loan Administration Manager |
Telecopier: |
with a copy to: |
Parker, Hudson, Rainer & Dobbs LLP |
1500 Marquis Two Tower |
285 Peachtree Center Avenue, NE |
Atlanta, Georgia 30303 |
Attention: Bobbi Acord Noland, Esq. Telecopier: (404) 522-8049 |
(b) | To the Mortgagor: |
[Mortgagor Name] |
[Mortgagor Notice Address] |
Attn: |
- 18 -
with a copy to: |
American Tire Distributors, Inc. |
12200 Herbert Wayne Court Suite 150 |
Huntersville, North Carolina 28078 |
Attention: David Dyckman |
Telephone: (704) 942-1451 |
Each such notice, demand, request and other communication shall be effective (i) effective (i) if given by telex, when such telex is transmitted to the telex number specified in this Section 5.02 and the appropriate answerback is received, (ii) if given by facsimile transmission, when transmitted to the facsimile number specified in this Section and confirmation of receipt is received, (iii) if given by mail, 48 hours after such communication is deposited, certified mail, return receipt requested, in the mails with appropriate first class postage prepaid, addressed as aforesaid or (iv) if given by other means, when delivered at the address specified in this Section 5.02 deemed to have been given upon the earlier of (i) delivery at the appropriate address specified above, whether in person, by express courier or by mail, or (ii) two days after the postmark date of mailing. Rejection or other refusal to accept or the inability to deliver because of a changed address of which no notice was given shall not invalidate the effectiveness of any notice, demand, request or other communication.
Section 5.03 Successors and Assigns. The Mortgagee shall have the right to assign or transfer its rights under this Mortgage without limitation. Any assignee or transferee shall be entitled to all the benefits afforded the Mortgagee under this Mortgage.
Section 5.04 Satisfaction and Cancellation.
(a) The conveyance to the Mortgagee of the Encumbered Property as security and for the benefit of the Mortgagee created and consummated by this Mortgage shall be null and void when Discharge of Finance Obligations has occurred.
(b) In connection with any termination or release pursuant to paragraph (a) to the extent applicable, this Mortgage shall be marked satisfied by the Mortgagee, and this Mortgage may be cancelled of record at the request and at the expense of the Mortgagor. The Mortgagee shall execute any documents reasonably requested by the Mortgagor to accomplish the foregoing or to accomplish any release contemplated by this Section 5.04, and the Mortgagor will pay all costs and expenses, including attorneys fees and disbursements actually incurred (not as imposed by statute) by the Mortgagee in connection with the preparation and execution of such documents.
Section 5.05 Other Finance Documents. The Mortgagor acknowledges that in addition to this Mortgage, other Finance Documents secure the Finance Obligations. The Mortgagor agrees that the lien of this Mortgage shall be absolute and unconditional and shall not in any manner be affected or impaired by any acts or omissions whatsoever of the Mortgagee and, without limiting the generality of the foregoing, the lien hereof shall not be impaired by any acceptance by the Mortgagee of any security for or guarantees of any of the Finance Obligations hereby secured, or by any failure, neglect or omission on the part of the Mortgagee to realize upon or protect any Finance Obligation hereby secured or any collateral security therefor including the other Finance Documents. The lien hereof shall not in any manner be impaired or affected by any release (except as to the property released), sale, pledge, surrender, compromise, settlement, renewal, extension, indulgence, alteration, changing, modification or disposition of any of the Finance Obligations or of any of the collateral security therefor, including the other Finance Documents or of any guarantee thereof, and the Mortgagee may at its discretion foreclose,
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exercise any power of sale, or exercise any other remedy available to it under any or all of the other Finance Documents without first exercising or enforcing any of its rights and remedies hereunder. Such exercise of the Mortgagees rights and remedies under any or all of the other Finance Documents shall not in any manner impair the Finance Obligations or the lien of this Mortgage and any exercise of the rights or remedies of the Mortgagee hereunder shall not impair the lien of any of the other Finance Documents or any of the Mortgagees rights and remedies thereunder. The undersigned specifically consents and agrees that the Mortgagee may exercise its rights and remedies hereunder and under the other Finance Documents separately or concurrently and in any order that it may deem appropriate, and the undersigned waives any rights of subrogation. In the event of a conflict between the terms and provisions of this Mortgage and any other Finance Document, both documents shall be read together and construed, to the fullest extent possible, to be in concert with each other. In the event of a conflict that cannot be resolved, the terms and provisions of the Credit Agreement or the Security Agreement shall control and govern irrespective of the provisions of this Mortgage.
Section 5.06 Subrogation. This Mortgage is made with full substitution and subrogation of Mortgagee in and to all covenants and warranties by others heretofore given or made in respect of the Encumbered Property or any part thereof. To the extent that proceeds of the Finance Obligations are used to pay any outstanding lien, charge or prior encumbrance against the Encumbered Property, such proceeds have been or will be advanced by Mortgagee at Mortgagors request, and Mortgagee shall be subrogated to any and all rights and liens held by any owner or holder of such outstanding liens, charges and prior encumbrances, irrespective of whether those liens, charges or encumbrances are released.
Section 5.07 Mortgagee Powers. Without affecting the liability of any other Person liable for the payment of any obligations herein mentioned and without affecting the lien or charge of this Mortgage upon any portion of the Encumbered Property not then or theretofore released as security for the full amount of all unpaid Finance Obligations, from time to time, regardless of consideration and without notice to or consent by the holder of any subordinate lien, encumbrance, right, title or interest in or to the Encumbered Property, the Mortgagee may in accordance with the express terms and provisions of the Finance Documents (i) release any persons liable for or on any Finance Obligation, (ii) extend the maturity or alter any of the terms of any Finance Obligation, (iii) modify the interest rate payable on the principal balance of the Finance Obligations, (iv) grant other indulgences, (v) release or reconvey, or cause to be released or reconveyed at any time at the Mortgagees option any parcel, portion or all of the Encumbered Property, (vi) take or release any other or additional security for any obligations herein mentioned or (vii) make compositions or other arrangements with debtors in relation thereto.
Section 5.08 Enforceability of Mortgage. This Mortgage is deemed to be and may be enforced from time to time as an assignment, chattel mortgage, contract, mortgage, deed to secure debt, deed of trust, financing statement, real estate mortgage or security agreement, and from time to time as any one or more thereof, as is appropriate under applicable laws. A carbon, photographic or other reproduction of this Mortgage or any financing statement in connection herewith shall be sufficient as a financing statement for any and all purposes.
Section 5.09 Amendments. Any provision of this Agreement may be amended, modified or waived if, but only if, such amendment or waiver is in writing and is signed by the Mortgagor and the Mortgagee. No failure by the Mortgagee to exercise, and no delay by the Mortgagee in exercising, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.
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Section 5.10 Applicable Law. THIS MORTGAGE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE WHERE THE LAND IS LOCATED.
Section 5.11 Waiver of Jury Trial. EACH OF THE MORTGAGOR AND THE MORTGAGEE (BY THE MORTGAGEES ACCEPTANCE OF THIS MORTGAGE AND IN CONSIDERATION OF THE DELIVERY OF THE OTHER FINANCE DOCUMENTS) HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND FOREVER WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS MORTGAGE, OR THE OTHER FINANCE DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY EACH OF THE MORTGAGOR AND THE MORTGAGEE, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. EACH OF THE MORTGAGEE AND THE MORTGAGOR IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY THE OTHER PARTY.
Section 5.12 Intercreditor Agreements. This Mortgage and any lien created herein are subject to the lien priority and other provisions set forth in the Intercreditor Agreements.
Section 5.13 Local Law Provisions. By virtue of the fact that the Premises are located in the State of [ ], the provisions set forth below shall be applicable to this Mortgage, and to the extent applicable, shall modify, affect and supplement the other provisions hereof. [To be added as necessary by Local Counsel.]
[Remainder of page intentionally left blank.
Signature page follows.]
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IN WITNESS WHEREOF, this Mortgage has been duly authorized and has been executed and delivered, under seal, to the Mortgagee by the Mortgagor on the date first above written.
[MORTGAGOR NAME] | ||
By: |
| |
Name: Title: |
S-1
[LOCAL COUNSEL TO AFFIX APPROPRIATE NOTARIAL ACKNOWLEDGMENT
FOR STATE IN WHICH LAND IS LOCATED.]
S-2
Exhibit A
Legal Description
[To be attached]
A-1
Permitted Encumbrances
[To be attached]
EXHIBIT J
[FORM OF]
INTERCOMPANY NOTE
[See Attached]
INTERCOMPANY NOTE
New York, New York
May 28, 2010
FOR VALUE RECEIVED, each of the undersigned, to the extent a borrower from time to time from any other entity listed on the signature page hereto (each, in such capacity, a Payor), hereby promises to pay on demand to the order of such other entity listed below (each, in such capacity, a Payee), in lawful money of the United States of America, or in such other currency as agreed to by such Payor and such Payee, in immediately available funds, at such location as a Payee shall from time to time designate, the unpaid principal amount of all loans and advances (including trade payables) made by such Payee to such Payor. Each Payor promises also to pay interest on the unpaid principal amount of all such loans and advances in like money at said location from the date of such loans and advances until paid at such rate per annum as shall be agreed upon from time to time by such Payor and such Payee.
Reference is made to (i) that certain Fifth Amended and Restated Credit Agreement, dated as of May 28, 2010 (as further amended, amended and restated, supplemented or otherwise modified from time to time, the Credit Agreement) by and among American Tire Distributors, Inc., a Delaware corporation (the Company), American Tire Distributors Holdings, Inc., a Delaware corporation (Holdings), each subsidiary of the Company from time to time party thereto, the Lenders from time to time parties thereto, Bank of America, N.A. in its capacity as administrative and collateral agent (together with its successors in such capacity, the Agent for various financial institutions (Lenders), such Lender, General Electric Capital Corporation, as Co-Collateral Agent, and the other parties thereto, (ii) that certain Senior Secured Notes Indenture, dated as of May 28, 2010 (as amended, amended and restated, supplemented or otherwise modified from time to time, the Indenture) by and among the Company, Holdings, Am-Pac Tire Dist. Inc., a California corporation, each other Guarantor party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee, and in its capacity as noteholder collateral agent, (together with its successors in such capacity, the Noteholder Collateral Agent), and (iii) that certain Lien Subordination and Intercreditor Agreement dated as of May 28, 2010 (as amended, amended and restated, supplemented or otherwise modified from time to time, the Intercreditor Agreement) among Agent, Noteholder Collateral Agent and the Initial Grantors. Capitalized terms used in this intercompany promissory note (this Note) but not otherwise defined herein shall have the meanings given to them in the Intercreditor Agreement.
This Note shall be pledged by each Payee that is a Loan Party (as defined in the Credit Agreement) (i) to the Noteholder Collateral Agent, for the benefit of the Noteholder Lien Secured Parties, pursuant to the Noteholder Lien Documents as collateral security for the full and prompt payment when due of, and the performance of, such Payees Noteholder Lien Debt and (ii) to the ABL Agent, for the benefit of the ABL Secured Parties, pursuant to the ABL Security Documents as collateral security for the full and prompt payment when due of, and the performance of, such Payees ABL Debt Obligations. Each Payee hereby acknowledges and agrees that (i) after the occurrence of and during the continuance of an Event of Default under and as defined in the Noteholder Lien Documents, but subject to the terms of the Intercreditor Agreement and the Collateral Agency Agreement, the Noteholder Collateral Agent may, in addition to the other rights and remedies provided pursuant to the Noteholder Lien Documents and otherwise available to it, exercise all rights of the Loan Party Payees with respect to this Note and (ii) after the occurrence of and during the continuance of an Event of Default under and as defined in the Credit Agreement, but subject to the terms of the Intercreditor Agreement, the ABL Agent may, in addition to the other rights and remedies provided pursuant to the ABL Security Documents and otherwise available to it, exercise all rights of the Loan Party Payees with respect to this Note.
Anything in this Note to the contrary notwithstanding, the indebtedness evidenced by this Note owed by any Payor that is a Loan Party to any Payee shall be subordinate and junior in right of payment, to the extent and in the manner hereinafter set forth, to all Senior Secured Obligations of such Payor to the ABL Secured Parties until the Termination Date (as defined in the Credit Agreement) and to all Senior Secured Obligations of such Payor to the Noteholder Lien Secured Parties until the Termination Date (as defined in that certain Security Agreement, dated as of the date hereof, by and among the Company, each Grantor from time to time party thereto and the Noteholder Collateral Agent); provided that each Payor may make payments to the applicable Payee so long as no Event of Default under and as defined in either the Credit Agreement or the Noteholder Lien Documents shall have occurred and be continuing (such Obligations and other indebtedness and obligations in connection with any renewal, refunding, restructuring or refinancing thereof, including interest thereon accruing after the commencement of any proceedings referred to in clause (i) below, whether or not such interest is an allowed claim in such proceeding, being hereinafter collectively referred to as Senior Indebtedness):
(i) In the event of any insolvency or bankruptcy proceedings, and any receivership, liquidation, reorganization or other similar proceedings in connection therewith, relative to any Payor or to its property, and in the event of any proceedings for voluntary liquidation, dissolution or other winding up of such Payor (except as expressly permitted by the Credit Agreement and the Noteholder Lien Documents), whether or not involving insolvency or bankruptcy, then, if an Event of Default (as defined in either the Credit Agreement or the Noteholder Lien Documents) has occurred and is continuing (x) the holders of Senior Indebtedness shall be irrevocably paid in full in cash in respect of all amounts constituting Senior Indebtedness (other than Hedging Obligations (as defined in the Credit Agreement), Treasury Services Obligations (as defined in the Credit Agreement) or contingent indemnification obligations) before any Payee is entitled to receive (whether directly or indirectly), or make any demands for, any payment on account of this Note and (y) until the holders of Senior Indebtedness are irrevocably paid in full in cash in respect of all amounts constituting Senior Indebtedness (other than Hedging Obligations (as defined in the Credit Agreement), Treasury Services Obligations (as defined in the Credit Agreement) or contingent indemnification obligations), any payment or distribution to which such Payee would otherwise be entitled (other than debt securities of such Payor that are subordinated, to at least the same extent as this Note, to the payment of all Senior Indebtedness then outstanding (such securities being hereinafter referred to as Restructured Debt Securities)) shall be made to the holders of Senior Indebtedness;
(ii) if any Event of Default (as under and defined in either the Credit Agreement or the Noteholder Lien Documents) occurs and is continuing, then no payment or distribution of any kind or character shall be made by or on behalf of the Payor or any other Person on its behalf with respect to this Note;
(iii) if any payment or distribution of any character, whether in cash, securities or other property (other than Restructured Debt Securities), in respect of this Note shall (despite these subordination provisions) be received by any Payee in violation of clause (i) or (ii) before all Senior Indebtedness shall have been irrevocably paid in full in cash (other than Hedging Obligations (as defined in the Credit Agreement), Treasury Services Obligations (as defined in the Credit Agreement) or contingent indemnification obligations), such payment or distribution shall be held in trust for the benefit of, and shall be paid over or delivered in accordance with the Security Documents, subject to the terms of the Intercreditor Agreement; and
(iv) Each Payor agrees to file all claims against each relevant Payee in any bankruptcy or other proceeding in which the filing of claims is required by law in respect of any Senior Indebtedness, and the Noteholder Collateral Agent and the ABL Agent (together, the Collateral Agents) shall be entitled to all of such Payors rights thereunder. If for any reason a Payor fails to file such claim at least ten (10) days prior to the last date on which such claim should be filed, such Payor hereby irrevocably appoints each Collateral Agent as its true and lawful attorney-in-fact and each
2
Collateral Agent is hereby authorized to act as attorney-in-fact in such Payors name to file such claim or, in such Collateral Agents discretion, to assign such claim to and cause proof of claim to be filed in the name of such Collateral Agent or its nominee. In all such cases, whether in administration, bankruptcy or otherwise, the person or persons authorized to pay such claim shall pay to the applicable Collateral Agent the full amount payable on the claim in the proceeding, and, to the full extent necessary for that purpose, each Payor hereby assigns to each of the Collateral Agents all of such Payors rights to any payments or distributions to which such Payor otherwise would be entitled. If the amount so paid is greater than such Payors liability hereunder, the Collateral Agents shall pay the excess amount to the party entitled thereto under the Intercreditor Agreement and applicable law. In addition, each Payor hereby irrevocably appoints each Collateral Agent as its attorney-in-fact to exercise all of such Payors voting rights in connection with any bankruptcy proceeding or any plan for the reorganization of each relevant Payee.
To the fullest extent permitted by law, no present or future holder of Senior Indebtedness shall be prejudiced in its right to enforce the subordination of this Note by any act or failure to act on the part of any Payor or Payee or by any act or failure to act on the part of such holder or any trustee or agent for such holder. Each Payee and each Payor hereby agree that the subordination of this Note is for the benefit of each Collateral Agent and the other Secured Parties. Each Collateral Agent and the other Secured Parties are obligees under this Note to the same extent as if their names were written herein as such and each Collateral Agent may, on behalf of itself, and the Secured Parties, proceed to enforce the subordination provisions herein.
The indebtedness evidenced by this Note owed by any Payor that is not a Loan Party shall not be subordinated to, and shall rank pari passu in right of payment with, any other obligation of such Payor.
Nothing contained in the subordination provisions set forth above is intended to or will impair, as between each Payor and each Payee, the obligations of such Payor, which are absolute and unconditional, to pay to such Payee the principal of and interest on this Note as and when due and payable in accordance with its terms, or is intended to or will affect the relative rights of such Payee and other creditors of such Payor other than the holders of Senior Indebtedness.
Each Payee is hereby authorized to record all loans and advances made by it to any Payor (all of which shall be evidenced by this Note), and all repayments or prepayments thereof, in its books and records, such books and records constituting prima facie evidence of the accuracy of the information contained therein.
Each Payor hereby waives presentment, demand, protest or notice of any kind in connection with this Note. All payments under this Note shall be made without offset, counterclaim or deduction of any kind.
It is understood that this Note shall not evidence indebtedness in respect of accounts payable incurred in connection with goods sold or services rendered in the ordinary course of business and not in connection with the borrowing of money.
This Note shall be binding upon each Payor and its successors and assigns, and the terms and provisions of this Note shall inure to the benefit of each Payee and their respective successors and assigns, including subsequent holders hereof. Notwithstanding anything to the contrary contained herein, in any Secured Document or in any other promissory note or other instrument, this Note replaces and supersedes any and all promissory notes or other instruments which create or evidence any loans or advances made on, before or after the date hereof by any Payee to any other Subsidiary.
3
From time to time after the date hereof, additional Subsidiaries of the Company may become parties hereto (as Payor and/or Payee, as the case may be) by executing a counterpart signature page to this Note (each additional Subsidiary, an Additional Party). Upon delivery of such counterpart signature page to the Payees, notice of which is hereby waived by the other Payors, each Additional Party shall be a Payor and/or a Payee, as the case may be, and shall be as fully a party hereto as if such Additional Party were an original signatory hereof. Each Payor expressly agrees that its obligations arising hereunder shall not be affected or diminished by the addition or release of any other Payor or Payee hereunder. This Note shall be fully effective as to any Payor or Payee that is or becomes a party hereto regardless of whether any other person becomes or fails to become or ceases to be a Payor or Payee hereunder.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
[Signature Pages Follow]
4
AMERICAN TIRE DISTRIBUTORS HOLDINGS, INC. | ||
By: |
| |
Name: Title: |
[Signature Page to Intercompany Note]
AMERICAN TIRE DISTRIBUTORS, INC. | ||
By: |
| |
Name: Title: |
[Signature Page to Intercompany Note]
AM-PAC TIRE DIST. INC. | ||
By: |
| |
Name: Title: |
[Signature Page to Intercompany Note]
TIRE PROS FRANCORP | ||
By: |
| |
Name: Title: |
[Signature Page to Intercompany Note]
Exhibit 10.7
EXECUTION VERSION
Published Deal CUSIP Number: 03021BAA2
$300,000,000
CREDIT AGREEMENT
Dated as of March 28, 2014
among
AMERICAN TIRE DISTRIBUTORS, INC.,
as Borrower,
AMERICAN TIRE DISTRIBUTORS HOLDINGS, INC.,
as Holdings,
each GUARANTOR from time to time party hereto,
BANK OF AMERICA, N.A.,
as Administrative Agent,
and
THE OTHER LENDERS PARTY HERETO
BANK OF AMERICA, N.A.,
as Sole Lead Arranger and Sole Bookrunner
Table of Contents
Page | ||||||
ARTICLE I | ||||||
Definitions and Accounting Terms | ||||||
SECTION 1.01 |
Defined Terms | 1 | ||||
SECTION 1.02 |
Other Interpretive Provisions | 62 | ||||
SECTION 1.03 |
Accounting Terms | 63 | ||||
SECTION 1.04 |
Rounding | 63 | ||||
SECTION 1.05 |
References to Agreements, Laws, Etc. | 63 | ||||
SECTION 1.06 |
Times of Day and Timing of Payment and Performance | 63 | ||||
SECTION 1.07 |
Pro Forma and Other Calculations | 63 | ||||
SECTION 1.08 |
Available Amount Transaction | 65 | ||||
SECTION 1.09 |
Currency Generally | 65 | ||||
SECTION 1.10 |
Limited Condition Acquisitions | 65 | ||||
ARTICLE II | ||||||
The Commitments and Borrowings | ||||||
SECTION 2.01 |
Term Borrowings | 66 | ||||
SECTION 2.02 |
Borrowings, Conversions and Continuations of Loans | 66 | ||||
SECTION 2.03 |
Prepayments | 68 | ||||
SECTION 2.04 |
Termination of Commitments | 77 | ||||
SECTION 2.05 |
Repayment of Loans | 77 | ||||
SECTION 2.06 |
Interest | 77 | ||||
SECTION 2.07 |
Fees | 78 | ||||
SECTION 2.08 |
Computation of Interest and Fees | 78 | ||||
SECTION 2.09 |
Evidence of Indebtedness | 78 | ||||
SECTION 2.10 |
Payments Generally | 79 | ||||
SECTION 2.11 |
Sharing of Payments | 80 | ||||
SECTION 2.12 |
Incremental Facilities | 81 | ||||
SECTION 2.13 |
Refinancing Amendments | 83 | ||||
SECTION 2.14 |
Extensions of Loans | 84 | ||||
SECTION 2.15 |
Prepayment Premium | 86 | ||||
ARTICLE III | ||||||
Taxes, Increased Costs Protection and Illegality | ||||||
SECTION 3.01 |
Taxes | 86 | ||||
SECTION 3.02 |
Illegality | 89 | ||||
SECTION 3.03 |
Inability to Determine Rates | 89 | ||||
SECTION 3.04 |
Increased Cost and Reduced Return; Capital Adequacy; Reserves on Eurodollar Rate Loans | 89 | ||||
SECTION 3.05 |
Funding Losses | 91 | ||||
SECTION 3.06 |
Matters Applicable to All Requests for Compensation | 91 | ||||
SECTION 3.07 |
Replacement of Lenders under Certain Circumstances | 92 | ||||
SECTION 3.08 |
Survival | 93 |
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ARTICLE IV | ||||||
Conditions Precedent to Credit Extension | ||||||
SECTION 4.01 |
Conditions to Borrowing | 93 | ||||
ARTICLE V | ||||||
Representations and Warranties | ||||||
SECTION 5.01 |
Existence, Qualification and Power; Compliance with Laws | 95 | ||||
SECTION 5.02 |
Authorization; Enforceability | 95 | ||||
SECTION 5.03 |
Governmental Authorization; No Conflict | 96 | ||||
SECTION 5.04 |
Insurance | 96 | ||||
SECTION 5.05 |
Financial Statements; No Material Adverse Effect | 96 | ||||
SECTION 5.06 |
Litigation | 96 | ||||
SECTION 5.07 |
Labor Matters | 97 | ||||
SECTION 5.08 |
Ownership of Property; Liens | 97 | ||||
SECTION 5.09 |
Environmental Matters | 97 | ||||
SECTION 5.10 |
Taxes | 97 | ||||
SECTION 5.11 |
ERISA Compliance | 97 | ||||
SECTION 5.12 |
Subsidiaries | 97 | ||||
SECTION 5.13 |
Federal Reserve Regulations; Investment Company Act | 98 | ||||
SECTION 5.14 |
Disclosure | 98 | ||||
SECTION 5.15 |
Intellectual Property; Licenses, Etc. | 98 | ||||
SECTION 5.16 |
Solvency | 98 | ||||
SECTION 5.17 |
Subordination of Junior Financing | 99 | ||||
SECTION 5.18 |
USA Patriot Act and OFAC | 99 | ||||
SECTION 5.19 |
Collateral Documents | 99 | ||||
ARTICLE VI | ||||||
Affirmative Covenants | ||||||
SECTION 6.01 |
Financial Statements | 99 | ||||
SECTION 6.02 |
Certificates; Other Information | 100 | ||||
SECTION 6.03 |
Notices | 102 | ||||
SECTION 6.04 |
Payment of Obligations | 102 | ||||
SECTION 6.05 |
Preservation of Existence, Etc. | 102 | ||||
SECTION 6.06 |
Maintenance of Properties | 102 | ||||
SECTION 6.07 |
Maintenance of Insurance | 102 | ||||
SECTION 6.08 |
Compliance with Laws | 103 | ||||
SECTION 6.09 |
Books and Records | 103 | ||||
SECTION 6.10 |
Inspection Rights | 103 | ||||
SECTION 6.11 |
Covenant to Give Security | 103 | ||||
SECTION 6.12 |
Compliance with Environmental Laws | 104 | ||||
SECTION 6.13 |
Further Assurances and Post-Closing Covenant | 104 | ||||
SECTION 6.14 |
Use of Proceeds | 104 | ||||
SECTION 6.15 |
Maintenance of Ratings | 104 | ||||
ARTICLE VII | ||||||
Negative Covenants | ||||||
SECTION 7.01 |
Liens | 104 | ||||
SECTION 7.02 |
[Reserved] | 104 |
-ii-
SECTION 7.03 |
Indebtedness | 104 | ||||
SECTION 7.04 |
Fundamental Changes | 105 | ||||
SECTION 7.05 |
Dispositions | 107 | ||||
SECTION 7.06 |
Restricted Payments | 108 | ||||
SECTION 7.07 |
Change in Nature of Business | 113 | ||||
SECTION 7.08 |
Transactions with Affiliates | 113 | ||||
SECTION 7.09 |
Burdensome Agreements | 115 | ||||
SECTION 7.10 |
Accounting Changes | 117 | ||||
SECTION 7.11 |
Modification of Terms of Junior Financing | 117 | ||||
SECTION 7.12 |
Limitation on Guarantees of Indebtedness by Restricted Subsidiaries | 117 | ||||
SECTION 7.13 |
Impairment of Security Interests | 118 | ||||
ARTICLE VIII | ||||||
Events of Default and Remedies | ||||||
SECTION 8.01 |
Events of Default | 118 | ||||
SECTION 8.02 |
Remedies upon Event of Default | 120 | ||||
SECTION 8.03 |
Application of Funds | 120 | ||||
ARTICLE IX | ||||||
Administrative Agent and Other Agents | ||||||
SECTION 9.01 |
Appointment and Authorization of the Administrative Agent | 121 | ||||
SECTION 9.02 |
Rights as a Lender | 121 | ||||
SECTION 9.03 |
Exculpatory Provisions | 121 | ||||
SECTION 9.04 |
Lack of Reliance on the Administrative Agent | 122 | ||||
SECTION 9.05 |
Certain Rights of the Administrative Agent | 123 | ||||
SECTION 9.06 |
Reliance by the Administrative Agent | 123 | ||||
SECTION 9.07 |
Delegation of Duties | 123 | ||||
SECTION 9.08 |
Indemnification | 123 | ||||
SECTION 9.09 |
The Administrative Agent in Its Individual Capacity | 124 | ||||
SECTION 9.10 |
Holders | 124 | ||||
SECTION 9.11 |
Resignation by the Administrative Agent | 124 | ||||
SECTION 9.12 |
Collateral Matters | 125 | ||||
SECTION 9.13 |
Delegation of Duties | 125 | ||||
SECTION 9.14 |
Administrative Agent May File Proofs of Claim | 126 | ||||
SECTION 9.15 |
Appointment of Supplemental Administrative Agents | 127 | ||||
SECTION 9.16 |
Intercreditor Agreements | 127 | ||||
SECTION 9.17 |
Withholding Tax | 128 | ||||
ARTICLE X | ||||||
Miscellaneous | ||||||
SECTION 10.01 |
Amendments, Etc. | 128 | ||||
SECTION 10.02 |
Notices and Other Communications; Facsimile Copies | 131 | ||||
SECTION 10.03 |
No Waiver; Cumulative Remedies | 132 | ||||
SECTION 10.04 |
Costs and Expenses | 133 | ||||
SECTION 10.05 |
Indemnification by the Borrower | 133 | ||||
SECTION 10.06 |
Marshaling; Payments Set Aside | 134 | ||||
SECTION 10.07 |
Successors and Assigns | 134 | ||||
SECTION 10.08 |
Confidentiality | 141 | ||||
SECTION 10.09 |
Setoff | 142 | ||||
SECTION 10.10 |
Interest Rate Limitation | 142 |
-iii-
SECTION 10.11 |
Counterparts; Integration; Effectiveness | 142 | ||||
SECTION 10.12 |
Electronic Execution of Assignments and Certain Other Documents | 142 | ||||
SECTION 10.13 |
Survival of Representations and Warranties | 142 | ||||
SECTION 10.14 |
Severability | 143 | ||||
SECTION 10.15 |
GOVERNING LAW | 143 | ||||
SECTION 10.16 |
WAIVER OF RIGHT TO TRIAL BY JURY | 143 | ||||
SECTION 10.17 |
Binding Effect | 144 | ||||
SECTION 10.18 |
Lender Action | 144 | ||||
SECTION 10.19 |
Use of Name, Logo, Etc. | 144 | ||||
SECTION 10.20 |
USA PATRIOT Act | 144 | ||||
SECTION 10.21 |
Service of Process | 144 | ||||
SECTION 10.22 |
No Advisory or Fiduciary Responsibility | 144 | ||||
ARTICLE XI | ||||||
Guaranty | ||||||
SECTION 11.01 |
Guaranty | 145 | ||||
SECTION 11.02 |
Limitation on Guarantor Liability | 146 | ||||
SECTION 11.03 |
Execution and Delivery | 146 | ||||
SECTION 11.04 |
Subrogation | 146 | ||||
SECTION 11.05 |
Benefits Acknowledged | 146 | ||||
SECTION 11.06 |
Release of Guaranty by Guarantors | 146 | ||||
ARTICLE XII | ||||||
Collateral Documents | ||||||
SECTION 12.01 |
Collateral and Collateral Documents | 147 | ||||
SECTION 12.02 |
[Reserved] | 148 | ||||
SECTION 12.03 |
Release of Collateral | 148 | ||||
SECTION 12.04 |
Permitted Releases Not To Impair Lien | 149 | ||||
SECTION 12.05 |
[Reserved] | 149 | ||||
SECTION 12.06 |
Suits To Protect the Collateral | 149 | ||||
SECTION 12.07 |
Authorization of Receipt of Funds by the Administrative Agent Under the Collateral Documents | 150 | ||||
SECTION 12.08 |
Purchaser Protected | 150 | ||||
SECTION 12.09 |
Powers Exercisable by Receiver or Administrative Agent | 150 | ||||
SECTION 12.10 |
Release Upon Termination of the Borrowers Obligations | 150 | ||||
SECTION 12.11 |
Collateral Agent | 151 | ||||
SECTION 12.12 |
Designations | 153 | ||||
SECTION 12.13 |
Additional Collateral | 153 |
SCHEDULES
1.01 |
Closing Date Guarantors | |
1.01A |
Closing Date Security Documents | |
2.01 |
Commitments | |
4.01(a)(vi) |
Local Counsel | |
5.12 |
Subsidiaries and Other Equity Investments | |
7.01 |
Existing Liens | |
7.03 |
Existing Indebtedness | |
7.06 |
Existing Investments | |
7.08 |
Transactions with Affiliates | |
7.09 |
Existing Restrictions | |
10.02 |
Administrative Agents Office, Certain Addresses for Notices |
-iv-
EXHIBITS
Form of
A |
Committed Loan Notice | |
B |
Term Loan Note | |
C |
Compliance Certificate | |
D-1 |
Assignment and Assumption | |
D-2 |
Affiliated Lender Assignment and Assumption | |
E |
Guarantor Joinder Agreement | |
F |
United States Tax Compliance Certificates | |
G |
Solvency Certificate | |
H |
Discount Range Prepayment Notice | |
I |
Discount Range Prepayment Offer | |
J |
Solicited Discounted Prepayment Notice | |
K |
Acceptance and Prepayment Notice | |
L |
Specified Discount Prepayment Notice | |
M |
Solicited Discounted Prepayment Offer | |
N |
Specified Discount Prepayment Response | |
O |
Mortgage |
-v-
CREDIT AGREEMENT
This CREDIT AGREEMENT (this Agreement) is entered into as of March 28, 2014 among AMERICAN TIRE DISTRIBUTORS HOLDINGS, INC., a Delaware corporation (Holdings; as hereinafter further defined), AMERICAN TIRE DISTRIBUTORS, INC., a Delaware corporation (the Borrower), the GUARANTORS from time to time party hereto, BANK OF AMERICA, N.A, as administrative agent (in such capacity, including any successor thereto, the Administrative Agent) under the Loan Documents, and each lender from time to time party hereto (collectively, the Lenders and individually, a Lender).
PRELIMINARY STATEMENTS
Pursuant to the Acquisition Agreement, the Borrower will acquire (the Acquisition), directly or indirectly, the Equity Interests of Terrys Tire Town Holdings, Inc. (the Acquired Company) on the Closing Date.
In connection therewith, it is intended that (a) the Borrower will obtain an initial aggregate principal amount of $300,000,000 of Initial Term Loans pursuant to this Agreement, (b) the Borrower will borrow revolving loans under the ABL Credit Agreement in an aggregate principal amount of approximately $60,000,000 and (c) the proceeds of the Initial Term Loans and ABL Revolving Loans will be used to pay the consideration and other amounts owing in connection with the Acquisition under the Acquisition Agreement, to repay certain existing indebtedness and hedging obligations of the Acquired Company and its Subsidiaries and to pay all fees, costs and expenses incurred in connection with the Transactions and related transactions (including to fund any original issue discount and upfront fees).
In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:
ARTICLE I
Definitions and Accounting Terms
SECTION 1.01 Defined Terms. As used in this Agreement, the following terms shall have the meanings set forth below:
ABL Agent means Bank of America, N.A., in its capacity as Agent under the ABL Facility, and any successor thereto in such capacity.
ABL Collateral has the meaning ascribed to ABL Facility Collateral in the Crossing Lien Intercreditor Agreement.
ABL Credit Agreement means that certain Sixth Amended and Restated Credit Agreement, dated as of November 30, 2012, as amended by the First Amendment thereto dated as of March 21, 2013 and as further amended by the Second Amendment thereto dated as of January 31, 2014, among the financial institutions party thereto as lenders, Bank of America, N.A., as administrative agent and collateral agent, Holdings, the Borrower and each other Subsidiary of the Borrower party thereto.
ABL Credit Documents means the ABL Credit Agreement and all other instruments, agreements and other documents evidencing the ABL Credit Agreement or providing for any Guarantee, Lien or other right in respect thereof.
ABL Revolving Loans means revolving credit loans made to the Borrower or its Affiliates pursuant to the ABL Credit Agreement.
Acceptable Discount has the meaning specified in Section 2.03(a)(iv)(D)(2).
[Credit Agreement]
Acceptable Prepayment Amount has the meaning specified in Section 2.03(a)(iv)(D)(3).
Acceptance and Prepayment Notice means a notice of the Borrowers acceptance of the Acceptable Discount in substantially the form of Exhibit K.
Acceptance Date has the meaning specified in Section 2.03(a)(iv)(D)(2).
Acquired Company has the meaning specified in the introductory paragraph to this Agreement.
Acquisition has the meaning specified in the preliminary statements to this Agreement.
Acquisition Agreement means that certain Stock Purchase Agreement dated as of February 17, 2014 between the Borrower and TTT Holdings, Inc.
Acquisition Consideration means an amount equal to the total funds required to consummate the Acquisition as set forth in the Acquisition Agreement.
Additional Lender means, at any time, any bank, other financial institution or institutional lender or investor that, in any case, is not an existing Lender and that agrees to provide any portion of any (a) Incremental Term Loan in accordance with Section 2.12, (b) Other Term Loans pursuant to a Refinancing Amendment in accordance with Section 2.13 or (c) Replacement Loans pursuant to Section 10.01; provided that each Additional Lender shall be subject to the approval of the Administrative Agent, such approval not to be unreasonably withheld or delayed, to the extent that any such consent would be required from the Administrative Agent under Section 10.07(b)(iii)(B) for an assignment of Loans to such Additional Lender.
Administrative Agent has the meaning specified in the introductory paragraph to this Agreement.
Administrative Agents Office means the Administrative Agents address and, as appropriate, account as set forth on Schedule 10.02, or such other address or account as the Administrative Agent may from time to time notify the Borrower and the Lenders.
Administrative Questionnaire means an Administrative Questionnaire in a form supplied by the Administrative Agent.
Affiliate of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, control (including, with correlative meanings, the terms controlling, controlled by and under common control with), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise.
Affiliate Transaction has the meaning specified in Section 7.08.
Affiliated Lender means the Sponsor or any Affiliate of the Sponsor other than (a) Holdings, the Borrower or any Subsidiary of Holdings, (b) any Debt Fund Affiliate and (c) any natural person.
Affiliated Lender Assignment and Assumption has the meaning specified in Section 10.07(h)(vi).
Affiliated Lender Cap has the meaning specified in Section 10.07(h)(iv).
After-Acquired Property means any and all assets or property (other than Excluded Assets) acquired after the Closing Date, including any property or assets acquired by the Borrower or a Subsidiary Guarantor from another Subsidiary Guarantor, which in each case constitutes Collateral or would have constituted Collateral had such assets and property been owned by the Borrower or a Subsidiary Guarantor on the Closing Date.
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Agent Parties has the meaning specified in Section 10.02(d).
Agent-Related Persons means the Agents, together with their respective Affiliates and controlling Persons, and their respective officers, directors, employees, partners, agents and other representatives of such Persons and of such Persons Affiliates and their respective successors and assigns.
Agents means, collectively, the Administrative Agent and the Supplemental Administrative Agents (if any).
Aggregate Commitments means the Commitments of all the Lenders.
Agreement means this Credit Agreement.
All-In Yield means, as to any Indebtedness, the yield thereof, whether in the form of interest rate, margin, OID, upfront fees, a Eurodollar Rate floor (with such increased amount being determined in the manner described in the final proviso of this definition), or otherwise, in each case, incurred or payable by the Borrower generally to all lenders of such Indebtedness; provided that OID and upfront fees shall be equated to interest rate assuming a 4-year life to maturity (or, if less, the stated life to maturity at the time of incurrence of the applicable Indebtedness); provided, further, that All-In Yield shall not include arrangement fees, structuring fees, commitment fees, underwriting fees and similar fees (regardless of whether paid in whole or in part to any or all lenders) or other fees not generally paid to all lenders of such Indebtedness or, if applicable, ticking fees accruing prior to the funding of such Indebtedness or consent fees for an amendment paid generally to consenting lenders; provided further that, with respect to any Loans of an applicable Class that includes a Eurodollar Rate floor, (1) to the extent that the Reference Rate on the date that the All-In Yield is being calculated is less than such floor, the amount of such difference shall be deemed added to the Applicable Rate for such Loans of such Class for the purpose of calculating the All-In Yield and (2) to the extent that the Reference Rate on the date that the All-In Yield is being calculated is greater than such floor, then the floor shall be disregarded in calculating the All-In Yield.
Annual Financial Statements means the audited consolidated balance sheets of Acquired Company and its Subsidiaries as of the fiscal years ended December 31, 2013 and December 31, 2012, and the related statements of operations, shareholders equity, and cash flows for the fiscal years then ended.
Applicable Discount has the meaning specified in Section 2.03(a)(iv)(C)(2).
Applicable Rate means a percentage per annum equal to: (i) until delivery of financial statements for the first full fiscal quarter ending after the Closing Date pursuant to Section 6.01, (a) 4.75% for Eurodollar Rate Loans and (b) 3.75% for Base Rate Loans, and (ii) thereafter, the following percentages per annum, based upon the Consolidated Net Leverage Ratio as specified in the most recent Compliance Certificate received by the Administrative Agent pursuant to Section 6.02(a):
Pricing Level | Consolidated Net Leverage Ratio |
Eurodollar Rate | Base Rate | |||
1 | ³ 4.50 to 1.00 | 4.75% | 3.75% | |||
2 | < 4.50 to 1.00 | 4.50% | 3.50% |
Any increase or decrease in the Applicable Rate resulting from a change in the Consolidated Net Leverage Ratio shall become effective as of the first Business Day immediately following the date a Compliance Certificate is delivered pursuant to Section 6.02(a); provided that Pricing Level 1 (as set forth above) shall apply as of (x) the first Business Day after the date on which a Compliance Certificate was required to have been delivered but was not delivered, and shall continue to so apply to and including the date on which such Compliance Certificate is so delivered (and thereafter the pricing level otherwise determined in accordance with this definition shall apply)
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and (y) at the option of the Administrative Agent or the Required Facility Lenders under the Term Facility in respect of the Initial Term Loans, the first Business Day after an Event of Default under Section 8.01(a) shall have occurred and be continuing, and shall continue to so apply to but excluding the date on which such Event of Default is cured or waived (and thereafter the pricing level otherwise determined in accordance with this definition shall apply).
Appropriate Lender means, at any time, with respect to Loans of any Class, the Lenders of such Class.
Approved Fund means, with respect to any Lender, any Person (other than a natural person) that is primarily engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its activities and is administered, advised or managed by (a) such Lender, (b) an Affiliate of such Lender or (c) an entity or an Affiliate of an entity that administers, advises or manages such Lender.
Arranger means Bank of America, N.A. in its capacity as sole lead arranger under this Agreement.
Assignee Group means two or more Eligible Assignees that are Affiliates of one another or two or more Approved Funds managed by the same investment advisor.
Assignment and Assumption means an Assignment and Assumption substantially in the form of Exhibit D-1 or any other form approved by the Administrative Agent.
Attorney Costs means all reasonable fees, expenses and disbursements of any law firm or other external legal counsel, to the extent documented and invoiced.
Auction Agent means (a) the Administrative Agent or (b) any other financial institution or advisor engaged by the Borrower (whether or not an Affiliate of the Administrative Agent) to act as an arranger in connection with any Discounted Term Loan Prepayment pursuant to Section 2.03(a)(iv); provided that the Borrower shall not designate the Administrative Agent as the Auction Agent without the written consent of the Administrative Agent (it being understood that the Administrative Agent shall be under no obligation to agree to act as the Auction Agent); provided, further, that neither the Borrower nor any of its Affiliates may act as the Auction Agent.
Available Amount means, at any time, the sum of (without duplication) of:
(a) $50,000,000; plus
(b) 50.0% of the Consolidated Net Income of the Borrower for the period (taken as one accounting period) beginning on the first day of the fiscal quarter in which the Closing Date occurs to the end of the Borrowers most recently ended fiscal quarter for which internal financial statements are available at such time, or, in the case such Consolidated Net Income for such period is a deficit, minus 100.0% of such deficit; plus
(c) 100.0% of the aggregate net cash proceeds and the fair market value of marketable securities or other property received by the Borrower since immediately after the Closing Date (other than net cash proceeds to the extent such net cash proceeds have been used to incur Indebtedness pursuant to clause (m)(i) of the definition of Permitted Indebtedness) from the issue or sale of:
(i) (A) Equity Interests of the Borrower, including Treasury Capital Stock, but excluding cash proceeds and the fair market value of marketable securities or other property received from the sale of:
(x) Equity Interests to any future, present or former employees, directors, officers, managers, distributors or consultants (or their respective Controlled Investment Affiliates or Immediate Family Members) of the Borrower, any Parent Entity of the
4
Borrower or the Borrowers Subsidiaries after the Closing Date to the extent such amounts have been applied to Restricted Payments made in accordance with Section 7.06(b)(iv);
(y) Designated Preferred Stock;
and (B) to the extent such net cash proceeds are actually contributed to the Borrower, Equity Interests of any Parent Entity of the Borrower (excluding contributions of the proceeds from the sale of Designated Preferred Stock of such Person or contributions to the extent such amounts have been applied to Restricted Payments made in accordance with Section 7.06(b)(iv)); or
(ii) debt securities of the Borrower that have been converted into or exchanged for such Equity Interests of the Borrower;
provided that this clause (c) shall not include the proceeds from (W) Refunding Capital Stock, (X) Equity Interests or convertible debt securities of the Borrower sold to a Restricted Subsidiary, (Y) Disqualified Stock or debt securities that have been converted into Disqualified Stock or (Z) Excluded Contributions; plus
(d) 100.0% of the aggregate amount of cash and the fair market value of marketable securities or other property contributed to the capital of the Borrower following the Closing Date (other than net cash proceeds to the extent such net cash proceeds have been used to incur Indebtedness pursuant to clause (m)(i) of the definition of Permitted Indebtedness) (other than by a Restricted Subsidiary and other than any Excluded Contributions); plus
(e) 100.0% of the aggregate amount received in cash and the fair market value of marketable securities or other property received by means of:
(i) the sale or other disposition (other than to the Borrower or a Restricted Subsidiary) of Restricted Investments made by the Borrower or a Restricted Subsidiary and repurchases and redemptions of such Restricted Investments from the Borrower or a Restricted Subsidiary (other than by the Borrower or a Restricted Subsidiary) and repayments of loans or advances, which constitute Restricted Investments made by the Borrower or a Restricted Subsidiary, in each case after the Closing Date; or
(ii) the sale (other than to the Borrower or a Restricted Subsidiary) of the stock of an Unrestricted Subsidiary or a distribution from an Unrestricted Subsidiary (only to the extent the Investment in such Unrestricted Subsidiary was a Restricted Investment) or a dividend from an Unrestricted Subsidiary after the Closing Date; plus
(f) in the case of the redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary after the Closing Date, the fair market value of the Investment in such Unrestricted Subsidiary at the time of the redesignation of such Unrestricted Subsidiary as a Restricted Subsidiary to the extent the Investment in such Unrestricted Subsidiary was a Restricted Investment; plus
(g) the aggregate amount of Declined Proceeds accumulated since the Closing Date.
Available Incremental Amount has the meaning specified in Section 2.12(d)(iii).
Bankruptcy Code has the meaning specified in Section 8.02.
Base Rate means for any day a fluctuating rate per annum equal to the highest of (a) the Federal Funds Rate plus 1/2 of 1%, (b) the rate of interest in effect for such day as publicly announced from time to time by the Administrative Agent as its prime rate and (c) the Eurodollar Rate on such day for an Interest Period of one (1)
5
month plus 1.00% (or, if such day is not a Business Day, the immediately preceding Business Day). The prime rate is a rate set by the Administrative Agent based upon various factors including the Administrative Agents costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in such rate announced by the Administrative Agent shall take effect at the opening of business on the day specified in the public announcement of such change.
Base Rate Loan means a Loan that bears interest based on the Base Rate.
Big Boy Letter means a letter from a Lender acknowledging that (1) an Affiliated Lender may have information regarding the Borrower and its Subsidiaries, their ability to perform the Obligations or any other material information that has not previously been disclosed to the Administrative Agent and the Lenders (Excluded Information), (2) the Excluded Information may not be available to such Lender, (3) such Lender has independently and without reliance on any other party made its own analysis and determined to assign Term Loans to an Affiliated Lender pursuant to Section 10.07(h) notwithstanding its lack of knowledge of the Excluded Information and (4) such Lender waives and releases any claims it may have against the Administrative Agent, such Affiliated Lender, Holdings, the Borrower and the Subsidiaries of the Borrower with respect to the nondisclosure of the Excluded Information; or otherwise in form and substance reasonably satisfactory to such Affiliated Lender and assigning Lender.
Borrower has the meaning specified in the introductory paragraph to this Agreement.
Borrower Materials has the meaning specified in Section 6.02.
Borrower Offer of Specified Discount Prepayment means the offer by a Borrower Party to make a voluntary prepayment of Loans at a specified discount to par pursuant to Section 2.03(a)(iv)(B).
Borrower Parties means the collective reference to Holdings, the Borrower and each Subsidiary of the Borrower and Borrower Party means any one of them.
Borrower Solicitation of Discount Range Prepayment Offers means the solicitation by a Borrower Party of offers for, and the corresponding acceptance by a Lender of, a voluntary prepayment of Loans at a specified range of discounts to par pursuant to Section 2.03(a)(iv)(C).
Borrower Solicitation of Discounted Prepayment Offers means the solicitation by a Borrower Party of offers for, and the subsequent acceptance, if any, by a Lender of, a voluntary prepayment of Loans at a discount to par pursuant to Section 2.03(a)(iv)(D).
Borrowing means a borrowing consisting of Loans of the same Class and Type made, converted or continued on the same date and, in the case of Eurodollar Rate Loans, having the same Interest Period.
Borrowing Base means, as of any date, an amount equal to the sum of:
(i) 85% of the aggregate book value of all accounts receivable of the Borrower and the Restricted Subsidiaries; and
(ii) 70% of the aggregate book value of all inventory owned by the Borrower and the Restricted Subsidiaries,
all calculated on a consolidated basis in accordance with GAAP.
Business Day means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the jurisdiction where the Administrative Agents Office is located and if such day relates to any interest rate settings as to a Eurodollar Rate Loan, any fundings, disbursements, settlements and payments in respect of any such Eurodollar Rate Loan, or any other
6
dealings to be carried out pursuant to this Agreement in respect of any such Eurodollar Rate Loan, means any such day on which dealings in deposits in Dollars are conducted by and between banks in the London interbank eurodollar market.
Canadian Dollars means the lawful currency of Canada.
Capital Expenditures means, for any period, the aggregate of all expenditures (whether paid in cash or accrued as liabilities and including in all events all amounts expended or capitalized under Capitalized Lease Obligations) by the Borrower and the Restricted Subsidiaries during such period that, in conformity with GAAP, are or are required to be included as capital expenditures on the consolidated statement of cash flows of the Borrower and the Restricted Subsidiaries.
Capital Stock means:
(a) in the case of a corporation, corporate stock;
(b) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;
(c) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and
(d) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person but excluding from all of the foregoing any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock.
Capitalized Lease Obligation means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized and reflected as a liability on a balance sheet (excluding the footnotes thereto) prepared in accordance with GAAP; provided that all obligations of any Person that are or would be characterized as operating lease obligations in accordance with GAAP on the Closing Date (whether or not such operating lease obligations were in effect on such date) shall continue to be accounted for as operating lease obligations (and not as Capitalized Lease Obligations) for purposes of this Agreement regardless of any change in GAAP following the Closing Date that would otherwise require such obligations to be recharacterized (on a prospective or retroactive basis or otherwise) as Capitalized Lease Obligations.
Capitalized Software Expenditures means, for any period, the aggregate of all expenditures (whether paid in cash or accrued as liabilities) by the Borrower and the Restricted Subsidiaries during such period in respect of licensed or purchased software or internally developed software and software enhancements that, in conformity with GAAP, are or are required to be reflected as capitalized costs on the consolidated balance sheet of the Borrower and the Restricted Subsidiaries.
Cash Collateral Account means an account held at, and subject to the sole dominion and control of, the Collateral Agent.
Cash Equivalents means:
(a) Dollars;
(b) (i) Canadian Dollars, Pounds, euros or any national currency of any participating member state of the EMU; or
(ii) in the case of any Foreign Subsidiary that is a Restricted Subsidiary or any jurisdiction in which the Borrower and the Restricted Subsidiaries conduct business, such local currencies held by it from time to time in the ordinary course of business;
7
(c) securities issued or directly and fully and unconditionally guaranteed or insured by the U.S. government or any agency or instrumentality thereof the securities of which are unconditionally guaranteed as a full faith and credit obligation of such government with maturities of 12 months or less from the date of acquisition;
(d) certificates of deposit, time deposits and eurodollar time deposits with maturities of 12 months or less from the date of acquisition, demand deposits, bankers acceptances with maturities not exceeding one year and overnight bank deposits, in each case with any domestic or foreign commercial bank having capital and surplus of not less than $500,000,000 in the case of U.S. banks and $100,000,000 (or the U.S. dollar equivalent as of the date of determination) in the case of non-U.S. banks;
(e) repurchase obligations for underlying securities of the types described in clauses (c), (d) and (h) entered into with any financial institution or recognized securities dealer meeting the qualifications specified in clause (d) above;
(f) commercial paper rated at least P-2 by Moodys or at least A-2 by S&P (or, if at any time neither Moodys nor S&P shall be rating such obligations, an equivalent rating from another Rating Agency) and in each case maturing within 24 months after the date of creation or acquisition thereof and Indebtedness or Preferred Stock issued by Persons with a rating of A or higher from S&P or A-2 or higher from Moodys with maturities of 24 months or less from the date of acquisition;
(g) marketable short-term money market and similar funds having a rating of at least P-2 or A-2 from either Moodys or S&P, respectively (or, if at any time neither Moodys nor S&P shall be rating such obligations, an equivalent rating from another Rating Agency);
(h) readily marketable direct obligations issued by any state, commonwealth or territory of the United States or any political subdivision or taxing authority thereof having an Investment Grade Rating from either Moodys or S&P (or, if at any time neither Moodys nor S&P shall be rating such obligations, an equivalent rating from another Rating Agency) with maturities of 24 months or less from the date of acquisition;
(i) readily marketable direct obligations issued by any foreign government or any political subdivision or public instrumentality thereof, in each case having an Investment Grade Rating from either Moodys or S&P (or, if at any time neither Moodys nor S&P shall be rating such obligations, an equivalent rating from another Rating Agency) with maturities of 24 months or less from the date of acquisition;
(j) Investments with average maturities of 12 months or less from the date of acquisition in money market funds rated AAA- (or the equivalent thereof) or better by S&P or Aaa3 (or the equivalent thereof) or better by Moodys (or, if at any time neither Moodys nor S&P shall be rating such obligations, an equivalent rating from another Rating Agency); and
(k) investment funds investing at least 90.0% of their assets in securities of the types described in clauses (a) through (j) above.
In the case of Investments by any Foreign Subsidiary that is a Restricted Subsidiary or Investments made in a country outside the United States of America, Cash Equivalents shall also include (a) investments of the type and maturity described in clauses (a) through (h) and clauses (j) and (k) above of foreign obligors, which Investments or obligors (or the parents of such obligors) have ratings described in such clauses or equivalent ratings from comparable foreign rating agencies and (b) other short-term investments utilized by Foreign Subsidiaries that are Restricted Subsidiaries in accordance with normal investment practices for cash management in investments analogous to the foregoing investments in clauses (a) through (k) and in this paragraph.
8
Notwithstanding the foregoing, Cash Equivalents shall include amounts denominated in currencies other than those set forth in clauses (a) and (b) above, provided that such amounts are converted into any currency listed in clauses (a) and (b) as promptly as practicable and in any event within ten (10) Business Days following the receipt of such amounts.
Cash Management Agreement means any agreement entered into from time to time by Holdings, the Borrower or any Restricted Subsidiary in connection with cash management services for collections, other Cash Management Services and for operating, payroll and trust accounts of such Person, including automatic clearing house services, controlled disbursement services, electronic funds transfer services, information reporting services, lockbox services, stop payment services and wire transfer services.
Cash Management Bank means any Person that was an Agent, a Lender or an Affiliate of an Agent or Lender at the time it entered into a Cash Management Agreement, whether or not such Person subsequently ceases to be an Agent, a Lender or an Affiliate of an Agent or Lender.
Cash Management Obligations means obligations owed by Holdings, the Borrower or any Restricted Subsidiary to any Cash Management Bank in connection with, or in respect of, any Cash Management Services.
Cash Management Services means (a) commercial credit cards, merchant card services, purchase or debit cards, including non-card e-payables services, (b) treasury management services (including controlled disbursement, overdraft, automatic clearing house fund transfer services, return items and interstate depository network services) and (c) any other demand deposit or operating account relationships or other cash management services, including under any Cash Management Agreements.
Casualty Event means any event that gives rise to the receipt by the Borrower or any Restricted Subsidiary of any insurance proceeds or condemnation awards in respect of any equipment, fixed assets or real property (including any improvements thereon) to replace or repair such equipment, fixed assets or real property.
CFC means a controlled foreign corporation within the meaning of Section 957(a) of the Code.
Change in Law means the occurrence, after the Closing Date, of any of the following: (a) the adoption of any law, rule, regulation or treaty (excluding the taking effect after the Closing Date of a law, rule, regulation or treaty adopted prior to the Closing Date), (b) any change in any law, rule, regulation or treaty or in the administration, interpretation or application thereof by any Governmental Authority or (c) the making or issuance of any request, guideline or directive (whether or not having the force of law) by any Governmental Authority. It is understood and agreed that (i) the DoddFrank Wall Street Reform and Consumer Protection Act (Public Law 111-203, H.R. 4173), all Laws relating thereto and all interpretations and applications thereof and (ii) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States regulatory authorities, in each case pursuant to Basel III, shall, for the purpose of this Agreement, be deemed to be adopted subsequent to the Closing Date.
Change of Control means the earliest to occur (after the Closing Date) of (and excluding, for the avoidance of doubt, the Transactions):
(a) except as permitted by Section 7.04, the sale, lease or transfer, in one or a series of related transactions, of all or substantially all of the assets of the Borrower and its Subsidiaries, taken as a whole, to any Person other than a Permitted Holder; or
(b) the Borrower becomes aware of (by way of a report or any other filing pursuant to Section 13(d) of the Exchange Act, proxy, vote, written notice or otherwise) the acquisition by any Person or group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any successor provision), including any group acting for the purpose of acquiring, holding or disposing of securities (within the meaning of Rule 13d-5(b)(1) under the Exchange Act), other than one or more Permitted Holders, in a single transaction or in a related series of transactions, by way of merger, amalgamation, consolidation or other business combination or purchase of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act, or any successor provision) of 50.0% or more of the total voting power of the Voting Stock of the Borrower or any of its direct or indirect parent companies.
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Class (a) when used with respect to Lenders, refers to whether such Lenders have Loans or Commitments with respect to a particular Class of Loans or Commitments, (b) when used with respect to Commitments, refers to whether such Commitments are Term B Commitments, Incremental Term Commitments, or Commitments in respect of any Class of Replacement Loans or a Class of Loans to be made pursuant to a given Term Loan Extension Series or Other Term Loan Commitments of a given Class of Other Term Loans, in each case not designated part of another existing Class and (c) when used with respect to Loans or a Borrowing, refers to whether such Loans, or the Loans comprising such Borrowing, are Initial Term Loans, Incremental Term Loans, Replacement Loans, Extended Term Loans or Other Term Loans, in each case not designated part of another existing Class. Commitments (and, in each case, the Loans made pursuant to such Commitments) that have different terms and conditions shall be construed to be in different Classes. Commitments (and, in each case, the Loans made pursuant to such Commitments) that have identical terms and conditions shall be construed to be in the same Class.
Closing Date means the first date on which all the conditions precedent in Section 4.01 are satisfied or waived in accordance with Section 10.01, which date was March 28, 2014.
Closing Date Material Adverse Effect means a Material Adverse Effect as defined in the Acquisition Agreement.
Closing Date Release means the termination and release of all obligations of the Acquired Company and its Subsidiaries in respect of all Indebtedness for borrowed money set forth in Section 2.3(d)(iii) of the Disclosure Schedule (as defined in the Acquisition Agreement) of the Acquisition Agreement (including any amendments or modifications to or refinancing of such Indebtedness), including the termination and release of all security interests and guaranties in connection therewith, or provision therefor reasonably acceptable to the Arranger.
Code means the U.S. Internal Revenue Code of 1986, as amended.
Collateral means the Collateral as defined in the Security Agreement.
Collateral Agent means Bank of America, N.A.
Collateral Documents means, collectively, the Security Agreement, security agreements, pledge agreements, mortgages, collateral assignments, deeds of trust and all other pledges, agreements, financing statements, patent, trademark or copyright filings, mortgages or other filings or documents that create or purport to create a Lien in the Collateral in favor of the Collateral Agent and/or the Administrative Agent (for the benefit of the Collateral Agent, the Administrative Agent and the Secured Parties) and the Intercreditor Agreements, in each case as they may be amended from time to time, and any instruments of assignment, control agreements, lockbox letters or other instruments or agreements executed pursuant to the foregoing.
Commercial and Retread Business means the collective reference to the commercial and retread businesses of (a) Premier Bandag #8, Inc., an Ohio corporation, located at 2300 West Main Street, Alliance, OH 44601 and (b) Terrys Tire Town, Inc., an Ohio corporation located at (i) 1615 Perry Drive SW, Canton, OH, (ii) 1658 Highland Road, units 8-10, Twinsburg, OH 44087 and (iii) 39 Ohio Machinery, Girard, OH 44601.
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Commitment means a Term B Commitment, Incremental Term Commitment, Other Term Loan Commitment, Extended Term Loan Commitment of a given Term Loan Extension Series, or any commitment in respect of Replacement Loans, as the context may require.
Committed Loan Notice means a notice of (a) a Borrowing with respect to a given Class of Loans, (b) a conversion of Loans of a given Class from one Type to the other, or (c) a continuation of Eurodollar Rate Loans of a given Class, pursuant to Section 2.02(a), which, if in writing, shall be substantially in the form of Exhibit A.
Compensation Period has the meaning specified in Section 2.10(c)(ii).
Compliance Certificate means a certificate substantially in the form of Exhibit C and which certificate shall in any event be a certificate of a Financial Officer of the Borrower (a) certifying as to whether a Default has occurred and is continuing and, if applicable, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (b) setting forth reasonably detailed calculations, in the case of financial statements delivered under Section 6.01(a), beginning with the financial statements for the fiscal year of the Borrower ending December 31, 2014, of Excess Cash Flow for such fiscal year (or the relevant portion thereof in the case of the 2014 fiscal year), (c) in the case of financial statements delivered under Section 6.01(a), beginning with the financial statements for the fiscal year of the Borrower ending December 31, 2014, setting forth a reasonably detailed calculation of the Net Cash Proceeds received during the applicable period by, or on behalf of, the Borrower or any Restricted Subsidiary in respect of any Disposition subject to prepayment pursuant to Section 2.03(b)(ii)(A) and the portion of such Net Cash Proceeds that has been invested or are intended to be reinvested in accordance with Section 2.03(b)(ii)(B) and (d) commencing with the certificate delivered pursuant to Section 6.02(a) for the first full fiscal quarter ending after the Closing Date, if the Secured Net Leverage Ratio as of the last day of the most recent Test Period would result in a change in the applicable Pricing Level as set forth in the definition of Applicable Rate, setting forth a calculation of such Secured Net Leverage Ratio.
Consolidated Current Assets means, as at any date of determination, the total assets of the Borrower and the Restricted Subsidiaries on a consolidated basis that may properly be classified as current assets in conformity with GAAP, excluding cash and Cash Equivalents, amounts related to current or deferred taxes based on income or profits, assets held for sale, loans (permitted) to third parties, pension assets, deferred bank fees, derivative financial instruments and any assets in respect of Hedging Obligations, and excluding the effects of adjustments pursuant to GAAP resulting from the application of recapitalization accounting or purchase accounting, as the case may be, in relation to the Transactions, the Hercules Transactions or any consummated acquisition.
Consolidated Current Liabilities means, as at any date of determination, the total liabilities of the Borrower and the Restricted Subsidiaries on a consolidated basis that may properly be classified as current liabilities in conformity with GAAP, excluding (A) the current portion of any Funded Debt, (B) the current portion of interest, (C) accruals for current or deferred taxes based on income or profits, (D) accruals of any costs or expenses related to restructuring reserves or severance, (E) revolving credit loans, swingline loans and letter of credit obligations under the ABL Credit Agreement or any other revolving loans, swingline loans and letter of credit obligations under any other revolving credit facility, (F) the current portion of any Capitalized Lease Obligation, (G) deferred revenue arising from cash receipts that are earmarked for specific projects, (H) liabilities in respect of unpaid earn-outs, (I) the current portion of any other long-term liabilities, (J) accrued litigation settlement costs and (K) any liabilities in respect of Hedging Obligations, and, furthermore, excluding the effects of adjustments pursuant to GAAP resulting from the application of recapitalization accounting or purchase accounting, as the case may be, in relation to the Transactions, the Hercules Transactions or any consummated acquisition.
Consolidated Depreciation and Amortization Expense means with respect to any Person for any period, the total amount of depreciation and amortization expense of such Person and its Restricted Subsidiaries, including the amortization of deferred financing fees, debt issuance costs, commissions, fees and expenses and Capitalized Software Expenditures of such Person and its Restricted Subsidiaries for such period on a consolidated basis and otherwise determined in accordance with GAAP.
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Consolidated Interest Expense means, with respect to any Person for any period, without duplication, the sum of:
(a) consolidated interest expense in respect of Indebtedness of such Person and its Restricted Subsidiaries for such period, to the extent such expense was deducted (and not added back) in computing Consolidated Net Income (including (i) amortization of original issue discount resulting from the issuance of Indebtedness at less than par, (ii) all commissions, discounts and other fees and charges owed with respect to letters of credit or bankers acceptances, (iii) non-cash interest payments (but excluding any non-cash interest expense attributable to the movement in the mark to market valuation of Hedging Obligations or other derivative instruments pursuant to GAAP), (iv) the interest component of Capitalized Lease Obligations, and (v) net payments, if any, made (less net payments, if any, received), pursuant to interest rate Hedging Obligations with respect to Indebtedness, and excluding (t) any expense resulting from the discounting of any Indebtedness in connection with the application of recapitalization accounting or, if applicable, purchase accounting in connection with the Transactions, the Hercules Transactions or any acquisition, (u) penalties and interest relating to taxes and any other financing fees related to the Transactions, the Hercules Transactions or any acquisition (or purchase of assets) after the Closing Date, (v) any additional interest or liquidated damages with respect to other securities for failure to timely comply with registration rights obligations, (w) amortization of deferred financing fees, debt issuance costs, commissions, fees and expenses and discounted liabilities, (x) any expensing of bridge, commitment and other financing fees, (y) commissions, discounts, yield and other fees and charges (including any interest expense) related to any Qualified Securitization Facility and (z) any accretion of accrued interest on discounted liabilities); plus
(b) consolidated capitalized interest of such Person and its Restricted Subsidiaries for such period, whether paid or accrued; less
(c) interest income of such Person and its Restricted Subsidiaries for such period.
For purposes of this definition, interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by such Person to be the rate of interest implicit in such Capitalized Lease Obligation in accordance with GAAP.
Consolidated Net Income means, with respect to any Person for any period, the aggregate of the Net Income attributable to such Person and its Restricted Subsidiaries for such period, on a consolidated basis, and otherwise determined in accordance with GAAP; provided that, without duplication:
(a) the cumulative effect of a change in accounting principles (effected either through cumulative effect adjustment, restructuring or a retroactive application, in each case, in accordance with GAAP) and changes as a result of the adoption or modification of accounting policies during such period shall be excluded;
(b) any net after-tax effect of gains or losses attributable to asset dispositions or abandonments (including any disposal of abandoned or discontinued operations) or the sale or other disposition of any Capital Stock of any Person other than in the ordinary course of business as determined in good faith by the Borrower shall be excluded;
(c) the Net Income for such period of any Person that is an Unrestricted Subsidiary or, any Person that is not the Borrower or a Restricted Subsidiary or that is accounted for by the equity method of accounting, shall be excluded; provided that Consolidated Net Income of the Borrower shall be increased by the amount of dividends or distributions or other payments that are actually paid in cash or Cash Equivalents (or to the extent converted into cash or Cash Equivalents) to the Borrower or a Restricted Subsidiary thereof in respect of such period and the net losses of any such Person shall only be included to the extent funded with cash from the Borrower or any Restricted Subsidiary;
(d) solely for the purpose of determining clause (b) of the Available Amount, the Net Income for such period of any Restricted Subsidiary (other than any Subsidiary Guarantor) shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of its Net Income is not at the date of determination permitted without any prior governmental approval (which has not been obtained) or, directly or indirectly, by the operation of the terms of its charter or any
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agreement, instrument, judgment, decree, order, statute, rule, or governmental regulation applicable to that Restricted Subsidiary or its stockholders, unless such restriction with respect to the payment of dividends or similar distributions has been legally waived, provided that Consolidated Net Income of the Borrower will be increased by the amount of dividends or other distributions or other payments actually paid in cash (or to the extent converted into cash or Cash Equivalents) to the Borrower or any Restricted Subsidiary thereof in respect of such period, to the extent not already included therein;
(e) effects of adjustments (including the effects of such adjustments pushed down to the Borrower and the Restricted Subsidiaries) in the inventory, property and equipment, software, goodwill, other intangible assets, in-process research and development, deferred revenue, debt line items and other noncash charges in such Persons consolidated financial statements pursuant to GAAP resulting from the application of recapitalization accounting or, if applicable, purchase accounting in relation to the Transactions, the Hercules Transactions or any consummated acquisition or the amortization or write-off or write-down of any amounts thereof, net of taxes, shall be excluded;
(f) any net after-tax effect of income (loss) from the early extinguishment or conversion of (a) Indebtedness, (b) Hedging Obligations or (c) other derivative instruments shall be excluded;
(g) any impairment charge or asset write-off or write-down, including impairment charges or asset write-offs or write-downs related to intangible assets, long-lived assets, investments in debt and equity securities or as a result of a change in law or regulation, in each case, pursuant to GAAP, and the amortization of intangibles arising pursuant to GAAP shall be excluded;
(h) any non-cash compensation charge or expense, including any such charge or expense arising from the grants of stock appreciation or similar rights, stock options, restricted stock or other rights or equity incentive programs, shall be excluded, and any cash charges associated with the rollover, acceleration, or payout of Equity Interests by management of the Borrower or its Restricted Subsidiaries or any Parent Entity of the Borrower in connection with the Transactions, shall be excluded;
(i) any fees, expenses or charges incurred during such period, or any amortization thereof for such period, in connection with any acquisition, Investment, Disposition, incurrence or repayment of Indebtedness (including such fees, expenses or charges related to any Loan Document, Senior Notes Document, Senior Subordinated Notes Document or ABL Credit Document), issuance of Equity Interests, Refinancing transaction or amendment or modification of any debt instrument (including any amendment or other modification of any Loan Document, Senior Notes Document, Senior Subordinated Notes Document or ABL Credit Document) and including, in each case, any such transaction whether consummated on, after or prior to the Closing Date and any such transaction undertaken but not completed, and any charges or non-recurring merger costs incurred during such period as a result of any such transaction, in each case whether or not successful or consummated (including, for the avoidance of doubt, the effects of expensing all transaction related expenses in accordance with Accounting Standards Codification Topic No. 805, Business Combinations) shall be excluded;
(j) accruals and reserves that are established within twelve months after the Closing Date that are so required to be established as a result of the Transactions (or within twelve months after the closing of any acquisition (including the Hercules Acquisition) that are so required to be established as a result of such acquisition) in accordance with GAAP shall be excluded;
(k) any expenses, charges or losses that are covered by indemnification or other reimbursement provisions in connection with any investment, acquisition or any sale, conveyance, transfer or other disposition of assets permitted hereunder, to the extent actually indemnified or reimbursed, or, so long as the Borrower has made a determination that a reasonable basis exists for indemnification or reimbursement and only to the extent that such amount is (i) not denied by the applicable carrier (without any right of appeal thereof) within 180 days and (ii) in fact indemnified or reimbursed within 365 days of such determination (with a deduction in the applicable future period for any amount so added back to the extent not so indemnified or reimbursed within such 365 days), shall be excluded;
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(l) to the extent covered by insurance and actually reimbursed, or, so long as the Borrower has made a determination that there exists reasonable evidence that such amount shall in fact be reimbursed by the insurer and only to the extent that such amount is in fact reimbursed within 365 days of the date of such determination (with a deduction in the applicable future period for any amount so added back to the extent not so reimbursed within such 365 day period), expenses, charges or losses with respect to liability or casualty events or business interruption shall be excluded;
(m) any net unrealized gain or loss (after any offset) resulting in such period from Hedging Obligations and the application of Accounting Standards Codification 815 shall be excluded;
(n) any net unrealized gain or loss (after any offset) resulting in such period from currency translation and transaction gains or losses including those related to currency remeasurements of Indebtedness (including any net loss or gain resulting from Hedging Obligations for currency exchange risk) and any other monetary assets and liabilities shall be excluded; and
(o) effects of adjustments to accruals and reserves during a prior period relating to any change in the methodology of calculating reserves for returns, rebates and other chargebacks (including government program rebates) shall be excluded.
In addition, to the extent not already included in the Consolidated Net Income of such Person and its Restricted Subsidiaries, notwithstanding anything to the contrary in the foregoing, Consolidated Net Income shall include the amount of proceeds received from business interruption insurance and reimbursements of any expenses and charges that are covered by indemnification or other reimbursement provisions in connection with any Investment permitted hereunder or any sale, conveyance, transfer or other disposition of assets permitted hereunder.
Notwithstanding the foregoing, for the purpose of determining the Available Amount (other than clause (e) of such definition), there shall be excluded from Consolidated Net Income any income arising from any sale or other disposition of Restricted Investments made by the Borrower and the Restricted Subsidiaries, any repurchases and redemptions of Restricted Investments from the Borrower and the Restricted Subsidiaries, any repayments of loans and advances which constitute Restricted Investments by the Borrower or any Restricted Subsidiary, any sale of the stock of an Unrestricted Subsidiary or any distribution or dividend from an Unrestricted Subsidiary, in each case only to the extent such amounts increase the Available Amount pursuant to clause (e) thereof.
Consolidated Net Leverage Ratio means, as of any date of determination, the ratio of (a) the Consolidated Total Indebtedness of the Borrower and the Restricted Subsidiaries as of the last day of the Test Period most recently ended on or prior to such date of determination to (b) EBITDA of the Borrower and the Restricted Subsidiaries for such Test Period.
Consolidated Total Indebtedness means, as at any date of determination, an amount equal to (a) the sum of (1) the aggregate principal amount of all outstanding Indebtedness of the Borrower and the Restricted Subsidiaries on a consolidated basis consisting of Indebtedness for borrowed money, purchase money Indebtedness and obligations in respect of Capitalized Lease Obligations and debt obligations evidenced by promissory notes and similar instruments as determined in accordance with GAAP (excluding for the avoidance of doubt all undrawn amounts under revolving credit facilities, all letters of credit, bank guarantees and performance or similar bonds and all obligations under Qualified Securitization Facilities and all Hedging Obligations) and (2) the aggregate amount of all outstanding Disqualified Stock of the Borrower and all Preferred Stock of its Restricted Subsidiaries on a consolidated basis, with the amount of such Disqualified Stock and Preferred Stock equal to the greater of their respective voluntary or involuntary liquidation preferences and maximum fixed repurchase prices, in each case determined on a consolidated basis in accordance with GAAP minus (b) the aggregate amount of cash and Cash Equivalents of the Borrower and the Restricted Subsidiaries on such date that would not appear as restricted on a consolidated balance sheet of the Borrower and the Restricted Subsidiaries. The U.S. dollar-equivalent principal amount of any Indebtedness denominated in a foreign currency will reflect the currency translation effects, determined in accordance with GAAP, of Hedging Obligations for currency exchange risks with respect to the applicable currency in effect on the date of determination of the U.S. dollar-equivalent principal amount of such Indebtedness. For purposes hereof, the maximum fixed repurchase price of any Disqualified Stock or Preferred
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Stock that does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Stock or Preferred Stock as if such Disqualified Stock or Preferred Stock were purchased on any date on which Consolidated Total Indebtedness shall be required to be determined pursuant to this Agreement, and if such price is based upon, or measured by, the fair market value of such Disqualified Stock or Preferred Stock, such fair market value shall be determined reasonably and in good faith by the Borrower.
Consolidated Working Capital means, as at any date of determination, the excess of Consolidated Current Assets over Consolidated Current Liabilities.
Contingent Obligations means, with respect to any Person, any obligation of such Person guaranteeing any leases, dividends or other monetary obligations that do not constitute Indebtedness (primary obligations) of any other Person (the primary obligor) in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent:
(a) to purchase any such primary obligation or any property constituting direct or indirect security therefor;
(b) to advance or supply funds;
(i) for the purchase or payment of any such primary obligation; or
(ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor; or
(c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation against loss in respect thereof.
Contract Consideration has the meaning specified in clause (b)(xi) of the definition of Excess Cash Flow.
Contractual Obligation means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.
Controlled Investment Affiliate means, as to any Person, any other Person, other than the Sponsor, which directly or indirectly is in control of, is controlled by, or is under common control with such Person and is organized by such Person (or any Person controlling such Person) primarily for making direct or indirect equity or debt investments in the Borrower and/or other companies.
Corrective Extension Amendment has the meaning specified in Section 2.14(e).
Credit Agreement Refinanced Debt has the meaning assigned to such term in the definition of Credit Agreement Refinancing Indebtedness.
Credit Agreement Refinancing Indebtedness means (a) Permitted Equal Priority Refinancing Debt, (b) Permitted Junior Priority Refinancing Debt or (c) Permitted Unsecured Refinancing Debt; provided that, in each case, such Indebtedness is issued, incurred or otherwise obtained (including by means of the extension or renewal of existing Indebtedness) to Refinance, in whole or in part, existing Loans (or, if applicable, unused Commitments under any Incremental Facility) or any then-existing Credit Agreement Refinancing Indebtedness (Credit Agreement Refinanced Debt); provided, further, that (i) the covenants, events of default and guarantees of any such Indebtedness in the form of bonds, notes or debentures or which Refinances, in whole or in part, existing Loans (excluding, for the avoidance of doubt, interest rates (including through fixed interest rates), interest margins, rate floors, fees, funding discounts, original issue discounts and prepayment or redemption premiums and terms) (when taken as a whole) are no more restrictive on the Borrower than those applicable to the Credit Agreement
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Refinanced Debt (when taken as a whole) (other than covenants or other provisions applicable only to periods after the Latest Maturity Date at the time of incurrence, issuance or obtainment of such Indebtedness) (provided that such terms shall not be deemed to be more restrictive solely as a result of the inclusion in the documentation governing such Credit Agreement Refinancing Indebtedness of a Previously Absent Financial Maintenance Covenant so long as the Administrative Agent shall be given prompt written notice thereof and this Agreement is amended to include such Previously Absent Financial Maintenance Covenant for the benefit of each Facility (provided however, that if (x) the Credit Agreement Refinancing Indebtedness that includes a Previously Absent Financial Maintenance Covenant consists of a revolving credit facility (whether or not the documentation therefor includes any other facilities) and (y) the applicable Previously Absent Financial Maintenance Covenant is a springing financial maintenance covenant, the Previously Absent Financial Maintenance Covenant shall not be required to be included in this Agreement for the benefit of any Term Facility hereunder and such Credit Agreement Refinancing Indebtedness shall not be deemed to be more restrictive solely as a result of such Previously Absent Financial Maintenance Covenant benefiting only such revolving credit facilities), (ii) any such Indebtedness in the form of bonds, notes or debentures or which Refinances, in whole or in part, existing Loans shall have a maturity date that is no earlier than the Credit Agreement Refinanced Debt and a Weighted Average Life to Maturity equal to or greater than the Credit Agreement Refinanced Debt (without giving effect to any amortization or prepayments thereof prior to the time of such Refinancing) as of the date of determination, (iii) except to the extent otherwise permitted under this Agreement (subject to a dollar for dollar usage of any other basket set forth in the definition of Permitted Indebtedness, if applicable), such Indebtedness shall not have a greater principal amount (or shall not have a greater accreted value, if applicable) than the principal amount (or accreted value, if applicable) of the Credit Agreement Refinanced Debt plus accrued interest, fees and premiums (including tender premium) and penalties (if any) thereon and fees, expenses, original issue discount and upfront fees incurred in connection with such Refinancing, (iv) such Credit Agreement Refinanced Debt shall be repaid, defeased or satisfied and discharged, and all accrued interest, fees and premiums (if any) in connection therewith shall be paid, substantially concurrently with the date such Credit Agreement Refinancing Indebtedness is issued, incurred or obtained with the Net Cash Proceeds received from the incurrence or issuance of such Indebtedness and (v) in the case of any such Indebtedness in the form of bonds, notes or debentures or which Refinances, in whole or in part, existing Loans, shall not require any mandatory repayment, redemption, repurchase or defeasance (other than (x) in the case of bonds, notes or debentures, customary change of control, asset sale event or casualty or condemnation event offers and customary acceleration any time after an event of default and (y) in the case of any term loans, mandatory prepayments (including redemptions or repurchases or offers to prepay, redeem or repurchase based on excess cash flow) that are on terms no more restrictive on the Borrower than those applicable to the Credit Agreement Refinanced Debt) prior to the 91st day after the maturity date of the Credit Agreement Refinanced Debt; and, provided, further, that Credit Agreement Refinancing Indebtedness may be incurred in the form of a bridge or other interim credit facility intended to be Refinanced with long-term indebtedness (and such bridge or other interim credit facility shall be deemed to satisfy clause (ii) of the second proviso in this definition so long as (x) such credit facility includes customary rollover provisions and (y) assuming such credit facility were to be extended pursuant to such rollover provisions, such extended credit facility would comply with clause (ii) above), provided that, on or prior to the first anniversary of the incurrence of such bridge or other credit facility, clause (v) of the second proviso in this definition shall not prohibit the inclusion of customary terms for bridge facilities, including customary mandatory prepayment, repurchase or redemption provisions.
Credit Facilities means, with respect to the Borrower or any of its Restricted Subsidiaries, one or more debt facilities, including the ABL Credit Agreement, or other financing arrangements (including, without limitation, commercial paper facilities or indentures) providing for revolving credit loans, term loans, letters of credit or other long-term indebtedness, including any notes, mortgages, guarantees, collateral documents, instruments and agreements executed in connection therewith, and any amendments, supplements, modifications, extensions, renewals, restatements or refundings thereof and any indentures or credit facilities or commercial paper facilities that replace, refund or refinance any part of the loans, notes, other credit facilities or commitments thereunder, including any such replacement, refunding or refinancing facility or indenture that increases the amount permitted to be borrowed thereunder or alters the maturity thereof (provided that such increase in borrowings is permitted under Section 7.03 hereof) or adds Restricted Subsidiaries as additional borrowers or guarantors thereunder and whether by the same or any other agent, lender or group of lenders.
Crossing Lien Intercreditor Agreement means that certain Lien Subordination and Intercreditor Agreement dated as of May 28, 2010 among Bank of America, N.A., as ABL Agent, The Bank of New York
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Mellon Trust Company, N.A., as Noteholder Collateral Agent, Holdings, the Borrower, Am-Pac Tire Dist. Inc., each Subsidiary of the Borrower party thereto and each additional representative party thereto from time to time (as amended, amended and restated or otherwise supplemented).
Customary Intercreditor Agreement means (a) to the extent executed in connection with the incurrence of secured Indebtedness the Liens on the Collateral securing which are intended to rank equal in priority to the Liens on the Collateral securing the Obligations (but without regard to the control of remedies), at the option of the Borrower and the Administrative Agent acting together in good faith, either (i) the Equal Priority Intercreditor Agreement or (ii) a customary intercreditor agreement in form and substance reasonably acceptable to the Administrative Agent and the Borrower, which agreement shall provide that the Liens on the Collateral securing such Indebtedness shall rank equal in priority to the Liens on the Collateral securing the Obligations (but without regard to the control of remedies), (b) to the extent executed in connection with the incurrence of secured Indebtedness the Liens on the Collateral securing which are intended to rank equal in priority to the Liens on the Collateral securing the Obligations and junior in priority to the Liens on the ABL Collateral, at the option of the Borrower and the Administrative Agent acting together in good faith, either (i) the Crossing Lien Intercreditor Agreement or (ii) a customary intercreditor agreement in form and substance reasonably acceptable to the Administrative Agent and the Borrower, which agreement shall provide that the Liens on the Collateral securing such Indebtedness shall rank equal in priority to the Liens on the Collateral securing the Obligations and junior in priority to the Liens on the ABL Collateral and (c) to the extent executed in connection with the incurrence of secured Indebtedness the Liens on the Collateral securing which are intended to rank junior in priority to the Liens on the Collateral securing the Obligations and junior in priority to the Liens on the ABL Collateral, at the option of the Borrower and the Administrative Agent acting together in good faith, enter into a customary intercreditor agreement in form and substance reasonably acceptable to the Administrative Agent and the Borrower, which agreement shall provide that the Liens on the Collateral securing such Indebtedness shall rank junior in priority to the Liens on the Collateral securing the Obligations and junior in priority to the Liens on the ABL Collateral.
Debt Fund Affiliate means any Affiliate of the Sponsor that is a bona fide debt fund that is not (a) a natural person or (b) Holdings, the Borrower or any Subsidiary of the Borrower.
Debtor Relief Laws means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.
Declined Proceeds has the meaning specified in Section 2.03(b)(v).
Default means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default.
Default Rate means an interest rate equal to (a) the Base Rate plus (b) the Applicable Rate applicable to Base Rate Loans plus (c) 2.00% per annum; provided that with respect to the outstanding principal amount of any Loan, the Default Rate shall be an interest rate equal to the interest rate (including any Applicable Rate) otherwise applicable to such Loan (giving effect to Section 2.02(c)) plus 2.00% per annum, in each case, to the fullest extent permitted by applicable Laws.
Designated Non-Cash Consideration means the fair market value of non-cash consideration received by the Borrower or a Restricted Subsidiary in connection with a Disposition pursuant to Section 7.05(j) that is so designated as Designated Non-Cash Consideration pursuant to a certificate of a Responsible Officer, setting forth the basis of such valuation, less the amount of cash or Cash Equivalents received in connection with a subsequent sale, redemption or repurchase of or collection or payment on such Designated Non-Cash Consideration.
Designated Preferred Stock means Preferred Stock of the Borrower or any Parent Entity thereof (in each case other than Disqualified Stock) that is issued for cash (other than to a Restricted Subsidiary or an employee stock ownership plan or trust established by the Borrower or any of its Subsidiaries) and is so designated as Designated Preferred Stock, pursuant to a certificate of a Responsible Officer, on or promptly after the issuance date thereof, the cash proceeds of which are excluded from the calculation of the Available Amount.
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Discount Prepayment Accepting Lender has the meaning assigned to such term in Section 2.03(a)(iv)(B)(2).
Discount Range has the meaning assigned to such term in Section 2.03(a)(iv)(C)(1).
Discount Range Prepayment Amount has the meaning assigned to such term in Section 2.03(a)(iv)(C)(1).
Discount Range Prepayment Notice means a written notice of a Borrower Solicitation of Discount Range Prepayment Offers made pursuant to Section 2.03(a)(iv)(C) substantially in the form of Exhibit H.
Discount Range Prepayment Offer means the written offer by a Lender, substantially in the form of Exhibit I, submitted in response to an invitation to submit offers following the Auction Agents receipt of a Discount Range Prepayment Notice.
Discount Range Prepayment Response Date has the meaning assigned to such term in Section 2.03(a)(iv)(C)(1).
Discount Range Proration has the meaning assigned to such term in Section 2.03(a)(iv)(C)(3).
Discounted Prepayment Determination Date has the meaning assigned to such term in Section 2.03(a)(iv)(D)(3).
Discounted Prepayment Effective Date means in the case of a Borrower Offer of Specified Discount Prepayment, Borrower Solicitation of Discount Range Prepayment Offer or Borrower Solicitation of Discounted Prepayment Offer, five (5) Business Days following the Specified Discount Prepayment Response Date, the Discount Range Prepayment Response Date or the Solicited Discounted Prepayment Response Date, as applicable, in accordance with Section 2.03(a)(iv)(B), Section 2.03(a)(iv)(C) or Section 2.03(a)(iv)(D), respectively, unless a shorter period is agreed to between the Borrower and the Auction Agent.
Discounted Term Loan Prepayment has the meaning assigned to such term in Section 2.03(a)(iv)(A).
Disposition or Dispose means the sale, transfer, license, lease or other disposition (including any Sale and Lease-Back Transaction and any sale of Equity Interests in a Restricted Subsidiary) of any property by any Person, including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith.
Disqualified Institution means any competitor of the Borrower or its Subsidiaries that is an operating company and any Affiliate thereof (other than any financial investor that is not an operating company or an Affiliate of an operating company and other than any Affiliate that is a bona fide diversified debt fund) identified in writing by (x) Holdings or the Sponsor to the Arranger prior to the launch of general syndication, or (y) following the Closing Date, the Borrower to the Administrative Agent.
Disqualified Stock means, with respect to any Person, any Capital Stock of such Person which, by its terms, or by the terms of any security into which it is convertible or for which it is putable or exchangeable, or upon the happening of any event, matures or is mandatorily redeemable (other than for any Equity Interests that are not Disqualified Stock and other than solely as a result of a change of control, asset sale or casualty or condemnation event) pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof (other than solely as a result of a change of control, asset sale or casualty or condemnation event), in whole or in part, in each case prior to the date 91 days after the earlier of the then Latest Maturity Date or the date the Loans are no longer outstanding; provided that any Capital Stock issued to any plan for the benefit of, or held by, any future, current or former employee, director, officer, manager or consultant (or their respective Controlled Investment Affiliates (excluding TPG Capital, L.P. (but not excluding any future, current or former employee, director, officer, manager or consultant)) or Immediate Family Members), of the Borrower, any Subsidiaries of the Borrower, any
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Parent Entity of the Borrower or any other entity in which the Borrower or a Restricted Subsidiary has an Investment and is designated in good faith as an affiliate by the board of directors of the Borrower (or the compensation committee thereof), in each case pursuant to any stock subscription or shareholders agreement, management equity plan or stock option plan or any other management or employee benefit plan or agreement shall not constitute Disqualified Stock solely because it may be required to be repurchased by the Borrower or any of its Subsidiaries or in order to satisfy applicable statutory or regulatory obligations or as a result of such employees, directors, officers, managers or consultants termination, death or disability. For the purposes hereof, the aggregate principal amount of Disqualified Stock shall be deemed to be equal to the greater of its voluntary or involuntary liquidation preference and maximum fixed repurchase price, determined on a consolidated basis in accordance with GAAP, and the maximum fixed repurchase price of any Disqualified Stock that does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Stock as if such Disqualified Stock were purchased on any date on which the Consolidated Total Indebtedness shall be required to be determined pursuant to this Agreement, and if such price is based upon, or measured by, the fair market value of such Disqualified Stock, such fair market value shall be determined reasonably and in good faith by the Borrower.
Dollar and $ mean lawful money of the United States.
Domestic Subsidiary means any direct or indirect Subsidiary of the Borrower that is organized under the Laws of the United States, any state thereof or the District of Columbia (other than any such Subsidiary that is treated as a disregarded entity for United States Federal income tax purposes and substantially all of whose assets consist (directly or indirectly through disregarded entities) of the Equity Interests and/or Indebtedness of one or more CFCs).
EBITDA means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period:
(a) increased (without duplication) by the following, in each case (other than clauses (ix) and (xii)) to the extent deducted (and not added back) in determining Consolidated Net Income for such period:
(i) provision for taxes based on income or profits or capital, including, without limitation, federal, state, provincial, franchise, excise and similar taxes and foreign withholding taxes (including any future taxes or other levies which replace or are intended to be in lieu of such taxes and any penalties and interest related to such taxes or arising from tax examinations) and the net tax expense associated with any adjustments made pursuant to clauses (a) through (o) of the definition of Consolidated Net Income; plus
(ii) Fixed Charges of such Person for such period (including (x) net losses on Hedging Obligations or other derivative instruments entered into for the purpose of hedging interest rate risk, net of interest income and gains with respect to such obligations, (y) costs of surety bonds in connection with financing activities and (z) amounts excluded from Consolidated Interest Expense as set forth in clauses (a)(t) through (z) in the definition thereof); plus
(iii) Consolidated Depreciation and Amortization Expense of such Person for such period; plus
(iv) the amount of any restructuring charges, accruals or reserves; plus
(v) any other non-cash charges, including (A) any write offs or write downs reducing Consolidated Net Income for such period, (B) equity-based awards compensation expense, (C) losses on sales, disposals or abandonment of, or any impairment charges or asset write-down or write-off related to, intangible assets, long-lived assets and investments in debt and equity securities and (D) all losses from investments recorded using the equity method (provided that if any such non-cash charges represent an accrual or reserve for potential cash items in any future period, the cash payment in respect thereof, in such future period shall be subtracted from EBITDA to such extent, and excluding amortization of a prepaid cash item that was paid in a prior period) (collectively, Non-Cash Charges); plus
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(vi) the amount of any minority interest expense consisting of Subsidiary income attributable to minority equity interests of third parties in any non-Wholly Owned Subsidiary; plus
(vii) the amount of management, monitoring, consulting and advisory fees (including termination and transaction fees) and related indemnities and expenses paid or accrued in such period under the Management Fee Agreement or otherwise to investors to the extent otherwise permitted under Section 7.08; plus
(viii) the amount of extraordinary, nonrecurring or unusual losses (including all fees and expenses relating thereto) or expenses, Transaction Expenses, integration costs, transition costs, pre-opening, opening, consolidation and closing costs for facilities, costs incurred in connection with any strategic initiatives, costs or accruals or reserves incurred in connection with acquisitions after the Closing Date, other business optimization expenses (including costs and expenses relating to business optimization programs and new systems design and implementation costs), restructuring costs (including those incurred in connection with cost-savings pursuant to clause (ix) below and under Section 1.07) and curtailments or modifications to pension and postretirement employee benefit plans; plus
(ix) the amount of run-rate cost savings and synergies projected by the Borrower in good faith to result from actions either taken or expected to be within 12 months after the end of such period (which cost savings and synergies shall be subject only to certification by management of the Borrower and calculated on a pro forma basis as though such cost savings and synergies had been realized on the first day of such period), net of the amount of actual benefits realized from such actions (it is understood and agreed that run-rate means the full recurring benefit that is associated with any action taken or expected to be taken; provided that some portion of such benefit is expected to be realized within 12 months of taking such action) (which adjustments may be incremental to pro forma cost savings adjustments made pursuant to Section 1.07); plus
(x) the amount of loss on sale of receivables, Securitization Assets and related assets to any Securitization Subsidiary in connection with a Qualified Securitization Facility; plus
(xi) any costs or expense incurred by the Borrower or a Restricted Subsidiary pursuant to any management equity plan or stock option plan or any other management or employee benefit plan, agreement or any stock subscription or shareholder agreement, to the extent that such cost or expenses are funded with cash proceeds contributed to the capital of the Borrower or net cash proceeds of an issuance of Equity Interest of the Borrower (other than Disqualified Stock) solely to the extent that such net cash proceeds are excluded from the calculation of the Available Amount; plus
(xii) cash receipts (or any netting arrangements resulting in reduced cash expenditures) not representing EBITDA or Consolidated Net Income in any period to the extent non-cash gains relating to such income were deducted in the calculation of EBITDA pursuant to clause (b) below for any previous period and not added back; plus
(xiii) any net loss from disposed or discontinued operations;
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(b) decreased (without duplication) by the following, in each case to the extent included in determining Consolidated Net Income for such period:
(i) non-cash gains increasing Consolidated Net Income of such Person for such period, excluding any non-cash gains to the extent they represent the reversal of an accrual or reserve for a potential cash item that reduced EBITDA in any prior period; plus
(ii) any non-cash gains with respect to cash actually received in a prior period unless such cash did not increase EBITDA in such prior period; plus
(iii) any net income from disposed or discontinued operations; plus
(iv) extraordinary gains and unusual or non-recurring gains (less all fees and expenses relating thereto); and
(c) increased or decreased (without duplication) by, as applicable, any adjustments resulting from the application of FASB Accounting Standards Codification 460, Guarantees.
Notwithstanding anything to the contrary contained herein, for purposes of determining EBITDA under this Agreement for any period that includes any of the fiscal quarters ended March 31, 2013, June 30, 2013, September 30, 2013 and December 31, 2013, consolidated EBITDA for such fiscal quarters shall be $54,771,000, $75,111,000, $85,215,000 and $103,861,000, respectively, in each case, as may be subject to add-backs and adjustments (without duplication) with respect to acquisitions and Dispositions occurring prior to, on and following the Closing Date as contemplated pursuant to clauses (a)(viii) and (a)(ix) of this definition for the applicable Test Period. For the avoidance of doubt, EBITDA shall be calculated, including pro forma adjustments, in accordance with Section 1.07.
ECF Percentage has the meaning specified in Section 2.03(b)(i).
Eligible Assignee has the meaning specified in Section 10.07(a).
EMU means the economic and monetary union as contemplated in the Treaty on European Union.
Environment means ambient air, indoor air, surface water, groundwater, drinking water, soil, surface and sub-surface strata, and natural resources such as wetlands, flora and fauna.
Environmental Laws means all applicable laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating to the protection of the environment, the preservation or reclamation of natural resources, the management, transportation, disposal, Release or threatened Release of any Hazardous Material or to health and safety matters (to the extent related to the exposure to any Hazardous Material).
Environmental Liability means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement in writing pursuant to which liability is assumed or imposed with respect to any of the foregoing.
Environmental Permit means any permit, approval, identification number, license or other authorization required under any Environmental Law.
Equal Priority Intercreditor Agreement means that certain Intercreditor and Collateral Agency Agreement dated as of May 28, 2010 among Holdings, the Borrower and The Bank of New York Mellon, as collateral agent and trustee with respect to the Senior Notes.
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Equity Interests means Capital Stock and all warrants, options or other rights to acquire Capital Stock, but excluding any debt security that is convertible into, or exchangeable for, Capital Stock.
ERISA means the Employee Retirement Income Security Act of 1974, as amended from time to time.
ERISA Affiliate means any trade or business (whether or not incorporated) that together with any Loan Party is treated as a single employer within the meaning of Section 414 of the Code or Section 4001 of ERISA.
ERISA Event means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by any Loan Party or any of their respective ERISA Affiliates from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as a termination under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by any Loan Party or any of their respective ERISA Affiliates from a Multiemployer Plan, written notification of any Loan Party or any of their respective ERISA Affiliates concerning the imposition of withdrawal liability or written notification that a Multiemployer Plan is insolvent or is in reorganization within the meaning of Title IV of ERISA; (d) the filing under Section 4041(c) of ERISA of a notice of intent to terminate a Pension Plan, the treatment of a Pension Plan or Multiemployer Plan amendment as a termination under Sections 4041 or 4041A of ERISA, or the commencement in writing of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) the imposition of any liability under Title IV of ERISA with respect to the termination of any Pension Plan or Multiemployer Plan, other than for the payment of plan contributions or PBGC premiums due but not delinquent under Section 4007 of ERISA, upon any Loan Party or any of their respective ERISA Affiliates; (f) an event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; (g) a failure to satisfy the minimum funding standard (within the meaning of Section 302 of ERISA or Section 412 of the Code) with respect to a Pension Plan, whether or not waived; (h) the application for a minimum funding waiver under Section 302(c) of ERISA with respect to a Pension Plan, (i) the imposition of a lien under Section 303(k) of ERISA or Section 412(c) of the Code with respect to any Pension Plan; (j) a determination that any Pension Plan is in at risk status (within the meaning of Section 303 of ERISA or Section 430 of the Code); or (k) the occurrence of a nonexempt prohibited transaction with respect to any Pension Plan maintained or contributed to by any Loan Party or any of their respective ERISA Affiliates (within the meaning of Section 4975 of the Code or Section 406 of ERISA) which could result in liability to any Loan Party.
euro means the single currency of participating member states of the EMU.
Eurodollar Rate means:
(a) for any Interest Period with respect to a Eurodollar Rate Loan, the rate per annum equal to (i) the Ice Benchmark Administration Limited LIBOR Rate (LIBOR) or a comparable or successor rate, which rate is approved by the Administrative Agent, as published on the applicable Reuters screen page (or such other commercially available source providing such quotations as may be designated by the Administrative Agent from time to time) at approximately 11:00 a.m., London time, two (2) Business Days prior to the commencement of such Interest Period, for Dollar deposits (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period, or (ii) if such rate is not available at such time for any reason, the rate per annum determined by the Administrative Agent to be the rate at which deposits in Dollars for delivery on the first day of such Interest Period in Same Day Funds in the approximate amount of the Eurodollar Rate Loan being made, continued or converted and with a term equivalent to such Interest Period would be offered by the Administrative Agents London Branch to major banks in the London interbank eurodollar market at their request at approximately 11:00 a.m., London time, two (2) Business Days prior to the commencement of such Interest Period; and
(b) for any interest calculation with respect to a Base Rate Loan on any date, the rate per annum equal to (i) LIBOR, at approximately 11:00 a.m., London time, determined two (2) Business Days prior to such date for Dollar deposits being delivered in the London interbank market for a term of one month commencing that day or (ii) if such published rate is not available at such time for any reason, the
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rate per annum determined by the Administrative Agent to be the rate at which deposits in Dollars for delivery on the date of determination in Same Day Funds in the approximate amount of the Base Rate Loan being made or maintained and with a term equal to one month would be offered by the Administrative Agents London Branch to major banks in the London interbank eurodollar market at their request at the date and time of determination;
provided that in no event shall the Eurodollar Rate for the Initial Term Loans that bear interest at a rate based on clauses (a) and (b) of this definition be less than 1.00%.
Eurodollar Rate Loan means a Loan that bears interest at a rate based on clause (a) of the definition of Eurodollar Rate.
Event of Default has the meaning specified in Section 8.01.
Excess Cash Flow means, for any period, an amount equal to the excess of:
(a) the sum, without duplication, of:
(i) Consolidated Net Income of the Borrower for such period,
(ii) an amount equal to the amount of all Non-Cash Charges (including depreciation and amortization) to the extent deducted in arriving at such Consolidated Net Income, but excluding any such Non-Cash Charges representing an accrual or reserve for potential cash items in any future period and excluding amortization of a prepaid cash item that was paid in a prior period,
(iii) decreases in Consolidated Working Capital (except as a result of the reclassification of items from short-term to long-term or vice versa) for such period (other than any such decreases arising from acquisitions or Dispositions outside the ordinary course of assets, business units or property by the Borrower or any Restricted Subsidiary completed during such period or the application of recapitalization or purchase accounting),
(iv) an amount equal to the aggregate net non-cash loss on Dispositions by the Borrower and the Restricted Subsidiaries during such period (other than Dispositions in the ordinary course of business) to the extent deducted in arriving at such Consolidated Net Income,
(v) the amount deducted as tax expense in determining Consolidated Net Income to the extent in excess of cash taxes paid in such period, and
(vi) cash receipts in respect of Hedging Obligations during such fiscal year to the extent not otherwise included in such Consolidated Net Income; over
(b) the sum, without duplication, of:
(i) an amount equal to the amount of all non-cash credits included in arriving at such Consolidated Net Income (but excluding any non-cash credit to the extent representing the reversal of an accrual or reserve described in clause (a)(ii) above) and cash losses, charges, expenses, costs and fees excluded by virtue of clauses (a) through (o) of the definition of Consolidated Net Income,
(ii) without duplication of amounts deducted pursuant to clause (xi) below in prior fiscal years, the amount of Capital Expenditures, Capitalized Software Expenditures or acquisitions of intellectual property accrued or made in cash during such period, in each case except to the extent financed with the proceeds of Funded Debt (other than any Indebtedness under any revolving credit facilities) of the Borrower or any Restricted Subsidiary,
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(iii) the aggregate amount of all principal payments of Indebtedness of the Borrower and the Restricted Subsidiaries (including (A) the principal component of payments in respect of Capitalized Lease Obligations, (B) all scheduled principal repayments of Loans, Senior Notes, Senior Subordinated Notes (or any Indebtedness representing Refinancing Indebtedness in respect thereof in accordance with the corresponding provisions of the governing documentation thereof), Permitted Incremental Equivalent Debt and Credit Agreement Refinancing Indebtedness, in each case to the extent such payments are permitted hereunder and actually made and (C) the amount of any scheduled repayment of Term Loans pursuant to Section 2.05 and mandatory prepayment of Term Loans pursuant to Section 2.03(b)(ii), Senior Notes, Senior Subordinated Notes (or any Indebtedness representing Refinancing Indebtedness in respect thereof in accordance with the corresponding provisions of the governing documentation thereof), and any mandatory redemption, repurchase, prepayment or defeasance of Permitted Incremental Equivalent Debt or Credit Agreement Refinancing Indebtedness pursuant to the corresponding provisions of the governing documentation thereof, in each case, to the extent required due to a Disposition or Casualty Event that resulted in an increase to Consolidated Net Income for such period and not in excess of the amount of such increase, but excluding (X) all other prepayments of Term Loans, (Y) all prepayments in respect of the ABL Credit Agreement or any other revolving credit facility, except to the extent there is an equivalent permanent reduction in commitments thereunder and (Z) payments on any Junior Financing, except in each case to the extent permitted to be paid pursuant to Section 7.06) made during such period, in each case, except to the extent financed with the proceeds of Funded Debt (other than any Indebtedness under any revolving credit facilities) of the Borrower or the Restricted Subsidiaries,
(iv) an amount equal to the aggregate net non-cash gain on Dispositions by the Borrower and the Restricted Subsidiaries during such period (other than Dispositions in the ordinary course of business) to the extent included in arriving at such Consolidated Net Income and the net cash loss on Dispositions to the extent otherwise added to arrive at Consolidated Net Income,
(v) increases in Consolidated Working Capital (except as a result of the reclassification of items from short term to long-term or vice versa) for such period (other than any such increases arising from acquisitions or Dispositions outside the ordinary course by the Borrower and the Restricted Subsidiaries during such period or the application of recapitalization or purchase accounting),
(vi) cash payments by the Borrower and the Restricted Subsidiaries during such period in respect of long-term liabilities of the Borrower and the Restricted Subsidiaries (other than Indebtedness) to the extent such payments are not expensed during such period or are not deducted in calculating Consolidated Net Income,
(vii) without duplication of amounts deducted pursuant to clauses (viii) and (xi) below in prior fiscal years, the amount of Investments made in cash pursuant to clauses (c), (e), (k), (l), (m), (n), (o), (x), (y) and (aa) of the definition of Permitted Investments and pursuant to Section 7.06(a), (b)(x) and (b)(xv) during such period, except to the extent such Investments were financed with the proceeds of Funded Debt (other than any Indebtedness under any revolving credit facilities) of the Borrower or any Restricted Subsidiary,
(viii) the amount of Restricted Payments paid in cash during such period pursuant to Section 7.06(a) and clauses (i), (ii), (iv), (v), (vi), (vii), (viii), (ix), (x), (xi), (xii) and (xiv) of Section 7.06(b), except to the extent such Restricted Payments were financed with the proceeds of Funded Debt (other than any Indebtedness under any revolving credit facilities) of the Borrower or any Restricted Subsidiary,
(ix) the aggregate amount of expenditures actually made by the Borrower and the Restricted Subsidiaries from internally generated cash flow of the Borrower and the Restricted Subsidiaries during such period (including expenditures for the payment of financing fees) to the extent that such expenditures are not expensed during such period or are not deducted in calculating Consolidated Net Income,
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(x) the aggregate amount of any premium, make-whole or penalty payments actually paid in cash by the Borrower and the Restricted Subsidiaries during such period that are made in connection with any prepayment or redemption of Indebtedness to the extent such payments are not expensed during such period or are not deducted in calculating Consolidated Net Income and such payments reduced Excess Cash Flow pursuant to clause (b)(iii) above or reduced the mandatory prepayment required by Section 2.03(b)(i),
(xi) without duplication of amounts deducted from Excess Cash Flow in prior periods, and at the option of the Borrower, the aggregate consideration required to be paid in cash by the Borrower or any of the Restricted Subsidiaries pursuant to binding contracts (the Contract Consideration) entered into prior to or during such period relating to Permitted Investments or other Investments permitted by Section 7.06, capital expenditures or acquisitions of intellectual property to be consummated or made during the period of four consecutive fiscal quarters of the Borrower following the end of such period; provided that, to the extent the aggregate amount of internally generated cash flow actually utilized to finance such Permitted Investments or other Investments permitted by Section 7.06, capital expenditures or acquisitions of intellectual property during such period of four consecutive fiscal quarters is less than the Contract Consideration, the amount of such shortfall shall be added to the calculation of Excess Cash Flow at the end of such period of four consecutive fiscal quarters,
(xii) the amount of cash taxes paid or tax reserves set aside or payable (without duplication) in such period to the extent they exceed the amount of tax expense deducted in determining Consolidated Net Income for such period,
(xiii) cash expenditures in respect of Hedging Obligations during such fiscal year to the extent not deducted in arriving at such Consolidated Net Income, and
(xiv) any fees, expenses or charges incurred during such period (including, for purposes of the Excess Cash Flow payment to be calculated in respect of each full fiscal quarter in the fiscal year ending December 31, 2014 occurring after the Closing Date, any Transaction Expenses and expenses related to the Hercules Transactions incurred on and after the Closing Date), or any amortization thereof for such period, in connection with any acquisition, Investment, Disposition, incurrence or repayment of Indebtedness, issuance of Equity Interests, refinancing transaction or amendment or modification of any debt instrument (including any amendment or other modification of this Agreement, the other Loan Documents, the ABL Credit Documents, the Senior Notes Documents and the Senior Subordinated Notes Documents) and including, in each case, any such transaction consummated prior to the Closing Date and any such transaction undertaken but not completed, and any charges or non-recurring merger costs incurred during such period as a result of any such transaction, in each case whether or not successful.
Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder.
Excluded Assets has the meaning given to such term in the Security Agreement.
Excluded Capital Stock means (a) any Capital Stock with respect to which the Borrower and the Administrative Agent have reasonably determined that the costs (including any costs resulting from material adverse tax consequences) of pledging such Equity Interests shall be excessive in view of the benefits to be obtained by the Secured Parties therefrom, (b) solely in the case of any pledge of Capital Stock of any Foreign Subsidiary to secure the Obligations, any Capital Stock that is voting Capital Stock of such Foreign Subsidiary in excess of 65% of the outstanding voting Capital Stock of such class, (c) any Capital Stock to the extent the pledge thereof would be prohibited by any applicable law, rule or regulation or contractual obligation, (d) the Capital Stock of any Subsidiary that is not wholly owned by the Borrower and its Subsidiaries at the time such Subsidiary becomes a Subsidiary (for
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so long as such Subsidiary remains a non-wholly owned Subsidiary), (e) the Capital Stock of any Subsidiary whose assets, as reflected on their most recent balance sheet prepared in accordance with GAAP, and revenues for the twelve-month period ending on the last day of the most recent fiscal quarter for which financial statements are available, do not exceed $1,000,000, (f) the Capital Stock of any Subsidiary of a Foreign Subsidiary and (g) the Capital Stock of any Unrestricted Subsidiary. Notwithstanding anything in this definition to the contrary, the Capital Stock of the Borrower, Am-Pac and Tire Pros Francorp. shall not be deemed Excluded Capital Stock under this Agreement or the Collateral Documents.
Excluded Contract means at any date any rights or interest of the Borrower or any Guarantor in any property or assets or under any agreement, contract, license, lease, instrument, document or other general intangible or, in the case of any investment property, under any applicable equity holder or similar agreement (referred to solely for purposes of this definition as a Contract) to the extent that such Contract by the terms of a restriction in favor of a Person who is not the Borrower or any Guarantor, or any requirement of law, prohibits, or requires any consent or establishes any other condition for or could our would be terminated, abandoned, invalidated, rendered unenforceable, or would be breached or defaulted under because of an assignment thereof or a grant of a security interest therein by the Borrower or a Guarantor; provided that: (i) rights to payment under any such Contract otherwise constituting an Excluded Contract by virtue of this definition shall be included in the Collateral to the extent permitted thereby or by Section 9-406 or Section 9-408 of the Uniform Commercial Code and (ii) all proceeds paid or payable to any of the Borrower or any Guarantor from any sale, transfer or assignment of such contract and all rights to receive such proceeds shall be included in the Collateral.
Excluded Contribution means net cash proceeds, marketable securities or Qualified Proceeds received by the Borrower after the Closing Date from:
(a) contributions to its common equity capital; and
(b) the sale (other than to a Subsidiary of the Borrower or to any management equity plan or stock option plan or any other management or employee benefit plan or agreement of the Borrower) of Capital Stock (other than Disqualified Stock and Designated Preferred Stock) of the Borrower;
in each case designated as Excluded Contributions pursuant to a certificate executed by a Financial Officer of the Borrower on the date such capital contributions are made or the date such Equity Interests are sold, as the case may be, which are excluded from the calculation of the Available Amount.
Excluded Equipment means at any date any equipment or other assets or property of the Borrower or any Guarantor which is subject to, or secured by, a Capitalized Lease Obligation or a purchase money obligation if and to the extent that (i) a restriction in favor of a Person who is not the Borrower or a Restricted Subsidiary or has been incurred pursuant to clause (e) of the definition of Permitted Indebtedness contained in the agreements or documents granting or governing such Capitalized Lease Obligation or purchase money obligation or other obligation under clause (e) of the definition of Permitted Indebtedness prohibits, or requires any consent or establishes any other conditions for or would or could be terminated, abandoned, invalidated, rendered unenforceable, or would be breached or defaulted under such agreement or document because of an assignment thereof, or a grant of a security interest therein, by the Borrower or any Guarantor and (ii) such restriction relates only to the asset or assets acquired by the Borrower or any Guarantor with the proceeds of such Capitalized Lease Obligation or purchase money obligation or other obligation under clause (e) of the definition of Permitted Indebtedness and attachments and accessions thereto, improvements thereof or substitutions therefor; provided that all proceeds paid or payable to any of the Borrower or any Guarantor from any sale, transfer or assignment or other voluntary or involuntary disposition of such assets and all rights to receive such proceeds shall be included in the Collateral to the extent not otherwise required to be paid to the holder of any Capitalized Lease Obligations or purchase money obligations or other obligations under clause (e) of the definition of Permitted Indebtedness secured by such assets.
Excluded Information has the meaning specified in the definition of Big Boy Letter.
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Excluded Proceeds means the proceeds of long-term Indebtedness (other than revolving credit facilities) or the Net Cash Proceeds of the issuance of Equity Interests or other amounts not included in the calculation of Excess Cash Flow.
Excluded Taxes means, with respect to each Agent and each Lender, (i) any tax on such Agent or Lenders net income or profits (or franchise tax in lieu of such tax on net income or profits) imposed by a jurisdiction as a result of such Agent or Lender being organized or having its principal office or applicable Lending Office located in such jurisdiction or as a result of any other present or former connection between such Agent or Lender and the jurisdiction (including as a result of such Agent or Lender carrying on a trade or business, having a permanent establishment or being a resident for tax purposes in such jurisdiction, other than a connection arising solely from such Agent or Lender having executed, delivered, enforced, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to, or sold or assigned an interest in any Loan or Loan Document, any Loan Documents), (ii) any branch profits tax under Section 884(a) of the Code, or any similar tax, imposed by any other jurisdiction described in clause (i), (iii) other than any Foreign Lender becoming a party hereto pursuant to the Borrowers request under Section 3.07, any U.S. federal withholding tax that is imposed on amounts payable to a Foreign Lender pursuant to a Law in effect at the time such Foreign Lender becomes a party hereto (or designates a new Lending Office) (or where the Foreign Lender is a partnership for U.S. federal income tax purposes, pursuant to a law in effect on the later of the date on which such Foreign Lender becomes a party hereto or the date on which the affected partner becomes a partner of such Foreign Lender), except, in the case of a Foreign Lender that designates a new Lending Office or is an assignee, to the extent that such Foreign Lender (or its assignor, if any) was entitled, immediately prior to the time of designation of a new Lending Office (or assignment), to receive additional amounts from a Loan Party with respect to such U.S. federal withholding tax pursuant to Section 3.01, (iv) any withholding tax attributable to a Lenders failure to comply with Section 3.01(c), or (v) any U.S. federal withholding tax imposed under FATCA and (vi) any interest, additions to taxes and penalties with respect to any taxes described in clauses (i) through (v) of this definition.
Existing Term Loan Class has the meaning specified in Section 2.14(a).
Extended Term Loan Commitment means a Commitment to provide an Extended Term Loan.
Extended Term Loans has the meaning specified in Section 2.14(a).
Extending Term Lender has the meaning specified in Section 2.14(b).
Extension means the establishment of an Term Loan Extension Series by amending a Loan pursuant to Section 2.14 and the applicable Extension Amendment.
Extension Amendment has the meaning specified in Section 2.14(c).
Extension Election has the meaning specified in Section 2.14(b).
Facility means the Initial Term Loans, a given Class of Other Term Loans, a given Term Loan Extension Series of Extended Term Loans, a given Class of Incremental Term Loans or a given Class of Replacement Loans, as the context may require.
fair market value means, with respect to any asset or liability, the fair market value of such asset or liability as determined by the Borrower in good faith.
FATCA means Sections 1471 through 1474 of the Code as in effect on the date hereof or any amended or successor version thereof that is substantively comparable and not materially more onerous to comply with (and, in each case, any regulations promulgated thereunder or official interpretations thereof), and any agreements entered into pursuant to Section 1471(b)(1) of the Code.
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Federal Funds Rate means, for any day, the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to the Administrative Agent on such day on such transactions as determined by the Administrative Agent.
Financial Officer means, with respect to a Person, the chief financial officer, accounting officer, treasurer, controller or other senior financial or accounting officer of such Person.
First Lien Obligations means the Obligations, the obligations under the Senior Notes Documents, any Permitted Incremental Equivalent Debt (other than any Permitted Incremental Equivalent Debt that is unsecured or is secured by a Lien on the Collateral ranking junior to the Lien on the Collateral securing the Obligations (but without regard to control of remedies)) and any Permitted Equal Priority Refinancing Debt, collectively.
Fixed Charge Coverage Ratio means, with respect to the Borrower and the Restricted Subsidiaries for any period, the ratio of EBITDA of the Borrower and the Restricted Subsidiaries for such period to the Fixed Charges of the Borrower and the Restricted Subsidiaries for such period.
Fixed Charges means, with respect to any Person for any period, the sum of, without duplication:
(a) Consolidated Interest Expense of such Person for such period;
(b) all cash dividends or other cash distributions paid (excluding items eliminated in consolidation) on any series of Preferred Stock during such period; and
(c) all dividends or other distributions paid or accrued (excluding items eliminated in consolidation) on any series of Disqualified Stock during such period.
Flood Insurance Laws means, collectively, (i) the National Flood Insurance Act of 1968 as now or hereafter in effect or any successor statute thereto, (ii) the Flood Disaster Protection Act of 1973 as now or hereafter in effect or any successor statute thereto, (iii) the National Flood Insurance Reform Act of 1994 as now or hereafter in effect or any successor statute thereto and (iv) the Flood Insurance Reform Act of 2004 as now or hereafter in effect or any successor statute thereto.
Foreign Casualty Event has the meaning specified in Section 2.03(b)(vi).
Foreign Disposition has the meaning specified in Section 2.03(b)(vi).
Foreign Lender means a Lender that is not a United States person within the meaning of Section 7701(a)(30) of the Code.
Foreign Plan means any employee benefit plan, program or agreement maintained or contributed to by, or entered into with, the Borrower or any Subsidiary of the Borrower with respect to employees employed outside the United States (other than benefit plans, programs or agreements that are mandated by applicable Laws).
Foreign Subsidiary means any direct or indirect Restricted Subsidiary of the Borrower that is not a Domestic Subsidiary.
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Fund means any Person (other than a natural person) that is primarily engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its activities.
Funded Debt means all Indebtedness of the Borrower and the Restricted Subsidiaries for borrowed money that matures more than one year from the date of its creation or matures within one year from such date that is renewable or extendable, at the option of such Person, to a date more than one year from such date or arises under a revolving credit or similar agreement that obligates the lender or lenders to extend credit during a period of more than one year from such date, including Indebtedness in respect of the Loans.
GAAP means generally accepted accounting principles in the United States, as in effect on May 28, 2010; provided, however, that if the Borrower notifies the Administrative Agent that the Borrower request an amendment to any provision hereof to eliminate the effect of any change occurring after the Closing Date in GAAP or in the application thereof (including through the adoption of IFRS) on the operation of such provision (or if the Administrative Agent notifies the 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 change in GAAP or in the application thereof (including through the adoption of IFRS), then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith.
Governmental Authority means the government of the United States or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).
Granting Lender has the meaning specified in Section 10.07(g).
guarantee means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness or other obligations.
Guarantee means, as to any Person, without duplication, (a) any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other monetary obligation payable or performable by another Person (the primary obligor) in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other monetary obligation, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness or other monetary obligation of the payment or performance of such Indebtedness or other monetary obligation, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other monetary obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness or other monetary obligation of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in part), or (b) any Lien on any assets of such Person securing any Indebtedness or other monetary obligation of any other Person, whether or not such Indebtedness or other monetary obligation is assumed by such Person (or any right, contingent or otherwise, of any holder of such Indebtedness to obtain any such Lien); provided that the term Guarantee shall not include endorsements for collection or deposit, in either case in the ordinary course of business, or customary and reasonable indemnity obligations in effect on the Closing Date or entered into in connection with any acquisition or disposition of assets permitted under this Agreement (other than such obligations with respect to Indebtedness). The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith. The term Guarantee as a verb has a corresponding meaning.
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Guarantor means Holdings and each Subsidiary Guarantor (which, on the Closing Date, shall include each Subsidiary of the Borrower listed on Schedule 1.01).
Guarantor Joinder Agreement means a Guarantor Joinder Agreement substantially in the form of Exhibit E or any other form approved by the Administrative Agent.
Guaranty means the guaranty made by Holdings and the Subsidiary Guarantors in favor of the Administrative Agent on behalf of the Secured Parties pursuant to Article XI.
Hazardous Materials means all explosive or radioactive substances or wastes, and all other substances, wastes, pollutants and contaminants and chemicals in any form including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas and infectious or medical wastes, to the extent any of the foregoing are regulated pursuant to any Environmental Law.
Hedging Obligations means, with respect to any Person, the obligations of such Person under any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, commodity swap agreement, commodity cap agreement, commodity collar agreement, foreign exchange contract, currency swap agreement or similar agreement or other derivative (including equity derivative agreements) for the purpose of transferring or mitigating interest rate, currency, commodity risks or equity risks either generally or under specific contingencies.
Hercules Acquisition means, the merger of ATD Merger Sub II LLC, a Delaware limited liability company and wholly-owned Subsidiary of the Borrower, with and into Hercules Holdings and the subsequent merger of Hercules Holdings with and into the Borrower, with the Borrower as the surviving legal entity of such merger.
Hercules Holdings means Hercules Tire Holdings LLC, a Delaware limited liability company.
Hercules Transactions means, collectively, (a) the Hercules Acquisition, (b) the effectiveness and/or funding of additional revolving commitments under the ABL Credit Agreement on the date of the consummation of the Hercules Acquisition and the related amendments to the ABL Credit Agreement, (c) the issuance of Senior Subordinated Notes in an aggregate principal amount of $225,000,000 and the related amendments to the Senior Subordinated Notes Documents, (d) consummation of any other transactions in connection with the foregoing, and (e) the payment of the fees and expenses incurred in connection with any of the foregoing.
Holdings means (a) Holdings (as defined in the introductory paragraph to this Agreement or (b) any of the following Persons: (i) Holdings and its direct Subsidiaries, if any, on the Closing Date that are not the Borrower, (ii) any Successor Holdings or (iii) any other Person or Persons (the New Holdings), other than the Borrower, that is a Subsidiary of (or are Subsidiaries of) an the Borrower (or the previous New Holdings, as the case may be) and a direct parent of the Borrower (the Previous Holdings); provided that (A) such New Holdings directly or indirectly owns 100% of the Equity Interests of the Borrower, (B) the New Holdings shall expressly assume all the obligations of the Previous Holdings under this Agreement and the other Loan Documents pursuant to a supplement hereto or thereto in form and substance reasonably satisfactory to the Administrative Agent, (C) the New Holdings shall have delivered to the Administrative Agent a certificate of a Responsible Officer stating that such substitution and any supplements to the Loan Documents preserve the enforceability of the Guaranty and the perfection and priority of the Liens under the Collateral Documents, (D) if reasonably requested by the Administrative Agent, an opinion of counsel in form and substance reasonably satisfactory to the Administrative Agent shall be delivered by the Borrower to the Administrative Agent to the effect that, without limitation, such substitution does not violate this Agreement or any other Loan Document, (E) the Capital Stock of the Borrower owned by, and substantially all of the other assets of, the Previous Holdings are contributed or otherwise transferred to such New Holdings or other Holdings and pledged to secure the Obligations and (F) Event of Default has occurred and is continuing at the time of such substitution and such substitution does not result in any Event of Default or material tax liability; provided, further, that if each of the foregoing is satisfied, the Previous Holdings shall be automatically released from all its obligations under the Loan Documents and any reference to Holdings in the Loan Documents shall be meant to refer to the New Holdings.
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Identified Participating Lenders has the meaning specified in Section 2.03(a)(iv)(C)(3).
Identified Qualifying Lenders has the meaning specified in Section 2.03(a)(iv)(D)(3).
IFRS means international accounting standards as promulgated by the International Accounting Standards Board.
Immediate Family Members means with respect to any individual, such individuals child, stepchild, grandchild or more remote descendant, parent, stepparent, grandparent, spouse, former spouse, qualified domestic partner, sibling, mother-in-law, father-in-law, son-in-law and daughter-in-law (including adoptive relationships) and any trust, partnership or other bona fide estate-planning vehicle the only beneficiaries of which are any of the foregoing individuals or any private foundation or fund that is controlled by any of the foregoing individuals or any donor-advised fund of which any such individual is the donor.
Incremental Amendment has the meaning specified in Section 2.12(f).
Incremental Facility Closing Date has the meaning specified in Section 2.12(d).
Incremental Loan Request has the meaning specified in Section 2.12(a).
Incremental Term Commitments has the meaning specified in Section 2.12(a).
Incremental Term Lender has the meaning specified in Section 2.12(c).
Incremental Term Loan has the meaning specified in Section 2.12(b).
Indebtedness means, with respect to any Person, without duplication:
(a) any indebtedness (including principal and premium) of such Person, whether or not contingent:
(i) in respect of borrowed money;
(ii) evidenced by bonds, notes, debentures or similar instruments or letters of credit or bankers acceptances (or, without duplication, reimbursement agreements in respect thereof);
(iii) representing the balance deferred and unpaid of the purchase price of any property (including Capitalized Lease Obligations) due more than twelve months after such property is acquired, except (i) any such balance that constitutes an obligation in respect of a commercial letter of credit, a trade payable or similar obligation to a trade creditor, in each case accrued in the ordinary course of business and (ii) any earn-out obligations until such obligation becomes a liability on the balance sheet of such Person in accordance with GAAP and is not paid after becoming due and payable; or
(iv) representing the net obligations under any Hedging Obligations;
if and to the extent that any of the foregoing Indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet (excluding the footnotes thereto) of such Person prepared in accordance with GAAP; provided that Indebtedness of any Parent Entity of the Borrower appearing upon the balance sheet of the Borrower solely by reason of push-down accounting under GAAP shall be excluded;
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(b) to the extent not otherwise included, any obligation by such Person to be liable for, or to pay, as obligor, guarantor or otherwise, on the obligations of the type referred to in clause (a) of this definition of a third Person (whether or not such items would appear upon the balance sheet of the such obligor or guarantor), other than by endorsement of negotiable instruments for collection in the ordinary course of business; and
(c) to the extent not otherwise included, the obligations of the type referred to in clause (a) of this definition of a third Person secured by a Lien on any asset owned by such first Person, whether or not such Indebtedness is assumed by such first Person;
provided that notwithstanding the foregoing, Indebtedness shall be deemed not to include (a) Contingent Obligations incurred in the ordinary course of business or (b) obligations under or in respect of Qualified Securitization Facilities.
Indemnified Liabilities has the meaning specified in Section 10.05.
Indemnitees has the meaning specified in Section 10.05.
Information has the meaning specified in Section 10.08.
Initial Term Loans means the Term Loans made by the Lenders on the Closing Date to the Borrower pursuant to Section 2.01.
Intercompany Note means the Intercompany Note dated as of May 28, 2010 executed by Holdings, the Borrower and each Restricted Subsidiary of the Borrower party thereto.
Intercreditor Agreements means the Crossing Lien Intercreditor Agreement, the Equal Priority Intercreditor Agreement and any Customary Intercreditor Agreement.
Interest Payment Date means, (a) as to any Loan of any Class other than a Base Rate Loan, the last day of each Interest Period applicable to such Loan and the applicable Maturity Date of the Loans of such Class; provided that if any Interest Period for a Eurodollar Rate Loan exceeds three months, the respective dates that fall every three months after the beginning of such Interest Period shall also be Interest Payment Dates; and (b) as to any Base Rate Loan of any Class, the last Business Day of each March, June, September and December and the applicable Maturity Date of the Loans of such Class.
Interest Period means, as to each Eurodollar Rate Loan, the period commencing on the date such Eurodollar Rate Loan is disbursed or converted to or continued as a Eurodollar Rate Loan and ending on the date one, two, three or six months thereafter, or to the extent consented to by each applicable Lender, nine or twelve months (or such period of less than one month as may be consented to by each applicable Lender), as selected by the Borrower in its Committed Loan Notice; provided that:
(a) any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the immediately preceding Business Day;
(b) any Interest Period (other than an Interest Period having a duration of less than one month) that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and
(c) no Interest Period shall extend beyond the applicable Maturity Date for the Class of Loans of which such Eurodollar Rate Loan is a part.
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Investment Grade Rating means a rating equal to or higher than Baa3 (or the equivalent) by Moodys and BBB- (or the equivalent) by S&P or, if the applicable instrument is not then rated by Moodys or S&P, an equivalent rating by any other Rating Agency.
Investment Grade Securities means:
(a) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof (other than Cash Equivalents);
(b) debt securities or debt instruments with an Investment Grade Rating, but excluding any debt securities or instruments constituting loans or advances among the Borrower and their Subsidiaries;
(c) investments in any fund that invests exclusively in investments of the type described in clauses (a) and (b) which fund may also hold immaterial amounts of cash pending investment or distribution; and
(d) corresponding instruments in countries other than the United States customarily utilized for high quality investments.
Investments means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the form of loans (including guarantees), advances or capital contributions (excluding accounts receivable, credit card and debit card receivables, trade credit, advances to customers and distributors, commission, travel and similar advances to employees, directors, officers, managers, distributors and consultants in each case made in the ordinary course of business), and purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities issued by any other Person. For purposes of the definitions of Permitted Investments and Unrestricted Subsidiary and Section 7.06:
(a) Investments shall include the portion (proportionate to the Borrowers Equity Interest in such Subsidiary) of the fair market value of the net assets of a Subsidiary of the Borrower at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Borrower shall be deemed to continue to have a permanent Investment in an Unrestricted Subsidiary in an amount (if positive) equal to:
(i) the Borrowers Investment in such Subsidiary at the time of such redesignation; less
(ii) the portion (proportionate to the Borrowers Equity Interest in such Subsidiary) of the fair market value of the net assets of such Subsidiary at the time of such redesignation; and
(b) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer.
The amount of any Investment outstanding at any time shall be the original cost of such Investment, reduced by any dividend, distribution, interest payment, return of capital, repayment or other amount received in cash by the Borrower or any Restricted Subsidiary in respect of such Investment.
IP Rights has the meaning specified in Section 5.15.
IRS means Internal Revenue Service of the United States.
Junior Financing has the meaning specified in the definition of Restricted Payment.
Junior Financing Documentation means any documentation governing any Junior Financing.
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Latest Maturity Date means, at any date of determination, the latest maturity or expiration date applicable to any Loan or Commitment hereunder at such time, including the latest maturity or expiration date of any Initial Term Loan, any Incremental Term Loan, any Other Term Loan, any Replacement Loan or any Extended Term Loan, in each case as extended in accordance with this Agreement from time to time.
Laws means, collectively, all international, foreign, federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities and executive orders, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority.
LCA Election has the meaning specified in Section 1.10.
LCA Test Date has the meaning specified in Section 1.10.
Lender has the meaning specified in the introductory paragraph to this Agreement and, as context requires, includes their respective successors and assigns as permitted hereunder, each of which is referred to herein as a Lender. For avoidance of doubt, each Additional Lender is a Lender to the extent any such Person has executed and delivered a Refinancing Amendment, an Incremental Amendment or an amendment in respect of Replacement Loans, as the case may be, and to the extent such Refinancing Amendment, Incremental Amendment or amendment in respect of Replacement Loans shall have become effective in accordance with the terms hereof and thereof, and each Extending Term Lender shall continue to be a Lender. As of the Closing Date, Schedule 2.01 sets forth the name of each Lender.
Lending Office means, as to any Lender, the office or offices of such Lender described as such in such Lenders Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify the Borrower and the Administrative Agent.
LIBOR has the meaning specified in the definition of Eurodollar Rate.
Lien means, with respect to any asset, any mortgage, lien (statutory or otherwise), pledge, hypothecation, charge, security interest, preference, priority or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction; provided that in no event shall an operating lease be deemed to constitute a Lien.
Limited Condition Acquisition means any acquisition by one or more of the Borrower and its Restricted Subsidiaries of any assets, business or Person permitted by this Agreement whose consummation is not conditioned on the availability of, or on obtaining, third party financing.
Loan means an extension of credit under Article II by a Lender to the Borrower in the form of a Term Loan.
Loan Documents means, collectively, (a) this Agreement, (b) the Term Notes, (c) any Refinancing Amendment, Incremental Amendment, Extension Amendment or amendment in respect of Replacement Loans, (d) the Guaranty, (e) the Collateral Documents and (f) the Intercreditor Agreements.
Loan Parties means, collectively, (a) Holdings, (b) the Borrower and (c) each Subsidiary Guarantor.
Management Fee Agreement means, collectively, (a) the transaction and monitoring fee letter agreement between the Borrower and the Sponsor dated as of May 28, 2010, pursuant to which the Sponsor agrees to provide certain advisory services to Holdings and the Borrower in exchange for certain fees and (b) the indemnification agreement among Accelerate Holdings Corp., Holdings, the Borrower and the Sponsor dated as of May 28, 2010.
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Management Stockholders means, means the management officers or employees of the Borrower or its Subsidiaries who are investors in Holdings or any Parent Entity thereof.
Margin Stock has the meaning set forth in Regulation U of the Board of Governors of the United States Federal Reserve System, or any successor thereto.
Material Adverse Effect means a material adverse effect on (a) the business, assets, operations or financial condition of the Borrower and its Subsidiaries, taken as a whole, (b) the ability of the Borrower and the other Loan Parties (taken as a whole) to perform their obligations under the Loan Documents or (c) the rights of, or remedies available to the Agents or the Lenders under the Loan Documents.
Material Subsidiary means, as of the Closing Date and thereafter at any date of determination, each Restricted Subsidiary of the Borrower (a) whose Total Assets as of the last day of the Test Period most recently ended on or prior to such date of determination were equal to or greater than 5.00% of Total Assets at such date or (b) whose gross revenues for such Test Period were equal to or greater than 5.00% of the consolidated gross revenues of the Borrower and the Restricted Subsidiaries for such Test Period, in each case determined in accordance with GAAP; provided that if at any time Restricted Subsidiaries that are Domestic Subsidiaries but not Guarantors solely because they do not meet the thresholds set forth in clauses (a) or (b) comprise in the aggregate more than 5.00% of Total Assets as of the last day of the Test Period most recently ended on or prior to such date of determination or more than 5.00% of the consolidated gross revenues of the Borrower and the Restricted Subsidiaries for such Test Period, then the Borrower shall, not later than forty-five (45) days after the date by which financial statements for such quarter are required to be delivered pursuant to this Agreement (or such longer period as the Administrative Agent may agree in its reasonable discretion), (i) designate in writing to the Administrative Agent one or more of such Restricted Subsidiaries that are Domestic Subsidiaries as Material Subsidiaries to the extent required such that the foregoing condition ceases to be true and (ii) comply with the provisions of Section 6.11 applicable to such Subsidiary.
Maturity Date means (i) with respect to the Initial Term Loans that have not been extended pursuant to Section 2.14, June 1, 2018 (the Original Term Loan Maturity Date), (ii) with respect to any Class of Extended Term Loans, the final maturity date as specified in the applicable Extension Amendment, (iii) with respect to any Other Term Loans, the final maturity date as specified in the applicable Refinancing Amendment, (iv) with respect to any Class of Replacement Loans, the final maturity date as specified in the applicable amendment to this Agreement in respect of such Replacement Loans and (v) with respect to any Incremental Loan, the final maturity date as specified in the applicable Incremental Amendment; provided, in each case, that if such day is not a Business Day, the applicable Maturity Date shall be the Business Day immediately succeeding such day.
Maximum ABL Facility Amount means the sum of (i) the Revolving Commitments (as defined in the ABL Credit Agreement) under the ABL Credit Agreement as in effect on the Closing Date plus (ii) any additional Revolving Commitment Increases (as defined in the ABL Credit Agreement) permitted to be incurred pursuant to Section 2.23 of the ABL Credit Agreement as in effect on the Closing Date.
Maximum Rate has the meaning specified in Section 10.10.
MNPI has the meaning specified in Section 6.02.
Moodys means Moodys Investors Service, Inc. and any successor to its rating agency business.
Mortgage Policies has the meaning specified in the definition of Real Property Collateral Requirements.
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Mortgaged Properties has the meaning specified in the definition of Real Property Collateral Requirement.
Mortgages means collectively, means any mortgage, deed of trust or other agreement entered into by the owner of a Mortgaged Property and the Collateral Agent, which conveys or evidences a Lien in favor of the Collateral Agent, for the benefit of the Lenders, on such Mortgaged Property, substantially in the form of Exhibit O (with such changes thereto as may be necessary to account for local law matters) or otherwise in such form as agreed between the Borrower and the Collateral Agent.
Multiemployer Plan means any multiemployer plan as defined in Section 3(37) or Section 4001(a)(3) of ERISA in respect of which a Borrower or any ERISA Affiliate is an employer (as defined in Section 3(5) of ERISA.
Net Cash Proceeds means:
(a) with respect to the Disposition of any asset by the Borrower or any of the Restricted Subsidiaries or any Casualty Event, the excess, if any, of (i) the sum of gross cash proceeds received in connection with such Disposition or Casualty Event (including any cash and Cash Equivalents received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received and, with respect to any Casualty Event, any insurance proceeds or condemnation awards in respect of such Casualty Event actually received by or paid to or for the account of the Borrower or any of the Restricted Subsidiaries) over (ii) the sum of (A) the principal amount, premium or penalty, if any, interest, breakage costs and other amounts on any Indebtedness that is secured by the asset subject to such Disposition or Casualty Event and required to be repaid in connection with such Disposition or Casualty Event (other than Indebtedness under the Loan Documents, the Senior Notes Documents, Credit Agreement Refinancing Indebtedness and Permitted Incremental Equivalent Debt), (B) the out-of-pocket fees and expenses (including attorneys fees, accountants fees, investment banking fees, survey costs, title insurance premiums, and related search and recording charges, transfer taxes, deed or mortgage recording taxes, other customary expenses and brokerage, consultant and other customary fees) actually incurred by the Borrower or such Restricted Subsidiary in connection with such Disposition or Casualty Event (other than those payable to the Borrower or any Restricted Subsidiary), (C) taxes or distributions made pursuant to Section 7.06(b)(xiii)(A) or Section 7.06(b)(xiii)(B) paid or reasonably estimated to be payable in connection therewith (including taxes imposed on the distribution or repatriation of any such Net Cash Proceeds), (D) in the case of any Disposition or Casualty Event by a non-wholly owned Restricted Subsidiary, the pro rata portion of the Net Cash Proceeds thereof (calculated without regard to this clause (D)) attributable to minority interests and not available for distribution to or for the account of the Borrower or a wholly owned Restricted Subsidiary as a result thereof, and (E) any reserve for adjustment in respect of (x) the sale price of such asset or assets established in accordance with GAAP and (y) any liabilities associated with such asset or assets and retained by the Borrower or any Restricted Subsidiary after such sale or other disposition thereof, including pension and other post-employment benefit liabilities and liabilities related to environmental matters or against any indemnification obligations associated with such transaction, it being understood that Net Cash Proceeds shall include the amount of any reversal (without the satisfaction of any applicable liabilities in cash in a corresponding amount) of any reserve described in this clause (E); provided that (x) no net cash proceeds calculated in accordance with the foregoing realized in a single transaction or series of related transactions shall constitute Net Cash Proceeds unless such net cash proceeds shall exceed $15,000,000 and (y) no such net cash proceeds shall constitute Net Cash Proceeds under this clause (a) in any fiscal year until the aggregate amount of all such net cash proceeds in such fiscal year shall exceed $25,000,000 (and thereafter only net cash proceeds in excess of such amount shall constitute Net Cash Proceeds under this clause (a)); and
(b) (i) with respect to the incurrence or issuance of any Indebtedness by the Borrower or any Restricted Subsidiary or any Permitted Equity Issuance by the Borrower or any Parent Entity of the Borrower, the excess, if any, of (A) the sum of the cash and Cash Equivalents received in connection with such incurrence or issuance over (B) all taxes paid or reasonably estimated to be payable, and all fees (including investment banking fees, underwriting fees and discounts), commissions, costs and other out-of-pocket expenses and other customary expenses incurred, by the Borrower or such Restricted
36
Subsidiary in connection with such incurrence, sale or issuance and (ii) with respect to any Permitted Equity Issuance by any Parent Entity of the Borrower, the amount of cash from such Permitted Equity Issuance contributed to the capital of the Borrower.
Net Income means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of Preferred Stock dividends.
Non-Cash Charges has the meaning specified in the definition of EBITDA.
Non-Consenting Lender has the meaning specified in Section 3.07.
Non-Excluded Taxes means all Taxes other than Excluded Taxes imposed on or with respect to any payment made by or on account of any obligation of any Loan Party under any Loan Document.
Non-Loan Party means any Subsidiary of the Borrower that is not a Loan Party.
Notes Collateral has the meaning ascribed to Collateral in the Senior Notes Indenture.
Obligations means all advances to, and debts, liabilities, obligations, covenants and duties of, any Loan Party arising under any Loan Document or otherwise with respect to any Loan, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against any Loan Party of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding. Without limiting the generality of the foregoing, the Obligations of the Loan Parties under the Loan Documents (and any of their Subsidiaries to the extent they have obligations under the Loan Documents) include the obligation (including guarantee obligations) to pay principal, interest, reimbursement obligations, charges, expenses, fees, Attorney Costs, indemnities and other amounts payable by any Loan Party under any Loan Document.
OFAC has the meaning specified in Section 5.18.
Offered Amount has the meaning specified in Section 2.03(a)(iv)(D)(1).
Offered Discount has the meaning specified in Section 2.03(a)(iv)(D)(1).
OID means original issue discount.
Organizational Documents means (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction); (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement; and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity.
Original Term Loan Maturity Date has the meaning specified in the definition of Maturity Date.
Other Applicable Indebtedness has the meaning specified in Section 2.03(b)(ii)(A).
Other Taxes means any and all present or future stamp or documentary Taxes or any other similar excise or property Taxes arising from any payment made under any Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, any Loan Document.
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Other Term Loan Commitments means one or more Classes of Term Loan commitments hereunder that result from a Refinancing Amendment.
Other Term Loans means one or more Classes of Term Loans that result from a Refinancing Amendment.
Outstanding Amount means as of any date, the outstanding principal amount of Term Loans after giving effect to any borrowings and prepayments or repayments thereof occurring on such date.
Overnight Rate means, for any day, the greater of (a) the Federal Funds Rate and (b) an overnight rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.
Parent Entity means any Person that is a direct or indirect parent (which may be organized as, among other things, a partnership) of Holdings and/or the Borrower (for the avoidance of doubt, in the case of the Borrower, including Holdings), as applicable.
Participant has the meaning specified in Section 10.07(d).
Participant Register has the meaning specified in Section 10.07(e).
Participating Lender has the meaning specified in Section 2.03(a)(iv)(C)(2).
PBGC means the Pension Benefit Guaranty Corporation.
Pension Plan means any employee pension benefit plan (as such term is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained by any Loan Party or any of their respective ERISA Affiliates or to which any Loan Party or any of their respective ERISA Affiliates contributes or has an obligation to contribute, or in the case of a multiple employer or other plan described in Section 4064(a) of ERISA, has made contributions at any time in the preceding five plan years.
Perfection Certificate has the meaning specified in the Security Agreement.
Permitted Acquisition has the meaning specified in the definition of Permitted Investments.
Permitted Equal Priority Refinancing Debt means any secured Indebtedness incurred by the Borrower and/or any Guarantor in the form of one or more series of senior secured notes, bonds or debentures (and, if applicable, any Registered Equivalent Notes issued in exchange therefor); provided that (i) such Indebtedness is secured by Liens on all or a portion of the Collateral on a basis that is equal in priority to the Liens on the Collateral securing the Obligations (but without regard to the control of remedies) and is not secured by any property or assets of the Borrower or any Restricted Subsidiary other than the Collateral, (ii) such Indebtedness satisfies the applicable requirements set forth in the provisos to the definition of Credit Agreement Refinancing Indebtedness, (iii) such Indebtedness is not at any time guaranteed by any Subsidiary of the Borrower other than Subsidiaries that are Guarantors and (iv) the Borrower, the holders of such Indebtedness (or their Senior Representative) and the Administrative Agent and/or Collateral Agent shall be party to a Customary Intercreditor Agreement providing that the Liens on the Collateral securing such obligations shall rank equal in priority to the Liens on the Collateral securing the Obligations (but without regard to the control of remedies).
Permitted Equity Issuance means any sale or issuance of any Equity Interests (other than Disqualified Stock) of the Borrower or any Parent Entity thereof, in each case to the extent permitted hereunder.
Permitted Holder means any of (a) the Sponsor, (b) the Management Stockholders and (c) any group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act or any successor provision) of which any of the foregoing are members; provided that, in the case of such group and without giving effect to the
38
existence of such group or any other group, such Sponsor and Management Stockholders, collectively, have beneficial ownership of more than 50.0% of the total voting power of the Voting Stock of the Borrower or any of its direct or indirect parent companies.
Permitted Incremental Equivalent Debt means Indebtedness issued, incurred or otherwise obtained by the Borrower and/or any Guarantor in respect of one or more series of senior unsecured notes, senior secured equal priority or junior priority notes or subordinated notes (in each case issued in a public offering, Rule 144A or other private placement or bridge financing in lieu of the foregoing (and any Registered Equivalent Notes issued in exchange therefor)), junior lien or unsecured loans or secured or unsecured mezzanine Indebtedness that, in each case, if secured, will be secured by Liens on the Collateral that rank on an equal priority or junior priority basis with the Liens on Collateral securing the Obligations, and that are issued or made in lieu of Incremental Term Commitments; provided that (i) the aggregate principal amount of all Permitted Incremental Equivalent Debt shall not exceed the Available Incremental Amount, (ii) such Permitted Incremental Equivalent Debt shall not be subject to any Guaranty by any Person other than a Loan Party, (iii) in the case of Permitted Incremental Equivalent Debt that is secured, the obligations in respect thereof shall not be secured by any Lien on any asset of the Borrower or any Restricted Subsidiary other than any asset constituting Collateral, (iv) if such Permitted Incremental Equivalent Debt is secured, such Permitted Incremental Equivalent Debt shall be subject to an applicable Customary Intercreditor Agreement, (v) the terms of such Permitted Incremental Equivalent Debt do not provide for any scheduled amortization or mandatory repayment, mandatory redemption, mandatory offer to purchase or sinking fund obligation prior to the date that is 91 days after the Latest Maturity Date at the time of incurrence, issuance or obtainment of such Permitted Incremental Equivalent Debt, other than customary prepayments, repurchases or redemptions of or offers to prepay, redeem or repurchase upon a change of control, asset sale event or casualty or condemnation event, customary prepayments, redemptions or repurchases or offers to prepay, redeem or repurchase based on excess cash flow (in the case of loans) and customary acceleration rights upon an event of default and (vi) notwithstanding clause (i) above, any Permitted Incremental Equivalent Debt which is to be unsecured shall not be required to comply with the test set forth in Section 2.12(d)(iii)(B), but rather shall not exceed an amount such that the Senior Net Leverage Ratio does not exceed 4.00 to 1.00 or in the case of any Permitted Incremental Equivalent Debt which is to be secured such that the Secured Net Leverage Ratio does not exceed 4.00 to 1.00, in each case, as of the end of the Test Period most recently ended on or prior to such date of issuance, incurrence or obtaining after giving pro forma effect to such Permitted Incremental Equivalent Debt and any Incremental Term Commitments (assuming the cash proceeds of any Permitted Incremental Equivalent Debt are not netted in the calculation of Consolidated Total Indebtedness for purposes of calculating the Senior Net Leverage Ratio or Secured Net Leverage Ratio, as applicable); and, provided, further, that Permitted Incremental Equivalent Debt may be incurred in the form of a bridge or other interim credit facility intended to be refinanced or replaced with long-term indebtedness (so long as such credit facility includes customary rollover provisions), in which case, on or prior to the first anniversary of the incurrence of such bridge or other credit facility, clause (v) of the first proviso in this definition shall not prohibit the inclusion of customary terms for bridge facilities, including customary mandatory prepayment, repurchase or redemption provisions.
Permitted Incremental Equivalent Debt Documents means any document or instrument (including any guarantee, security agreement or mortgage and which may include any or all of the Loan Documents) issued or executed and delivered with respect to any Permitted Incremental Equivalent Debt by any Loan Party.
Permitted Incremental Equivalent Debt Obligations means, if any secured Permitted Incremental Equivalent Debt has been incurred or issued and is outstanding, all advances to, and debts, liabilities, obligations, covenants and duties of, any Loan Party arising under any applicable Permitted Incremental Equivalent Debt Documents, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against any Loan Party of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding.
Permitted Incremental Equivalent Debt Secured Parties means the holders from time to time of any secured Permitted Incremental Equivalent Debt Obligations (and any Senior Representative on their behalf).
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Permitted Indebtedness means:
(a) [Reserved];
(b) the incurrence of Indebtedness pursuant to the Loan Documents;
(c) the incurrence of Indebtedness pursuant to:
(i) Credit Facilities; provided that the aggregate principal amount of Indebtedness outstanding pursuant to this clause (c)(i) does not exceed an amount equal to the greater of (A) the Maximum ABL Facility Amount and (B) the Borrowing Base at the time such debt is incurred,
(ii) the Senior Notes Documents;
(iii) the Senior Subordinated Notes Documents; and
(iv) any Refinancing Indebtedness incurred, issued or otherwise obtained to Refinance (in whole or in part) Indebtedness described in clauses (i) through (iii) above (and any Refinancing Indebtedness in respect thereof);
(d) Indebtedness of the Borrower and the Restricted Subsidiaries in existence on the Closing Date and set forth on Schedule 7.03 and any Refinancing Indebtedness incurred, issued or otherwise obtained to Refinance (in whole or in part) such Indebtedness (and any Refinancing Indebtedness in respect thereof);
(e) Indebtedness (including Capitalized Lease Obligations) incurred or issued by the Borrower or any Restricted Subsidiary to finance the purchase, lease or improvement of property (real or personal), equipment or other assets, including assets that are used or useful in a Similar Business, whether through the direct purchase of assets or the Capital Stock of any Person owning such assets in an aggregate principal amount not to exceed (as of the date such Indebtedness is issued, incurred or otherwise obtained) the greater of (A) $65,000,000 and (B) 2.50% of Total Assets, and any Refinancing Indebtedness incurred, issued or otherwise obtained to Refinance (in whole or in part) such Indebtedness (and any Refinancing Indebtedness in respect thereof);
(f) Indebtedness incurred by the Borrower or any Restricted Subsidiary constituting reimbursement obligations with respect to letters of credit, bank guarantees, bankers acceptances, warehouse receipts, or similar instruments issued or created in the ordinary course of business, including letters of credit in respect of workers compensation claims, health, disability or other employee benefits or property, casualty or liability insurance or self-insurance or other Indebtedness with respect to reimbursement type obligations regarding workers compensation claims, health, disability or other employee benefits or property, casualty or liability insurance or self-insurance; provided that upon the drawing of such letters of credit or the incurrence of such Indebtedness, such obligations are reimbursed within 30 days following such drawing or incurrence;
(g) Indebtedness arising from agreements of the Borrower or any Restricted Subsidiary providing for indemnification, adjustment of purchase price, earnouts or similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or a Subsidiary, other than guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or a Subsidiary for the purpose of financing such acquisition;
(h) Indebtedness of the Borrower owing to a Restricted Subsidiary; provided that any such Indebtedness owing to any Restricted Subsidiary that is not a Loan Party is expressly subordinated to the Obligations pursuant to the Intercompany Note; provided, further, that any subsequent issuance or transfer of any Capital Stock or any other event which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any other subsequent transfer of any such Indebtedness (except to the Borrower or
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another Restricted Subsidiary or any pledge of such Indebtedness constituting a Permitted Lien (but not foreclosure thereon)) shall be deemed, in each case, to be an incurrence of such Indebtedness not permitted by this clause (h);
(i) Indebtedness of a Restricted Subsidiary owing to the Borrower or another Restricted Subsidiary to the extent constituting a Permitted Investment or an Investment otherwise permitted by Section 7.06; provided that any such Indebtedness owing by a Loan Party to a Restricted Subsidiary that is not a Loan Party is expressly subordinated to the Obligations pursuant to the Intercompany Note; provided, further, that any subsequent issuance or transfer of any Capital Stock or any other event which results in any such Restricted Subsidiary that is the lender ceasing to be a Restricted Subsidiary or any other subsequent transfer of any such Indebtedness (except to the Borrower or another Restricted Subsidiary or any pledge of such Indebtedness constituting a Permitted Lien (but not foreclosure thereon)) shall be deemed, in each case, to be an incurrence of such Indebtedness not permitted by this clause (i);
(j) [Reserved];
(k) Hedging Obligations (excluding Hedging Obligations entered into for speculative purposes) for the purpose of (i) limiting interest rate risk with respect to any Indebtedness permitted to be incurred hereunder, (ii) fixing or hedging currency exchange rate risk with respect to any currency exchanges, or (iii) fixing or hedging commodity price risk with respect to any commodity purchases or sales;
(l) obligations in respect of self-insurance and obligations in respect of performance, bid, appeal and surety bonds and performance and completion guarantees and similar obligations provided by the Borrower or any Restricted Subsidiary or obligations in respect of letters of credit, bank guarantees or similar instruments related thereto, in each case in the ordinary course of business, including (but not limited to) those incurred to secure health, safety and environmental obligations in the ordinary course of business;
(m) (i) Indebtedness of the Borrower or any Restricted Subsidiary in an aggregate principal amount up to 100.0% of the Net Cash Proceeds received by the Borrower since immediately after the Closing Date from the issue or sale of Equity Interests of the Borrower or cash contributed to the capital of the Borrower (in each case, other than proceeds of Disqualified Stock or sales of Equity Interests to the Borrower or any Subsidiary thereof) as determined in accordance with clause (c) of the definition of Available Amount to the extent such Net Cash Proceeds or cash have not been applied pursuant to such clause to make Restricted Payments or to make other Investments, payments or exchanges permitted by Section 7.06 or to make Permitted Investments (other than Permitted Investments specified in clauses (a), (b) and (c) of the definition thereof) and Refinancing Indebtedness incurred, issued or otherwise obtained to Refinance (in whole or in part) such Indebtedness, and (ii) Indebtedness of the Borrower or any Restricted Subsidiary not otherwise permitted hereunder in an aggregate principal amount that, when aggregated with the principal amount of all other Indebtedness then outstanding and incurred pursuant to this clause (m)(ii), does not exceed (as of the date such Indebtedness is issued, incurred or otherwise obtained) the greater of (A) $70,000,000 and (B) 4.75% of Total Assets, and Refinancing Indebtedness incurred, issued or otherwise obtained to Refinance (in whole or in part) such Indebtedness (and any Refinancing Indebtedness in respect thereof) (it being understood that any Indebtedness incurred pursuant to this clause (m) shall cease to be deemed incurred or outstanding for purposes of this clause (m) but shall be deemed incurred for the purposes of clause (bb) below from and after the first date on which the Borrower or such Restricted Subsidiary could have incurred such Indebtedness under Section 7.03 without reliance on this clause (m));
(n) Vendor Debt, advances and similar financings in a an aggregate principal amount not to exceed $50,000,000;
(o) Indebtedness constituting Permitted Incremental Equivalent Debt and any Refinancing Indebtedness incurred, issued or otherwise obtained to Refinance (in whole or in part) such Indebtedness (and any Refinancing Indebtedness in respect thereof);
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(p) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business, provided that such Indebtedness is extinguished within five Business Days of its incurrence;
(q) Indebtedness of the Borrower or any Restricted Subsidiary supported by a letter of credit that is incurred under clause (c)(i) of this definition, in a principal amount not in excess of the stated amount of such letter of credit;
(r) (i) any guarantee by the Borrower or a Restricted Subsidiary of Indebtedness of any Restricted Subsidiary so long as the incurrence of such Indebtedness incurred by such Restricted Subsidiary is permitted under Section 7.03, Section 7.06 or the definition of Permitted Investments and (ii) any guarantee by a Restricted Subsidiary of Indebtedness of the Borrower or a Restricted Subsidiary;
(s) Indebtedness issued by the Borrower or any Restricted Subsidiary to future, present or former employees, directors, officers, managers and consultants thereof, their respective Controlled Investment Affiliates or Immediate Family Members, in each case to finance the purchase or redemption of Equity Interests of the Borrower or any Parent Entity thereof to the extent described in Section 7.06(b)(iv);
(t) customer deposits and advance payments received in the ordinary course of business from customers for goods purchased in the ordinary course of business;
(u) Indebtedness in respect of Cash Management Obligations, Cash Management Services and other Indebtedness in respect of netting services, automatic clearing house arrangements, employees credit or purchase cards, overdraft protections and similar arrangements in each case incurred in the ordinary course of business;
(v) Indebtedness incurred by a Restricted Subsidiary in connection with bankers acceptances, discounted bills of exchange or the discounting or factoring of receivables for credit management purposes, in each case incurred or undertaken in the ordinary course of business on arms length commercial terms on a recourse basis;
(w) Indebtedness of the Borrower or any Restricted Subsidiary consisting of (a) the financing of insurance premiums or (b) take-or-pay obligations contained in supply arrangements in each case, incurred in the ordinary course of business;
(x) (A) the incurrence of Indebtedness of the Foreign Subsidiaries of the Borrower in an amount not to exceed (as of the date such Indebtedness is incurred or committed) the greater of (i) $35,000,000 and (ii) 1.50% of Total Assets and (B) the incurrence of Indebtedness of the Foreign Subsidiaries of the Borrower in an amount not to exceed at any one time outstanding the Borrowing Base of such Foreign Subsidiaries, and any Refinancing Indebtedness incurred, issued or otherwise obtained to Refinance (in whole or in part) such Indebtedness (and any Refinancing Indebtedness in respect thereof);
(y) (i) Indebtedness incurred, issued or assumed in connection with any Permitted Acquisition or other acquisition in an amount not to exceed the sum of (A) $20,000,000 and (B) an additional amount such that that after giving pro forma effect to such Permitted Acquisition or other acquisition and the assumption, incurrence or issuance of such Indebtedness incurred pursuant to this clause (y):
(A) at least $1.00 of Permitted Ratio Debt would be permitted to be incurred; or
(B) the Fixed Charge Coverage Ratio (following such Permitted Acquisition or other acquisition and the assumption, incurrence or issuance of such Indebtedness) would be equal to or greater than the Fixed Charge Coverage Ratio in effect immediately prior to such Permitted Acquisition or other acquisition and such assumption, incurrence or issuance of such Indebtedness;
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(C) the Consolidated Net Leverage Ratio (following such Permitted Acquisition or other acquisition and the assumption, incurrence or issuance of such Indebtedness) (x) would not exceed 5.00 to 1.00 or (y) would be less than the Consolidated Net Leverage Ratio immediately prior to such Permitted Acquisition or other acquisition and such assumption, incurrence or issuance of such Indebtedness; and
(ii) any Refinancing Indebtedness incurred, issued or otherwise obtained to Refinance (in whole or in part) such Indebtedness (and any Refinancing Indebtedness in respect thereof);
(z) Indebtedness of the Borrower or any Restricted Subsidiary undertaken in connection with cash management and related activities with respect to any Subsidiary or joint venture in the ordinary course of business;
(aa) Indebtedness constituting Credit Agreement Refinancing Indebtedness and any Refinancing Indebtedness incurred, issued or otherwise obtained to Refinance (in whole or in part) such Indebtedness;
(bb) Indebtedness constituting Permitted Ratio Debt and any Refinancing Indebtedness incurred, issued or otherwise obtained to Refinance (in whole or in part) such Indebtedness (and any Refinancing Indebtedness in respect thereof);
(cc) Indebtedness consisting of obligations of the Borrower or any Restricted Subsidiary under deferred compensation or other similar arrangements with employees incurred by such Person in connection with the Transactions, the Hercules Transactions, any Permitted Acquisition or any other Investment or other acquisition permitted hereunder; and
(dd) Indebtedness representing deferred compensation to employees of the Borrower (or any Parent Entity thereof) or any Restricted Subsidiary incurred in the ordinary course of business.
Permitted Investments means:
(a) any Investment (i) in any Loan Party, (ii) by any Restricted Subsidiary that is a Non-Loan Party in any other Restricted Subsidiary that is a Non-Loan Party and (iii) by any Loan Party in any Restricted Subsidiary that is a Non-Loan Party; provided that the aggregate amount of Investments (other than as a result of the transfer of Equity Interests or Indebtedness of any Restricted Subsidiary that is a Non-Loan Party to any other Restricted Subsidiary that is a Non-Loan Party) outstanding at any time pursuant to the immediately preceding subclause (iii), together with, but without duplication of, Investments made by any Loan Party in any Non-Loan Party pursuant to clause (c) below, shall not exceed the greater of (x) $35,000,000 and (y) 1.50% of Total Assets;
(b) any Investment in, or that at the time of making such Investment was, Cash Equivalents or Investment Grade Securities;
(c) any Investment (each such Investment, a Permitted Acquisition) by the Borrower or any Restricted Subsidiary in a Person that is engaged in a business permitted pursuant to Section 7.07 if as a result of such Investment: (a) such Person becomes a Restricted Subsidiary; or (b) such Person, in one transaction or a series of related transactions, is amalgamated, merged or consolidated with or into, or transfers or conveys substantially all of its assets (or assets constituting a business unit, a line of business or a division of such Person) to, or such Person is liquidated into, the Borrower or a Restricted Subsidiary provided, that the aggregate amount of Investments made by Loan Parties in Persons that do not become Loan Parties pursuant to this clause (c), together with, but without duplication of, Investments by any Loan
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Party in any Non-Loan Party pursuant to clause (a) above, shall not exceed an aggregate amount outstanding from time to time equal to the greater of $35,000,000 and 1.50% of Total Assets; and, in each case, any Investment held by such Person; provided further, that such Investment was not acquired by such Person in contemplation of such acquisition, merger, amalgamation, consolidation or transfer; provided further that with respect to each Permitted Acquisition described in this clause (c):
(A) the Borrower shall comply with Section 6.11 and Section 7.12 to the extent applicable;
(B) immediately before and immediately after giving pro forma effect to any such Investment under this clause (c), no Event of Default under Section 8.01(a) or (f) shall have occurred and be continuing at the time of entry into the definitive documentation pursuant to which the Permitted Acquisition was consummated; and
(C) the Borrower shall have delivered to the Administrative Agent a certificate of a Responsible Officer of the Borrower, on behalf of the Borrower, in form and substance reasonably satisfactory to the Administrative Agent, certifying that all of the requirements set forth in this clause (c) have been satisfied or will be satisfied on or prior to the consummation of such purchase or other acquisition;
(d) any Investment in securities or other assets not constituting Cash Equivalents or Investment Grade Securities and received in connection with a Disposition made pursuant to Section 7.05 or any other disposition of assets not constituting a Disposition;
(e) any Investment existing, or contemplated, on the Closing Date or made pursuant to binding commitments in effect on the Closing Date, in each of the foregoing cases, as set forth on Schedule 7.06, or an Investment consisting of any extension, replacement, reinvestment, modification or renewal of any such Investment or binding commitment existing, or contemplated, on the Closing Date; provided that the amount of any such Investment may be increased in such extension, replacement, reinvestment, modification or renewal only (a) as required by the terms of such Investment or binding commitment as in existence, or contemplated, on the Closing Date (including as a result of the accrual or accretion of interest or original issue discount or the issuance of pay-in-kind securities) or (b) as otherwise permitted under this Agreement;
(f) any Investment acquired by the Borrower or any Restricted Subsidiary:
(i) consisting of extensions of credit in the nature of accounts receivable or notes receivable arising from the grant of trade credit in the ordinary course of business;
(ii) in exchange for any other Investment, accounts receivable or indorsements for collection or deposit held by the Borrower or any such Restricted Subsidiary in connection with or as a result of a bankruptcy, workout, reorganization or recapitalization of, or settlement of delinquent accounts and disputes with or judgments against, the issuer of such other Investment, accounts receivable or endorsements for collection or deposit (including any trade creditor or customer);
(iii) in satisfaction of judgments against other Persons;
(iv) as a result of a foreclosure by the Borrower or any Restricted Subsidiary with respect to any secured Investment or other transfer of title with respect to any secured Investment in default; or
(v) as a result of the settlement, compromise or resolution of litigation, arbitration or other disputes with Persons who are not Affiliates;
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(g) Hedging Obligations permitted under Section 7.03;
(h) Investments the payment for which consists of Equity Interests (other than Disqualified Stock) of the Borrower or any Parent Entity thereof; provided that the proceeds from such Equity Interests will not increase the Available Amount;
(i) guarantees of Indebtedness of the Borrower or a Restricted Subsidiary permitted under Section 7.03, performance guarantees and Contingent Obligations (other than in respect of Indebtedness) incurred in the ordinary course of business and the creation of Liens on the assets of the Borrower or any Restricted Subsidiary in compliance with Section 7.01;
(j) any transaction to the extent it constitutes an Investment that is permitted by and made in accordance with the provisions of Section 7.08 (except transactions described in clause (b) of the first proviso in such Section);
(k) Investments consisting of (i) purchases or other acquisitions of inventory, supplies, material or equipment or (ii) the licensing or contribution of intellectual property pursuant to joint marketing arrangements with other Persons;
(l) [Reserved];
(m) Investments in or relating to a Securitization Subsidiary that, in the good faith determination of the Borrower are necessary or advisable to effect any Qualified Securitization Facility or any repurchase obligation in connection therewith;
(n) loans and advances to, or guarantees of Indebtedness of, employees, directors, officers, managers, distributors and consultants not in excess of $25,000,000 outstanding at any one time, in the aggregate;
(o) loans and advances to employees, directors, officers, managers, distributors and consultants for business-related travel expenses, moving expenses and other similar expenses or payroll advances, in each case incurred in the ordinary course of business or consistent with past practices or to any future or present employee, director, officer, manager or consultant (or their respective Controlled Investment Affiliates or Immediate Family Members) of the Borrower, any of its Subsidiaries or any of its Parent Entities to fund such Persons purchase of Equity Interests of any Parent Entity;
(p) advances, loans or extensions of trade credit in the ordinary course of business by the Borrower or any Restricted Subsidiary and any leases, licenses, subleases or sublicenses granted to others in the ordinary course of business which do not (i) interfere in any material respect with the business of the Borrower and the Restricted Subsidiaries, taken as a whole, or (ii) secure any Indebtedness;
(q) any Investment in any Subsidiary or any joint venture in connection with intercompany cash management arrangements or related activities arising in the ordinary course of business;
(r) Investments consisting of purchases and acquisitions of assets or services in the ordinary course of business;
(s) Investments made in the ordinary course of business in connection with obtaining, maintaining or renewing client contacts and loans or advances made to distributors in the ordinary course of business;
(t) Investments in prepaid expenses, negotiable instruments held for collection and lease, utility and workers compensation, performance and similar deposits entered into as a result of the operations of the business in the ordinary course of business;
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(u) Investments in the ordinary course of business consisting of Uniform Commercial Code Article 3 endorsements for collection of deposit and Article 4 customary trade arrangements with customers consistent with past practices;
(v) guarantees by the Borrower or any Restricted Subsidiary of obligations of any Restricted Subsidiary in the ordinary course of business;
(w) Investments made by any Restricted Subsidiary that is not a Loan Party to the extent that such Investments are financed with the proceeds received by such Restricted Subsidiary from an Investment in such Restricted Subsidiary permitted by this Agreement;
(x) other Investments in an aggregate amount taken together with all other Investments made pursuant to this clause (x) not to exceed at any one time outstanding (as of the date such Investment is made) the greater of (a) $100,000,000 and (b) 5.00% of Total Assets;
(y) other Investments so long as immediately after giving effect to any Investment pursuant to this clause (y), the Consolidated Net Leverage Ratio as of the last day of the Test Period most recently ended on or prior to the date such Investment is made would be less than or equal to 4.50 to 1.00;
(z) Investments resulting from the Transactions and the Hercules Transactions; and
(aa) Investments in a Similar Business taken together with all other Investments made pursuant to this clause (aa) that are that time outstanding, not to exceed the greater of $50,000,000 and 2.00% of Total Assets.
Permitted Junior Priority Refinancing Debt means secured Indebtedness incurred by the Borrower and/or any Guarantor in the form of one or more series of junior lien secured notes, bonds or debentures or junior lien secured loans (and, if applicable, any Registered Equivalent Notes issued in exchange therefor); provided that (i) such Indebtedness is secured by a Lien on all or a portion of the Collateral ranking on a junior priority basis to the Liens on Collateral securing the Obligations and any other First Lien Obligations and is not secured by any property or assets of the Borrower or any Restricted Subsidiary other than the Collateral, (ii) such Indebtedness satisfies the applicable requirements set forth in the provisos in the definition of Credit Agreement Refinancing Indebtedness (provided that such Indebtedness may be secured by a Lien on Collateral that ranks junior to the Liens on Collateral securing the Obligations and any other First Lien Obligations, notwithstanding any provision to the contrary contained in the definition of Credit Agreement Refinancing Indebtedness), (iii) the holders of such Indebtedness (or their Senior Representative) shall be party to a Customary Intercreditor Agreement providing that the Liens on Collateral securing such obligations shall rank junior to the Liens on Collateral securing the Obligations, and (iv) such Indebtedness is not at any time guaranteed by any Subsidiary of the Borrower other than Subsidiaries that are Guarantors.
Permitted Liens means, with respect to any Person:
(a) pledges, deposits or security by such Person under workers compensation laws, unemployment insurance, employers health tax, and other social security laws or similar or other insurance related obligations (including, but not limited to, in respect of deductibles, self-insured retention amounts and premiums and adjustments thereto) or indemnification obligations of (including obligations in respect of letters of credit or bank guarantees for the benefit of) insurance carriers providing property, casualty or liability insurance, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of Indebtedness) or leases to which such Person is a party, or deposits to secure public or statutory obligations of such Person or deposits of cash or U.S. government bonds to secure surety or appeal bonds to which such Person is a party, or deposits as security for contested taxes or import duties or for the payment of rent, in each case incurred in the ordinary course of business;
(b) Liens imposed by law, such as landlords, carriers, warehousemens, materialmens, repairmens and mechanics Liens, in each case for sums not yet overdue for a period of more than 30 days
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or being contested in good faith by appropriate actions and other Liens arising out of or securing judgments or awards against such Person (including for payment of money not constituting an Event of Default under Section 8.01(g)) with respect to which such Person shall then be proceeding with an appeal or other proceedings for review if such Liens are adequately bonded or adequate reserves with respect thereto are maintained on the books of such Person in accordance with GAAP;
(c) Liens for Taxes, assessments or other governments charges not yet overdue for a period of more than 30 days or not yet payable or subject to penalties for nonpayment or which are being contested in good faith by appropriate actions diligently conducted, if adequate reserves with respect thereto are maintained on the books of such Person in accordance with GAAP;
(d) Liens in favor of issuers of performance, surety, bid, indemnity, warranty, release, appeal or similar bonds or with respect to other regulatory requirements or letters of credit or bankers acceptances issued, and completion guarantees provided for, in each case, issued pursuant to the request of and for the account of such Person in the ordinary course of its business or consistent with past practice prior to the Closing Date;
(e) (i) minor survey exceptions, minor encumbrances, ground leases, easements or reservations of, or rights of others for, licenses, rights-of-way, servitudes, sewers, electric lines, drains, telegraph, telephone and cable television lines and other similar purposes, or zoning, building codes or other restrictions (including minor defects and irregularities in title and similar encumbrances) as to the use of real properties or Liens incidental to the conduct of the business of such Person or to the ownership of its properties which were not incurred in connection with Indebtedness and which do not in the aggregate materially impair their use in the operation of the business of such Person and (ii) all matters shown on the Mortgage Policies (if any);
(f) Liens securing obligations relating to any Indebtedness permitted to be incurred pursuant to clause (e), (m)(ii), (x) or (y) of the definition of Permitted Indebtedness; provided that (a) Liens securing obligations relating to any Refinancing Indebtedness permitted to be incurred pursuant to clauses (e), (m)(ii) and (y) of the definition of Permitted Indebtedness relate only to obligations relating to Refinancing Indebtedness that (x) is secured by Liens on the same assets as the assets securing the Refinanced Indebtedness (other than after-acquired property that is (A) affixed or incorporated into the property covered by such Lien, (B) after-acquired property subject to a Lien securing such Indebtedness, the terms of which Indebtedness require or include a pledge of after-acquired property (it being understood that such requirement shall not be permitted to apply to any property to which such requirement would not have applied but for such acquisition) and (C) the proceeds and products thereof) or (y) Refinances Indebtedness issued under clause (e) of the definition of Permitted Indebtedness, (b) Liens securing obligations relating to Indebtedness permitted to be incurred pursuant to clause (x) of the definition of Permitted Indebtedness extend only to the assets of Foreign Subsidiaries, (c) Liens securing obligations relating to any Indebtedness permitted to be incurred pursuant to clause (y) of the definition of Permitted Indebtedness are solely on acquired property or the assets of the acquired entity (other than after-acquired property that is (A) affixed or incorporated into the property covered by such Lien, (B) after-acquired property subject to a Lien securing such Indebtedness, the terms of which Indebtedness require or include a pledge of after-acquired property (it being understood that such requirement shall not be permitted to apply to any property to which such requirement would not have applied but for such acquisition) and (C) the proceeds and products thereof), (d) Liens securing obligations relating to any Indebtedness to be incurred pursuant to clause (e) of the definition of Permitted Indebtedness extend only to the assets so purchased, leased or improved and any accessions or extensions thereof and customary security deposits and (e) in the case of consensual Liens on Collateral securing obligations under clause (m)(ii) of the definition of Permitted Indebtedness, at the election of the Borrower, the secured parties in respect of such Indebtedness (or a Senior Representative thereof on behalf of such holders) shall have entered into a Customary Intercreditor Agreement;
(g) Liens existing on the Closing Date or pursuant to agreements in existence on the Closing Date and, in each case, described on Schedule 7.01;
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(h) Liens on property or shares of stock or other assets of a Person at the time such Person becomes a Subsidiary; provided that such Liens are not created or incurred in connection with, or in contemplation of, such other Person becoming such a Subsidiary; provided, further, that such Liens may not extend to any other property or other assets owned by the Borrower or any Restricted Subsidiary (other than after-acquired property that is (A) affixed or incorporated into the property covered by such Lien, (B) except in the case of a Loan Party, after-acquired property subject to a Lien securing such Indebtedness, the terms of which Indebtedness require or include a pledge of after-acquired property (it being understood that such requirement shall not be permitted to apply to any property to which such requirement would not have applied but for such acquisition) and (C) the proceeds and products thereof);
(i) Liens on property or other assets at the time the Borrower or a Restricted Subsidiary acquired the property or such other assets, including any acquisition by means of a merger, amalgamation or consolidation with or into the Borrower or any Restricted Subsidiary; provided that such Liens are not created or incurred in connection with, or in contemplation of, such acquisition, amalgamation, merger or consolidation; provided, further, that the Liens may not extend to any other property owned by the Borrower or any Restricted Subsidiary (other than after-acquired property that is (A) affixed or incorporated into the property covered by such Lien and (B) the proceeds and products thereof);
(j) Liens securing obligations relating to any Indebtedness or other obligations of a Restricted Subsidiary owing to the Borrower or another Restricted Subsidiary permitted to be incurred in accordance with Section 7.03;
(k) Liens securing Hedging Obligations; provided that, with respect to Hedging Obligations relating to Indebtedness, such Indebtedness is secured by a Lien on the same property securing such Hedging Obligations;
(l) Liens on specific items of inventory or other goods (other than tire inventory) and proceeds of any Person securing such Persons accounts payable or similar trade obligations in respect of bankers acceptances or trade letters of credit issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods;
(m) leases, sub-leases, licenses or sub-licenses granted to others in the ordinary course of business which do not (i) interfere in any material respect with the business of the Borrower and the Restricted Subsidiaries, taken as a whole, or (ii) secure any Indebtedness;
(n) Liens arising from Uniform Commercial Code (or equivalent statute) financing statement filings regarding operating leases or consignments entered into by the Borrower or any Restricted Subsidiary in the ordinary course of business;
(o) Liens in favor of any Loan Party;
(p) Liens on accounts receivable, Securitization Assets and related assets incurred in connection with a Qualified Securitization Facility;
(q) Liens to secure any Refinancing (or successive Refinancing) as a whole, or in part, of any Indebtedness secured by any Lien referred to in the foregoing clauses (g), (h) and (i); provided that (a) such new Lien shall be limited to all or part of the same property that secured the original Lien (plus accessions, additions and improvements on such property (and after-acquired property that is (A) affixed or incorporated into the property covered by such Lien, (B) after-acquired property subject to a Lien securing such Indebtedness, the terms of which Indebtedness require or include a pledge of after-acquired property (it being understood that such requirement shall not be permitted to apply to any property to which such requirement would not have applied but for such acquisition) and (C) the proceeds and products thereof)), and (b) the Indebtedness secured by such Lien at such time is not increased by any amount greater than an amount necessary to pay any fees and expenses, including premiums and accrued and unpaid interest, related to such Refinancing;
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(r) deposits made or other security provided in the ordinary course of business to secure liability to insurance carriers;
(s) other Liens securing obligations in an aggregate amount not to exceed (as of the date any such Lien is incurred) the greater of (a) $35,000,000 and (b) 2.50% of Total Assets; provided that such Liens are subordinated to the Liens securing the Obligations in accordance with, and are otherwise subject to, the terms of the Crossing Lien Intercreditor Agreement or such other Customary Intercreditor Agreement which subordinates such Liens on the Collateral to the Liens on the Collateral securing the Obligations;
(t) Liens created in connection with Vendor Debt that encumber all or any part of the inventory supplied by such vendor and any books and records, documents and instruments, letter of credit rights and supporting obligations and any proceeds or products relating to such inventory, in each case existing on the Closing Date or hereafter created and existing;
(u) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods in the ordinary course of business;
(v) Liens (a) of a collection bank arising under Section 4-210 of the Uniform Commercial Code on items in the course of collection, (b) attaching to commodity trading accounts or other commodity brokerage accounts incurred in the ordinary course of business, and (c) in favor of banking institutions arising as a matter of law or under general terms and conditions encumbering deposits (including the right of set-off) and which are within the general parameters customary in the banking industry;
(w) Liens deemed to exist in connection with Investments in repurchase agreements permitted under Section 7.06; provided that such Liens do not extend to any assets other than those that are the subject of such repurchase agreement;
(x) Liens encumbering reasonable customary deposits and margin deposits and similar Liens attaching to commodity trading accounts or other brokerage accounts incurred in the ordinary course of business and not for speculative purposes;
(y) Liens that are contractual rights of set-off (a) relating to the establishment of depository relations with banks not given in connection with the issuance of Indebtedness, (b) relating to pooled deposit or sweep accounts of the Borrower or any Restricted Subsidiary to permit satisfaction of overdraft or similar obligations incurred in the ordinary course of business of the Borrower and the Restricted Subsidiaries or (c) relating to purchase orders and other agreements entered into with customers of the Borrower or any Restricted Subsidiary in the ordinary course of business;
(z) Liens securing obligations owed by Holdings, the Borrower or any Restricted Subsidiary to any lender, agent, arranger or any other Person under the Credit Facilities and the Senior Notes Documents (including, in either case, any Refinancing Indebtedness in respect thereof) or any Affiliate of such a lender, agent, arranger or other Person in respect of any Cash Management Obligations or Cash Management Services or Hedging Obligations, which Liens shall be subject to (i) in the case of Liens under Senior Notes Documents, the Equal Priority Intercreditor Agreement and (ii) in the case of Liens under Credit Facilities, the Crossing Lien Intercreditor Agreement;
(aa) any encumbrance or restriction (including put and call arrangements) with respect to Capital Stock of any joint venture or similar arrangement pursuant to any joint venture or similar agreement;
(bb) Liens arising out of conditional sale, title retention, consignment or similar arrangements with vendors for the sale or purchase of goods (other than tire inventory) entered into by the Borrower or any Restricted Subsidiary in the ordinary course of business;
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(cc) Liens solely on any cash earnest money deposits made by the Borrower or any Restricted Subsidiary in connection with any letter of intent or purchase agreement;
(dd) ground leases in respect of real property on which facilities owned or leased by the Borrower or any of its Subsidiaries are located;
(ee) Liens on insurance policies and the proceeds thereof securing the financing of the premiums with respect thereto;
(ff) Liens on Capital Stock of an Unrestricted Subsidiary that secure Indebtedness or other obligations of such Unrestricted Subsidiary;
(gg) Liens on the assets of Restricted Subsidiaries that are not Loan Parties securing Indebtedness of such Subsidiaries that is permitted by Section 7.03;
(hh) Liens arising solely from precautionary UCC financing statements or similar filings;
(ii) Liens securing obligations under: (i) the Loan Documents to secure the Obligations or permitted in respect of any Mortgaged Property by the terms of the applicable Mortgage (including any Refinancing Indebtedness incurred, issued or otherwise obtained to Refinance (in whole or in part) the Indebtedness incurred under the Loan Documents (and any Refinancing Indebtedness in respect thereof), (ii) (x) Indebtedness outstanding pursuant to clause (c)(i) of the definition of Permitted Indebtedness so long as such Liens are subject to the terms of the Crossing Lien Intercreditor Agreement or an applicable Customary Intercreditor Agreement and (y) Indebtedness outstanding pursuant to clause (c)(ii) of the definition of Permitted Indebtedness so long as such Liens are subject to the terms of the Crossing Lien Intercreditor Agreement or an applicable Customary Intercreditor Agreement (including any Refinancing Indebtedness incurred, issued or otherwise obtained to Refinance (in whole or in part) Indebtedness described in clauses (x) and (y) above (and any Refinancing Indebtedness in respect thereof)), (iii) the documentation (including any Permitted Incremental Equivalent Debt Documents) governing any Indebtedness permitted to be incurred under clause (o) of the definition of Permitted Indebtedness (provided that such Liens do not extend to any assets that are not Collateral) and (iv) the documentation governing any Indebtedness permitted to be incurred pursuant to clause (aa) of the definition of Permitted Indebtedness (provided that such Liens do not extend to any assets that are not Collateral); provided that, (A) in the case of Liens on Collateral securing Permitted Incremental Equivalent Debt Obligations or Credit Agreement Refinancing Indebtedness that constitute First Lien Obligations pursuant to subclause (iii) or (iv) above, the applicable Permitted Incremental Equivalent Debt Secured Parties or parties to such Credit Agreement Refinancing Indebtedness (or a Senior Representative thereof on behalf of such holders) shall have entered into the Crossing Lien Intercreditor Agreement or a Customary Intercreditor Agreement which agreement shall provide that the Liens on Collateral securing such Permitted Incremental Equivalent Debt Obligations or Credit Agreement Refinancing Indebtedness shall rank equal in priority to the Liens on Collateral securing the Obligations (but without regard to control of remedies) and (B) in the case of Liens on Collateral securing Permitted Incremental Equivalent Debt Obligations or Credit Agreement Refinancing Indebtedness pursuant to subclause (iii) or (iv) above that rank junior to the Liens on the Collateral securing the Obligations and the Liens on the ABL Collateral, the applicable Permitted Incremental Equivalent Debt Secured Parties or parties to such Credit Agreement Refinancing Indebtedness (or a Senior Representative thereof on behalf of such holders) shall have entered into a Customary Intercreditor Agreement described in clause (c) of the definition thereof;
(jj) Liens to secure Indebtedness incurred pursuant to clause (bb) of the definition of Permitted Indebtedness; provided that the Secured Net Leverage Ratio for the Test Period most recently ended on or prior to such date of determination, calculated on a pro forma basis after giving effect to the incurrence of such Lien (and without netting any cash received from the incurrence of such Indebtedness), the related Indebtedness and the application of net proceeds therefrom would be no greater than 4.00 to 1.00; provided further that, (A) in the case of Liens on Collateral securing such Indebtedness that constitutes First Lien Obligations, the applicable parties to such Indebtedness (or a Senior Representative thereof on behalf of such holders) shall have entered into the Crossing Lien Intercreditor Agreement or a
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Customary Intercreditor Agreement which agreement shall provide that the Liens on Collateral securing such Indebtedness shall rank equal in priority to the Liens on Collateral securing the Obligations (but without regard to control of remedies)and (B) in the case of Liens on Collateral securing such Indebtedness that rank junior to the Liens on the Collateral securing the Obligations and the Liens on the ABL Collateral, the applicable parties to such Indebtedness (or a Senior Representative thereof on behalf of such holders) shall have entered into a Customary Intercreditor Agreement described in clause (c) of the definition thereof. Without any further consent of the Lenders, the Administrative Agent and the Collateral Agent shall be authorized to negotiate, execute and deliver on behalf of the Secured Parties any intercreditor agreement or any amendment (or amendment and restatement) to the Collateral Documents or a Customary Intercreditor Agreement to effect the provisions contemplated by this clause (jj);
(kk) Liens arising pursuant to Section 107(l) of the Comprehensive Environmental Response, Compensation and Liability Act or similar provision of any Environmental Law, unless (i) such Lien, by the action of the lienholder, or by operation of law, takes priority over any Lien filed pursuant to this Agreement or any other Loan Document on the property upon which it is a Lien, and (ii) the cost to the Borrower and the Restricted Subsidiaries, taken as a whole, of satisfying such Lien, in the aggregate with any other such Liens, would reasonably be expected to exceed $15,000,000, except to the extent the obligations relating to such Liens are not yet due and payable or such Liens are being contested in good faith by appropriate actions diligently conducted, if adequate reserves with respect thereto are maintained on the books of such Person in accordance with GAAP; and
(ll) Liens consisting of an agreement to Dispose of any property in a Disposition permitted under Section 7.05 to the extent such Disposition would have been permitted on the date of the creation of such Lien;
For purposes of this definition, the term Indebtedness shall be deemed to include interest on such Indebtedness.
Permitted Ratio Debt means, at any time, Indebtedness incurred or issued by the Borrower or any Restricted Subsidiary if the Fixed Charge Coverage Ratio for the Test Period most recently ended on or prior to such time would have been at least 2.00 to 1.00, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom); provided, that Restricted Subsidiaries that are Non-Loan Parties may not incur or issue Indebtedness pursuant to this definition if, after giving pro forma effect to such incurrence or issuance as described above, the aggregate amount of Indebtedness of Non-Loan Parties incurred or issued pursuant to this definition then outstanding would exceed (as of the date such Indebtedness is issued, incurred or otherwise obtained) the greater of (x) $40,000,000 and (y) 1.75% of Total Assets.
Permitted Unsecured Refinancing Debt means unsecured Indebtedness incurred by the Borrower and/or the Guarantors in the form of one or more series of senior unsecured notes, bonds or debentures or loans (and, if applicable, any Registered Equivalent Notes issued in exchange therefor); provided that (i) such Indebtedness satisfies the applicable requirements set forth in the provisos in the definition of Credit Agreement Refinancing Indebtedness and (ii) such Indebtedness is not at any time guaranteed by any Subsidiary of the Borrower other than Subsidiaries that are Guarantors.
Person means any individual, corporation, limited liability company, partnership, joint venture, association, joint stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity.
Plan means any material employee benefit plan (as such term is defined in Section 3(3) of ERISA), other than a Foreign Plan, established or maintained by any Loan Party or, with respect to any such plan that is subject to Section 412 of the Code or Title IV of ERISA, any of their respective ERISA Affiliates.
Platform has the meaning specified in Section 6.02.
Pounds shall mean the lawful currency of the United Kingdom.
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Preferred Stock means any Equity Interest with preferential rights of payment of dividends or upon liquidation, dissolution, or winding up.
Previously Absent Financial Maintenance Covenant means, at any time (x) any financial maintenance covenant that is not included in this Agreement at such time and (y) any financial maintenance covenant that is included in this Agreement at such time but with covenant levels and component definitions (to the extent relating to such financial maintenance covenant) in this Agreement that are less restrictive on the Borrower and the Restricted Subsidiaries than those in the applicable Incremental Amendment, Refinancing Amendment, Extension Amendment or amendment in respect of Replacement Loans or any documents relating to Credit Agreement Refinancing Indebtedness or Refinancing Indebtedness.
Pro Forma Balance Sheet has the meaning specified in Section 5.05(a)(ii).
Pro Forma Financial Statements has the meaning specified in Section 5.05(a)(ii).
Pro Rata Share means, with respect to each Lender at any time a fraction (expressed as a percentage, carried out to the ninth decimal place), the numerator of which is the amount of the Commitments and, if applicable and without duplication, Term Loans of such Lender under the applicable Facility or Facilities at such time and the denominator of which is the amount of the Aggregate Commitments under the applicable Facility or Facilities and, if applicable and without duplication, Term Loans under the applicable Facility or Facilities at such time.
Projections has the meaning specified in Section 6.01(c).
Public Lender has the meaning specified in Section 6.02.
Qualified Proceeds means the fair market value of assets that are used or useful in, or Capital Stock of any Person engaged in, a Similar Business.
Qualified Securitization Facility means any Securitization Facility that meets the following conditions: (a) the board of directors of the Borrower shall have determined in good faith that such Securitization Facility (including financing terms, covenants, termination events and other provisions) is in the aggregate economically fair and reasonable to the Borrower and the applicable Securitization Subsidiary, (b) all sales and/or contributions of Securitization Assets and related assets to the applicable Securitization Subsidiary are made at fair market value (as determined in good faith by the Borrower) and (c) the financing terms, covenants, termination events and other provisions thereof shall be market terms (as determined in good faith by the Borrower).
Qualifying IPO means the issuance by the Borrower, or any Parent Entity thereof, of its common Equity Interests in an underwritten primary public offering (other than a public offering pursuant to a registration statement on Form S-8) pursuant to an effective registration statement filed with the SEC in accordance with the Securities Act (whether alone or in connection with a secondary public offering).
Qualifying Lender has the meaning specified in Section 2.03(a)(iv)(D)(3).
Quarterly Financial Statements means the unaudited consolidated balance sheets and the related statements of operations and cash flows for the fiscal quarters then ended, together with the notes of the Acquired Company and its Subsidiaries as of each fiscal quarter subsequent to December 31, 2013 and ended at least 45 days prior to the Closing Date.
Rating Agencies means Moodys and S&P or if Moodys or S&P or both shall not make a rating on the relevant obligations publicly available, a nationally recognized statistical rating agency or agencies, as the case may be, selected by the Borrower which shall be substituted for Moodys or S&P or both, as the case may be.
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Real Property Collateral Requirements means, with respect to each owned real property of the Borrower or any Subsidiary Guarantor, including each other parcel of real property and improvements thereto, for which a Mortgage is granted pursuant to Section 12.13 (each a Mortgaged Property), each of the following, in form and substance reasonably satisfactory to the Collateral Agent:
(a) a Mortgage on such Mortgaged Property;
(b) evidence that a counterpart of the Mortgage has been recorded or delivered to the appropriate title insurance company subject to arrangements reasonably satisfactory to the Collateral Agent for the prompt recording thereof;
(c) an ALTA or other mortgagees title policy or amendment thereto (or a marked unconditional binder thereof insuring the Lien of the Mortgage at ordinary rates) (the Mortgage Policies);
(d) an opinion of counsel in the state in which such Mortgaged Property is located as to the recordability and enforceability of the applicable Mortgage in the relevant jurisdiction; and
(e) a flood zone certificate in favor of the Collateral Agent, and, if any Mortgaged Property with improvements located thereon is being identified as being within a special flood hazard area, flood insurance in an amount required by applicable law.
Reference Rate means with respect to the calculation of the All-In Yield in the case of Loans of an applicable Class that includes a Eurodollar Rate floor, an interest rate per annum equal to the rate per annum equal to LIBOR, as published by Reuters (or such other commercially available source providing quotations of LIBOR as may be designated by the Administrative Agent from time to time) at approximately 11:00 a.m., London time, on such day for Dollar deposits with a term of three months, or if such rate is not available at such time for any reason, the rate per annum determined by the Administrative Agent to be the rate at which deposits in Dollars for delivery on such day with a term of three months would be offered by the Administrative Agents London Branch to major banks in the London interbank eurodollar market at their request at approximately 11:00 a.m., London time, on such date.
Refinance, Refinancing and Refinanced shall have the meanings provided in the definition of the term Refinancing Indebtedness.
Refinanced Indebtedness has the meaning provided in the definition of the term Refinancing Indebtedness.
Refinanced Loans has the meaning specified in Section 10.01.
Refinancing Amendment means an amendment to this Agreement in form and substance reasonably satisfactory to the Administrative Agent and the Borrower executed by each of (a) the Borrower, (b) the Administrative Agent and (c) each Additional Lender and Lender that agrees to provide any portion of the Other Term Loans or Other Term Loan Commitments being incurred or provided pursuant thereto, in accordance with Section 2.13.
Refinancing Indebtedness means, with respect to any Indebtedness (the Refinanced Indebtedness), any Indebtedness issued, incurred or otherwise obtained in exchange for or as a replacement of (including by entering into alternative financing arrangements in respect of such exchange or replacement (in whole or in part), including by adding or replacing lenders, creditors, agents, borrowers and/or guarantors, and including in each case, but not limited to, after the original instrument giving rise to such Indebtedness has been terminated and including, in each case, by entering into any credit agreement, loan agreement, note purchase agreement, indenture or other agreement), or the net proceeds of which are to be used for the purpose of modifying, extending, refinancing, renewing, replacing, redeeming, repurchasing, defeasing, amending, supplementing, restructuring, repaying or refunding (collectively to Refinance or a Refinancing or Refinanced), such Refinanced
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Indebtedness (or previous refinancing thereof constituting Refinancing Indebtedness); provided that (A) except to the extent otherwise permitted under this Agreement (subject to a dollar for dollar usage of any other basket set forth in the definition of Permitted Indebtedness, if applicable), the principal amount (or accreted value, if applicable) of any such Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Refinanced Indebtedness outstanding immediately prior to such Refinancing except by an amount equal to the unpaid accrued interest and premium (including any tender premiums) and penalties (if any) thereon plus other amounts paid and fees and expenses incurred in connection with such Refinancing plus an amount equal to any existing commitment unutilized and letters of credit undrawn thereunder, (B) if the Indebtedness being Refinanced is Indebtedness permitted by clauses (c), (d) and (o) of the definition of Permitted Indebtedness, the direct and contingent obligors with respect to such Refinancing Indebtedness are not changed (except that any Loan Party may be added as an additional direct or contingent obligor in respect of such Refinancing Indebtedness), (C) other than with respect to a Refinancing in respect of Indebtedness permitted pursuant to clause (e) of the definition of Permitted Indebtedness, such Refinancing Indebtedness shall have a final maturity date equal to or later than the final maturity date of, and shall have a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Refinanced Indebtedness (without giving effect to any amortization or prepayments thereof prior to the time of such Refinancing) as of the date of determination, and (D) if the Indebtedness being Refinanced is Indebtedness permitted by clauses (d) and (o) of the definition of Permitted Indebtedness, the terms and conditions of any such Refinancing Indebtedness, taken as a whole, are no more restrictive on the Borrower than the terms and conditions of the Refinanced Indebtedness being Refinanced (including, if applicable, as to collateral priority and subordination, but excluding as to interest rates (including through fixed exchange rates), interest rate margins, rate floors, fees, funding discounts, original issue discount and redemption or prepayment terms and premiums (provided that such terms and conditions shall not be deemed to be more restrictive on the Borrower solely as a result of the inclusion in the documentation governing such Refinancing Indebtedness of a Previously Absent Financial Maintenance Covenant so long as the Administrative Agent shall have been given prompt written notice thereof and this Agreement is amended to include such Previously Absent Financial Maintenance Covenant for the benefit of each Facility (provided, however, that if (x) the documentation governing the Refinancing Indebtedness that includes a Previously Absent Financial Maintenance Covenant consists of a revolving credit facility (whether or not the documentation therefor includes any other facilities) and (y) such Previously Absent Financial Maintenance Covenant is a springing financial maintenance covenant, the Previously Absent Financial Maintenance Covenant shall not be required to be included in this Agreement for the benefit of any Term Facility hereunder and such Refinancing Indebtedness shall not be deemed less favorable to the Lenders solely as a result of such Previously Absent Financial Maintenance Covenant benefiting only such revolving credit facilities); provided that a certificate of a Responsible Officer of the Borrower delivered to the Administrative Agent at least five Business Days prior to the incurrence of such Indebtedness, together with a reasonably detailed description of the material terms and conditions of such Indebtedness or drafts of the documentation relating thereto, stating that the Borrower has determined in good faith that such terms and conditions satisfy the foregoing requirement in clause (D) shall be conclusive evidence that such terms and conditions satisfy the foregoing requirement unless the Administrative Agent notifies the Borrower within such five Business Day period that it disagrees with such determination (including a reasonable description of the basis upon which it disagrees).
Refunding Capital Stock has the meaning specified in Section 7.06(b)(ii).
Register has the meaning specified in Section 10.07(c).
Registered Equivalent Notes means, with respect to any notes originally issued in a Rule 144A or other private placement transaction under the Securities Act, substantially identical notes (having the same Guarantees) issued in a dollar-for-dollar exchange therefor pursuant to an exchange offer registered with the SEC.
Rejection Notice has the meaning specified in Section 2.03(b)(v).
Related Indemnified Person of an Indemnitee means (1) any controlling Person or controlled Affiliate of such Indemnitee, (2) the respective directors, officers, or employees of such Indemnitee or any of its controlling Persons or controlled Affiliates and (3) the respective agents of such Indemnitee or any of its controlling Persons or controlled Affiliates, in the case of this clause (3), acting at the instructions of such Indemnitee, controlling Person or such controlled Affiliate; provided that each reference to a controlled Affiliate or controlling Person in this definition pertains to a controlled Affiliate or controlling Person involved in the negotiation of this
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Agreement or the syndication of the Facilities. For purposes of this definition, control (including, with correlative meanings, the terms controlling, controlled by and under common control with), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise.
Related Person means, with respect to any Person, (a) any Affiliate of such Person and (b) the respective directors, officers, employees, agents and other representatives of such Person or any of its Affiliates.
Release means any release, spill, emission, discharge, deposit, disposal, leaking, pumping, pouring, dumping, emptying, injection or leaching into the Environment.
Replacement Loans has the meaning specified in Section 10.01.
Reportable Event means, with respect to any Pension Plan, any of the events set forth in Section 4043(c) of ERISA or the regulations issued thereunder, other than events for which the thirty (30) day notice period has been waived.
Required Facility Lenders means, as of any date of determination, with respect to one or more Facilities, Lenders having more than 50% of the sum of (a) the Total Outstandings under such Facility or Facilities and (b) the aggregate unused Commitments under such Facility or Facilities; provided that, to the same extent specified in Section 10.07(i) with respect to determination of Required Lenders, the Loans of any Affiliated Lender shall in each case be excluded for purposes of making a determination of Required Facility Lenders unless the action in question affects such Affiliated Lender in a disproportionately adverse manner than its effect on the other Lenders.
Required Lenders means, as of any date of determination, Lenders having more than 50% of the sum of the (a) Total Outstandings and (b) aggregate unused Term Commitments; provided that the Loans of any Affiliated Lender shall in each case be excluded for purposes of making a determination of Required Lenders unless the action in question affects such Affiliated Lender in a disproportionately adverse manner than its effect on the other Lenders.
Responsible Officer means, with respect to a Person, the chief executive officer, chief operating officer, president, vice president, chief financial officer, treasurer or assistant treasurer or other similar officer or Person performing similar functions, of such Person. With respect to any document delivered by a Loan Party on the Closing Date, Responsible Officer includes any secretary or assistant secretary of such Loan Party. Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party. Unless otherwise specified, all references herein to a Responsible Officer shall refer to a Responsible Officer of the Borrower.
Restricted Investment means any Investment other than any Permitted Investments.
Restricted Payment means (i) any dividend or other distribution (whether in cash, securities or other property) with respect to any Equity Interest of the Borrower or any Restricted Subsidiary (in each case, solely in such Persons capacity as holder of such Equity Interests) other than dividends or distributions (A) solely in Equity Interests (other than Disqualified Stock) of the Borrower or (B) by a Restricted Subsidiary so long as, in the case of any dividend or distribution payable on or in respect of any class or series of securities issued by a Restricted Subsidiary other than a wholly owned Restricted Subsidiary, the applicable Loan Party or Restricted Subsidiary receives at least its pro rata share of such dividend or distribution in accordance with its Equity Interests in such class or series of securities, or any payment (other than a payment constituting a Permitted Investment) (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, defeasance, acquisition, cancellation or termination of any such Equity Interest, or on account of any return of capital to the Borrowers or any Restricted Subsidiarys stockholders, partners or members
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(or the equivalent Persons thereof), (ii) any prepayment, redemption, purchase, defeasance or other satisfaction prior to the scheduled maturity thereof in any manner (it being understood that payments of regularly scheduled principal, interest and mandatory prepayments shall be permitted) of obligations under the Senior Subordinated Note Documents and any Refinancing thereof (other than Indebtedness constituting First Lien Obligations) or any other Subordinated Indebtedness of any Borrower or any Subsidiary Guarantor (collectively, Junior Financing) and (iii) any Restricted Investment.
Restricted Subsidiary means, at any time, any direct or indirect Subsidiary of the Borrower (including any Foreign Subsidiary) that is not then an Unrestricted Subsidiary; provided that upon an Unrestricted Subsidiary ceasing to be an Unrestricted Subsidiary, such Subsidiary shall be included in the definition of Restricted Subsidiary.
S&P means Standard & Poors, a division of The McGraw-Hill Companies, Inc., and any successor to its rating agency business.
Sale and Lease-Back Transaction means any arrangement providing for the leasing by the Borrower or any Restricted Subsidiary of any real or tangible personal property, which property has been or is to be sold or transferred by the Borrower or such Restricted Subsidiary to a third Person in contemplation of such leasing.
Same Day Funds means disbursements and payments in immediately available funds.
SEC means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.
Secured Indebtedness means any Indebtedness of the Borrower or any Restricted Subsidiary secured by a Lien.
Secured Net Leverage Ratio means the Consolidated Net Leverage Ratio but excluding from the numerator all Indebtedness described in clause (a)(1) of the definition of Consolidated Total Indebtedness other than Secured Indebtedness.
Secured Parties means, collectively, the Administrative Agent, the Lenders, each Supplemental Administrative Agent and each co-agent or sub-agent appointed by the Administrative Agent from time to time pursuant to Section 9.01 or 9.07.
Securities Act means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder.
Securitization Assets means the accounts receivable, royalty and other similar rights to payment and any other assets related thereto subject to a Qualified Securitization Facility and the proceeds thereof.
Securitization Facility means any of one or more receivables securitization financing facilities as amended, supplemented, modified, extended, renewed, restated or refunded from time to time, the Obligations of which are non-recourse (except for customary representations, warranties, covenants and indemnities made in connection with such facilities) to the Borrower or any Restricted Subsidiary (other than a Securitization Subsidiary) pursuant to which the Borrower or any Restricted Subsidiary sells or grants a security interest in its accounts receivable or assets related thereto to either (a) a Person that is not a Restricted Subsidiary or (b) a Securitization Subsidiary that in turn sells its accounts receivable to a Person that is not a Restricted Subsidiary.
Securitization Fees means distributions or payments made directly or by means of discounts with respect to any participation interest issued or sold in connection with, and other fees paid to a Person that is not a Securitization Subsidiary in connection with, any Qualified Securitization Facility.
Securitization Subsidiary means any Subsidiary formed for the purpose of, and that solely engages only in one or more Qualified Securitization Facilities and other activities reasonably related thereto.
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Security Agreement means, collectively, that certain Security Agreement dated as of the date hereof among the Collateral Agent and the grantors party thereto, together with supplements or joinders thereto executed and delivered pursuant to Section 6.11.
Senior Net Leverage Ratio means the Consolidated Net Leverage Ratio but excluding from the numerator all Indebtedness described in clause (a)(1) of the definition of Consolidated Total Indebtedness other than Indebtedness of the Borrower and the Restricted Subsidiaries that is not Subordinated Indebtedness.
Senior Notes means the Borrowers 9.750% Senior Secured Fixed Rate Notes due 2017, in an initial aggregate principal amount of $250,000,000.
Senior Notes Documents means the Senior Notes Indenture and all other instruments, agreements and other documents evidencing the Senior Notes or providing for any Guarantee or other right in respect thereof.
Senior Notes Indenture means the indenture under which the Senior Notes are issued.
Senior Representative means, with respect to any series of Indebtedness, the trustee, administrative agent, collateral agent, security agent or similar agent under the indenture or agreement pursuant to which such Indebtedness is issued, incurred or otherwise obtained, as the case may be, and each of their successors in such capacities.
Senior Subordinated Notes means the Borrowers 11.50% Senior Subordinated Notes due 2018, in an initial aggregate principal amount of $425,000,000.
Senior Subordinated Notes Documents means the Senior Subordinated Notes Indenture and all other instruments, agreements and other documents evidencing the Senior Subordinated Notes or providing for any Guarantee or other right in respect thereof.
Senior Subordinated Notes Indenture means the indenture under which the Senior Subordinated Notes are issued.
Similar Business means (1) any business engaged in by the Borrower or any Restricted Subsidiary on the Closing Date, and (2) any business or other activities that are reasonably similar, ancillary, complementary or related to, or a reasonable extension, development or expansion of, the businesses in which the Borrower and the Restricted Subsidiaries are engaged on the Closing Date.
Solicited Discount Proration has the meaning specified in Section 2.03(a)(iv)(D)(3).
Solicited Discounted Prepayment Amount has the meaning specified in Section 2.03(a)(iv)(D)(1).
Solicited Discounted Prepayment Notice means a written notice of the Borrowers Solicited Discounted Prepayment Offers made pursuant to Section 2.03(a)(iv)(D) substantially in the form of Exhibit J.
Solicited Discounted Prepayment Offer means the written offer by each Lender, substantially in the form of Exhibit M, submitted following the Administrative Agents receipt of a Solicited Discounted Prepayment Notice.
Solicited Discounted Prepayment Response Date has the meaning specified in Section 2.03(a)(iv)(D)(1).
SPC has the meaning specified in Section 10.07(g).
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Specified Acquisition Agreement Representations means such of the representations and warranties made by or with respect to the Acquired Company and its Subsidiaries in the Acquisition Agreement as are material to the interests of the Lenders, but only to the extent that the Borrower has the right to, pursuant to the Acquisition Agreement, terminate its obligations under the Acquisition Agreement or decline to consummate the Acquisition as a result of a breach of such representations and warranties.
Specified Discount has the meaning specified in Section 2.03(a)(iv)(B)(1).
Specified Discount Prepayment Amount has the meaning specified in Section 2.03(a)(iv)(B)(1).
Specified Discount Prepayment Notice means a written notice of the Borrowers Offer of Specified Discount Prepayment made pursuant to Section 2.03(a)(iv)(B) substantially in the form of Exhibit L.
Specified Discount Prepayment Response means the written response by each Lender, substantially in the form of Exhibit N, to a Specified Discount Prepayment Notice.
Specified Discount Prepayment Response Date has the meaning specified in Section 2.03(a)(iv)(B)(1).
Specified Discount Proration has the meaning specified in Section 2.03(a)(iv)(B)(3).
Specified Representations means those representations and warranties made by the Borrower in Sections 5.01(a) (with respect to the organizational existence of the Loan Parties only (other than the Acquired Company and its Subsidiaries acquired in the Acquisition)), 5.01(b)(ii), 5.02, 5.03(b), 5.03(c) (for purposes of this definition, replacing the reference at the end of Section 5.03 to Material Adverse Effect with a reference to Closing Date Material Adverse Effect), 5.13, 5.16, 5.18 (with respect to the incurrence of the Term Loans on the Closing Date only and the use of the proceeds thereof) and 5.19.
Specified Transaction means, with respect to any period, any acquisition, Investment, sale, transfer or other Disposition of assets or property other than in the ordinary course, incurrence, issuance, obtaining, assumption, Refinancing, prepayment, redemption, repurchase, defeasance, extinguishment, retirement 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 not replaced), Restricted Payment, Subsidiary designation, Incremental Term Loan, provision of Incremental Term Commitment or other event that by the terms of the Loan Documents requires pro forma compliance with a test or covenant hereunder or requires such test or covenant to be calculated on a pro forma basis.
Sponsor means any of TPG Capital, L.P., TPG Advisors VI, Inc., TPG Convoy Holdings, L.P., TPG Convoy Holdings II, L.P. and any of their respective Affiliates and funds or partnerships managed or advised by any of them or any of their respective Affiliates, but not including, however, any portfolio company of any of the foregoing.
Submitted Amount has the meaning specified in Section 2.03(a)(iv)(C)(1).
Submitted Discount has the meaning specified in Section 2.03(a)(iv)(C)(1).
Subordinated Indebtedness means any Indebtedness of any Loan Party that is by its terms subordinated in right of payment to the Obligations of such Loan Party arising under the Loans or the Guaranty of the Loans.
Subsidiary means, with respect to any Person:
(a) any corporation, association, or other business entity (other than a partnership, joint venture, limited liability company or similar entity) of which more than 50.0% of the total voting power of
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shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time of determination owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person or a combination thereof; and
(b) any partnership, joint venture, limited liability company or similar entity of which:
(i) more than 50.0% of the capital accounts, distribution rights, total equity and voting interests or general or limited partnership interests, as applicable, are owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person or a combination thereof whether in the form of membership, general, special or limited partnership or otherwise, and
(ii) such Person or any Restricted Subsidiary of such Person is a controlling general partner or otherwise controls such entity.
Subsidiary Guarantor means each Subsidiary of the Borrower, if any, that provides a Guaranty of the Obligations in accordance with the terms of this Agreement.
Successor Borrower has the meaning specified in Section 7.04(d).
Successor Holdings has the meaning specified in Section 7.04(e).
Supplemental Administrative Agent and Supplemental Administrative Agents have the meanings specified in Section 9.15(a).
Tax means any present or future tax, levy, impost, duty, assessment, charge, fee, deduction or withholding of any nature and whatever called, imposed by any Governmental Authority, including any interest, additions to tax and penalties applicable thereto.
Tax Distributions means Restricted Payments in an amount intended to enable any direct and indirect equity owners of the Borrower to pay income Taxes incurred by such direct and indirect equity owners in any taxable period which are attributable to the income and/or gain of the Borrower (but only for so long as the Borrower is classified as a disregarded entity, partnership or other pass-through entity for U.S. federal income tax purposes); provided that any such Restricted Payment: (A) shall be in an amount determined by multiplying the higher of the maximum combined U.S. federal and state ordinary income tax rate applicable to individuals or corporations, in each case resident in the state of California, (without taking into account the deductibility of state taxes in computing U.S. federal income taxes) by the amount of the net income and/or gain attributable to such direct or indirect equity owner; (B) shall only be made to the extent that the amount described in clause (A) exceeds the amount of distributions made to the applicable direct or indirect equity owner in or with respect to such taxable period, other than any distributions made pursuant to the provisions of Section 7.06 (other than Section 7.06(b)(xiii)(B)); and (C) shall be reduced by any cumulative net loss attributable to such direct or indirect equity owner with respect to all prior taxable periods beginning after the Closing Date, but only to the extent such loss has not previously reduced any Restricted Payment by reason of this clause (C); provided, further, that the Borrower will provide to the Administrative Agent promptly following a request therefor calculations supporting the amount of any Tax Distributions made pursuant to Section 7.06(b)(xiii)(B)(ii).
Tax Group has the meaning specified in Section 7.06(b)(xiii)(B).
Tax Indemnitee as defined in Section 3.01(e).
Term B Commitments means, as to each Term Lender, its obligation to make an Initial Term Loan to the Borrower pursuant to Section 2.01 in an aggregate amount not to exceed the amount specified opposite such Lenders name under on Schedule 2.01 under the caption Term B Commitment or in the Assignment and Assumption (or Affiliated Lender Assignment and Assumption) pursuant to which such Term Lender becomes a
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party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement (including pursuant to Section 2.12, 2.13 or 2.14). The initial aggregate amount of the Term B Commitments is $300,000,000.
Term Borrowing means a Borrowing of any Term Loans.
Term Commitment means, as to each Term Lender, its obligation to make a Term Loan to the Borrower hereunder, expressed as an amount representing the maximum principal amount of the Term Loan to be made by such Term Lender under this Agreement, as such commitment may be (a) reduced from time to time pursuant to this Agreement and (b) reduced or increased from time to time pursuant to (i) assignments by or to such Term Lender pursuant to an Assignment and Assumption, (ii) an Incremental Amendment, (iii) a Refinancing Amendment, (iv) an Extension Amendment or (v) an amendment in respect of Replacement Loans. The initial amount of each Term Lenders Term Commitment is specified on Schedule 2.01 under the caption Term B Commitment or, otherwise, in the Assignment and Assumption (or Affiliated Lender Assignment and Assumption), Incremental Amendment, Refinancing Amendment, Extension Amendment or amendment in respect of Replacement Loans pursuant to which such Lender shall have assumed its Commitment, as the case may be.
Term Facility means any Facility consisting of Term Loans and/or Term Commitments.
Term Lender means, at any time, any Lender that has a Term Commitment or a Term Loan at such time.
Term Loan means any Initial Term Loan, Incremental Term Loan, Other Term Loan, Extended Term Loan or Replacement Loan, as the context may require.
Term Loan Extension Request has the meaning provided in Section 2.14(a).
Term Loan Extension Series has the meaning provided in Section 2.14(a).
Term Loan Increase has the meaning specified in Section 2.12(a).
Term Note means a promissory note of the Borrower payable to any Term Lender or its registered assigns, in substantially the form of Exhibit B hereto, evidencing the aggregate Indebtedness of the Borrower(s) to such Term Lender resulting from the Term Loans made by such Term Lender.
Test Period in effect at any time means the most recent period of four consecutive fiscal quarters of the Borrower ended on or prior to such time (taken as one accounting period) in respect of which, subject to Section 1.07(a), internal financial statements of the Borrower are available (as determined in the good faith of the Borrower); provided that, prior to the first date that internal financial statements of the Borrower are available, the Test Period in effect shall be the period of four consecutive fiscal quarters of the Borrower ended December 31, 2013.
Threshold Amount means $25,000,000.
Total Assets means, at any time, the total assets of the Borrower and the Restricted Subsidiaries, determined on a consolidated basis in accordance with GAAP, as shown on the then most recent balance sheet of the Borrower or such other Person as may be expressly stated.
Total Outstandings means the aggregate Outstanding Amount of all Loans.
Transaction Expenses means any fees or expenses incurred or paid by Holdings and Parent Entities thereof, the Borrower or any Restricted Subsidiary or the Sponsor in connection with the (i) Transactions and (ii) the Hercules Transactions, including payments to officers, employees and directors as change of control payments, severance payments, special or retention bonuses and charges for repurchase or rollover of, or modifications to, stock options.
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Transactions means, collectively, (a) the Acquisition, (b) the execution and delivery of this Agreement and the funding of the Initial Term Loans and ABL Revolving Loans on the Closing Date, (c) the Closing Date Release, (d) the consummation of any other transactions in connection with the Acquisition Agreements, and (e) the payment of the fees and expenses incurred in connection with any of the foregoing.
Treasury Capital Stock has the meaning assigned to such term in Section 7.06(b)(ii).
Type means, with respect to a Loan, its character as a Base Rate Loan or a Eurodollar Rate Loan.
Uniform Commercial Code or UCC means the Uniform Commercial Code or any successor provision thereof as the same may from time to time be in effect in the State of New York or the Uniform Commercial Code or any successor provision thereof (or similar code or statute) of another jurisdiction, to the extent it may be required to apply to any item or items of Collateral.
United States and U.S. mean the United States of America.
United States Tax Compliance Certificate has the meaning specified in Section 3.01(c)(ii)(C).
Unrestricted Subsidiary means:
(a) any Subsidiary of the Borrower which at the time of determination is an Unrestricted Subsidiary (as designated by the Borrower, as provided below); and
(b) any Subsidiary of an Unrestricted Subsidiary.
The Borrower may designate any Subsidiary of the Borrower to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Equity Interests or Indebtedness of, or owns or holds any Lien on, any property of, the Borrower or any Subsidiary thereof (other than solely any Subsidiary of the Subsidiary to be so designated); provided that:
(a) any Unrestricted Subsidiary must be an entity of which the Equity Interests entitled to cast at least a majority of the votes that may be cast by all Equity Interests having ordinary voting power for the election of directors or Persons performing a similar function are owned, directly or indirectly, by the Borrower;
(b) such designation shall be deemed to be an Investment;
(c) each of (a) the Subsidiary to be so designated and (b) its Subsidiaries has not, at the time of designation, and does not thereafter, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to any Indebtedness pursuant to which the lender has recourse to any of the assets of the Borrower or any Restricted Subsidiary;
(d) no Default or Event of Default has occurred and is continuing at the time of such designation; and
(e) if the Fixed Charge Coverage Ratio for the Test Period most recently ended calculated on a pro forma basis after giving effect to any such designation does not exceed 2.00 to 1.00, then (x) Total Assets of such designated Subsidiary determined as of the last day of the Test Period most recently ended on or prior to the date of such designation shall not exceed $10,000,000, (y) the EBITDA of such designated Subsidiary determined as of the last day of the Test Period most recently ended on or prior to the date of such designation shall not exceed $5,000,000 and (z) the EBITDA of all Unrestricted Subsidiaries determined as of the last day of the Test Period most recently ended on or prior to the date of such designation shall not exceed $50,000,000 in the aggregate.
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Any such designation by the Borrower shall be notified by a Responsible Officer of the Borrower to the Administrative Agent by promptly filing with the Administrative Agent a copy of the resolution of the board of directors of the Borrower or any committee thereof giving effect to such designation and a certificate of such Responsible Officer certifying that such designation complied with the foregoing provisions.
U.S. Lender means any Lender that is not a Foreign Lender.
USA PATRIOT Act means The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Title III of Public Law No. 107-56 (signed into law October 26, 2001)), as amended or modified from time to time.
Vendor Debt means any Indebtedness of the Borrower or any Subsidiary to any vendor of tires.
Voting Stock of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the board of directors of such Person.
Weighted Average Life to Maturity means, when applied to any Indebtedness, at any date, the quotient obtained by dividing:
(a) the sum of the products of the number of years (calculated to the nearest one-twelfth) from the date of determination to the date of each successive scheduled principal payment of such Indebtedness multiplied by the amount of such payment; by
(b) the sum of all such payments.
wholly owned means, with respect to a Subsidiary of a Person, a Subsidiary of such Person all of the outstanding Equity Interests of which (other than (x) directors qualifying shares and (y) nominal shares issued to foreign nationals to the extent required by applicable Law) are owned by such Person and/or by one or more wholly owned Subsidiaries of such Person.
Withdrawal Liability means the liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such term is defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02 Other Interpretive Provisions. With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document:
(a) The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms.
(b) The words herein, hereto, hereof and hereunder and words of similar import when used in any Loan Document shall refer to such Loan Document as a whole and not to any particular provision thereof.
(c) References in this Agreement to an Exhibit, Schedule, Article, Section, clause or sub-clause refer (A) to the appropriate Exhibit or Schedule to, or Article, Section, clause or sub-clause in this Agreement or (B) to the extent such references are not present in this Agreement, to the Loan Document in which such reference appears.
(d) The term including is by way of example and not limitation.
(e) The term documents includes any and all instruments, documents, agreements, certificates, notices, reports, financial statements and other writings, however evidenced, whether in physical or electronic form.
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(f) In the computation of periods of time from a specified date to a later specified date, the word from means from and including; the words to and until each mean to but excluding; and the word through means to and including.
(g) Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document.
(h) For purposes of determining compliance with any Section of Article VII, in the event that any Lien, Investment, Indebtedness, Disposition, Restricted Payment, Affiliate Transaction, Contractual Obligation, or prepayment of Indebtedness meets the criteria of one or more of the categories of transactions permitted pursuant to any clause of such Sections, such transaction (or portion thereof) at any time, shall be permitted under one or more of such clauses as determined by the Borrower in its sole discretion at such time.
SECTION 1.03 Accounting Terms. All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP, except as otherwise specifically prescribed herein.
SECTION 1.04 Rounding. Any financial ratios required to be satisfied in order for a specific action to be permitted under this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).
SECTION 1.05 References to Agreements, Laws, Etc. Unless otherwise expressly provided herein, (a) references to Organizational Documents, agreements (including the Loan Documents, the ABL Credit Documents, the Senior Notes Documents and the Senior Subordinated Notes Documents) and other contractual instruments shall be deemed to include all subsequent amendments, restatements, extensions, supplements and other modifications thereto, but only to the extent that such amendments, restatements, extensions, supplements and other modifications are permitted by any Loan Document; and (b) references to any Law shall include all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting such Law.
SECTION 1.06 Times of Day and Timing of Payment and Performance. Unless otherwise specified, all references herein to times of day shall be references to New York time (daylight or standard, as applicable). When the payment of any obligation or the performance of any covenant, duty or obligation is stated to be due or performance required on a day which is not a Business Day, the date of such payment (other than as described in the definition of Interest Period) or performance shall extend to the immediately succeeding Business Day.
SECTION 1.07 Pro Forma and Other Calculations.
(a) Notwithstanding anything to the contrary herein, financial ratios and tests, including the Senior Net Leverage Ratio, the Secured Net Leverage Ratio, the Consolidated Net Leverage Ratio and the Fixed Charge Coverage Ratio shall be calculated in the manner prescribed by this Section 1.07; provided that, notwithstanding anything to the contrary in clauses (b), (c), (d) or (e) of this Section 1.07, when calculating the Senior Net Leverage Ratio for purposes of (i) the definition of Applicable Rate, and (ii) Section 2.03(b)(i), the events described in this Section 1.07 that occurred subsequent to the end of the applicable Test Period shall not be given pro forma effect; provided however that voluntary prepayments made pursuant to Section 2.03(a) during any fiscal year (without duplication of any prepayments in such fiscal year that reduced the amount of Excess Cash Flow required to be repaid pursuant to Section 2.03(b)(i) for any prior fiscal year) shall be given pro forma effect after such fiscal year-end and prior to the time such prepayment pursuant to Section 2.03(b)(i) is due but shall not be given pro forma effect thereafter. In addition, whenever a financial ratio or test is to be calculated on a pro forma basis, the reference to Test Period for purposes of calculating such financial ratio or test shall be deemed to be a reference to, and shall be based on, the most recently ended Test Period for which internal financial statements of the Borrower are available (as determined in good faith by the Borrower).
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(b) For purposes of calculating any financial ratio or test (or Total Assets), Specified Transactions (with any incurrence or repayment of any Indebtedness in connection therewith to be subject to clause (d) of this Section 1.07) that have been made (i) during the applicable Test Period or (ii) subsequent to such Test 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 EBITDA and the component financial definitions used therein attributable to any Specified Transaction) had occurred on the first day of the applicable Test Period (or, in the case of Total Assets, on the last day of the applicable Test Period). If since the beginning of any applicable Test Period any Person that subsequently became a Restricted Subsidiary or was merged, amalgamated or consolidated with or into the Borrower or any Restricted Subsidiary since the beginning of such Test Period shall have made any Specified Transaction that would have required adjustment pursuant to this Section 1.07, then such financial ratio or test (or Total Assets) shall be calculated to give pro forma effect thereto in accordance with this Section 1.07.
(c) Whenever pro forma effect is to be given to a Specified Transaction, the pro forma calculations shall be made in good faith by a Financial Officer of the Borrower and may include, for the avoidance of doubt, the amount of run-rate cost savings, operating expense reductions and synergies projected by the Borrower in good faith to result from or relating to any Specified Transaction (including the Transactions) which is being given pro forma effect that have been realized or are expected to be realized and for which the actions necessary to realize such cost savings, operating expense reductions and synergies are taken, committed to be taken or with respect to which substantial steps have been taken or are expected to be taken (in the good faith determination of the Borrower) (calculated on a pro forma basis as though such cost savings, operating expense reductions and synergies had been realized on the first day of such period and as if such cost savings, operating expense reductions and synergies were realized during the entirety of such period and run-rate means the full recurring benefit for a period that is associated with any action taken, committed to be taken or with respect to which substantial steps have been taken or are expected to be taken (including any savings expected to result from the elimination of a public targets compliance costs with public company requirements) net of the amount of actual benefits realized during such period from such actions, and any such adjustments shall be included in the initial pro forma calculations of such financial ratios or tests and during any subsequent Test Period in which the effects thereof are expected to be realized) relating to such Specified Transaction; provided that (A) such amounts are reasonably identifiable and factually supportable in the good faith judgment of the Borrower, (B) such actions are taken, committed to be taken or with respect to which substantial steps have been taken or are expected to be taken no later than twelve (12) months after the date of such Specified Transaction and (C) no amounts shall be added to the extent duplicative of any amounts that are otherwise added back in computing EBITDA (or any other components thereof), whether through a pro forma adjustment or otherwise, with respect to such period.
(d) In the event that the Borrower or any Restricted Subsidiary incurs (including by assumption or guarantees), issues or repays (including by redemption, repurchase, repayment, retirement or extinguishment) any Indebtedness (other than Indebtedness incurred or repaid under any revolving credit facility or line of credit unless such Indebtedness has been permanently repaid and not replaced), in each case included in the calculations of any financial ratio or test, (i) during the applicable Test Period or (ii) subsequent to the end of the applicable Test 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, issuance, repayment or redemption of Indebtedness, in each case to the extent required, as if the same had occurred on the last day of the applicable Test Period (except in the case of the Fixed Charge Coverage Ratio (or similar ratio), in which case such incurrence, assumption, guarantee, issuance, redemption, repurchase, repayment, retirement or extinguishment of Indebtedness will be given effect, as if the same had occurred on the first day of the applicable Test Period).
(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 the Fixed Charge Coverage Ratio is made had been the applicable rate for the entire period (taking into account any interest hedging arrangements applicable to such Indebtedness). Interest on a Capitalized Lease Obligation shall be deemed to accrue at an interest rate reasonably determined by a Financial Officer of the Borrower 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
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chosen, or if none, then based upon such optional rate chosen as the Borrower or applicable Restricted Subsidiary may designate. For purposes of making the computations referred to above, interest on any Indebtedness under a revolving credit facility computed on a pro forma basis shall be computed based upon the average daily balance of such Indebtedness during the applicable period. 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 deemed to have been based upon the rate actually chosen, or, if none, then based upon such optional rate chosen as the Borrower may designate.
(f) Notwithstanding anything to the contrary in this Section 1.07 or in any classification under GAAP of any Person, business, assets or operations in respect of which a definitive agreement for the Disposition thereof has been entered into as discontinued operations, no pro forma effect shall be given to any discontinued operations (and the EBITDA attributable to any such Person, business, assets or operations shall not be excluded for any purposes hereunder) until such Disposition shall have been consummated.
(g) Any determination of Total Assets shall be made by reference to the last day of the Test Period most recently ended on or prior to the relevant date of determination.
SECTION 1.08 Available Amount Transaction. If more than one action occurs on any given date the permissibility of the taking of which is determined hereunder by reference to the amount of the Available Amount immediately prior to the taking of such action, the permissibility of the taking of each such action shall be determined independently and in no event may any two or more such actions be treated as occurring simultaneously, i.e., each transaction must be permitted under the Available Amount as so calculated.
SECTION 1.09 Currency Generally.
(a) For purposes of determining compliance with Sections 7.01, 7.03 and 7.06 and the definition of Permitted Investments with respect to any amount of Indebtedness or Investment in a currency other than Dollars, no Default shall be deemed to have occurred solely as a result of changes in rates of currency exchange occurring after the time such Indebtedness or Investment is incurred (so long as such Indebtedness or Investment, at the time incurred, made or acquired, was permitted hereunder).
(b) For purposes of determining the Secured Net Leverage Ratio, the Senior Net Leverage Ratio and the Consolidated Net Leverage Ratio, the amount of Indebtedness shall reflect the currency translation effects, determined in accordance with GAAP, of Hedging Obligations permitted hereunder for currency exchange risks with respect to the applicable currency in effect on the date of determination of the Dollar equivalent of such Indebtedness.
SECTION 1.10 Limited Condition Acquisitions.
(a) In connection with any action being taken in connection with a Limited Condition Acquisition, for purposes of determining compliance with any provision of this Agreement which requires that no Default, Event of Default or specified Event of Default, as applicable, has occurred, is continuing or would result from any such action, as applicable, such condition shall, at the option of the Borrower, be deemed satisfied, so long as no Default, Event of Default or specified Event of Default, as applicable, exists on the date into which the definitive agreements for such Limited Condition Acquisition are entered. For the avoidance of doubt, if the Borrower has exercised its option under the first sentence of this clause (a), and any Default or Event of Default occurs following the date the definitive agreements for the applicable Limited Condition Acquisition were entered into and prior to the consummation of such Limited Condition Acquisition, any such Default or Event of Default shall be deemed to not have occurred or be continuing for purposes of determining whether any action being taken in connection with such Limited Condition Acquisition is permitted hereunder.
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(b) In connection with any action being taken in connection with a Limited Condition Acquisition, for purposes of:
(i) determining compliance with any provision of this Agreement which requires the calculation of the Fixed Charge Coverage Ratio, the Consolidated Net Leverage Ratio, Secured Net Leverage Ratio or the Senior Net Leverage Ratio; or
(ii) testing baskets set forth in this Agreement (including baskets measured as a percentage of Total Assets);
in each case, at the option of the Borrower (the Borrowers election to exercise such option in connection with any Limited Condition Acquisition, an LCA Election), the date of determination of whether any such action is permitted hereunder shall be deemed to be the date on which the definitive agreements for such Limited Condition Acquisition are entered into (the LCA Test Date), and if, after giving pro forma effect to the Limited Condition Acquisition and the other transactions to be entered into in connection therewith (including (i) any incurrence of Indebtedness and the use of proceeds thereof) as if they had occurred at the beginning of the most recent Test Period ended prior to the LCA Test Date for which consolidated financial statements of the Borrower are available, the Borrower could have taken such action on the relevant LCA Test Date in compliance with such ratio or basket, such ratio or basket shall be deemed to have been complied with. For the avoidance of doubt, if the Borrower has made an LCA Election and any of the ratios or baskets for which compliance was determined or tested as of the LCA Test Date are exceeded as a result of fluctuations in any such ratio or basket, including due to fluctuations in consolidated EBITDA or Total Assets of the Borrower or the Person subject to such Limited Condition Acquisition, at or prior to the consummation of the relevant transaction or action, such baskets or ratios will not be deemed to have been exceeded as a result of such fluctuations. If the Borrower has made an LCA Election for any Limited Condition Acquisition, then in connection with any subsequent calculation of any ratio availability with respect to the incurrence of Indebtedness or Liens, or the making of Restricted Payments, Dispositions, mergers, the conveyance, lease or other transfer of all or substantially all of the assets of the Borrower or the designation of an Unrestricted Subsidiary on or following the relevant LCA Test Date and prior to the earlier of the date on which such Limited Condition Acquisition is consummated or the definitive agreement for such Limited Condition Acquisition is terminated or expires without consummation of such Limited Condition Acquisition, any such ratio shall be calculated on a pro forma basis assuming such Limited Condition Acquisition and other transactions in connection therewith (including any incurrence of Indebtedness and the use of proceeds thereof) have been consummated.
ARTICLE II
The Commitments and Borrowings
SECTION 2.01 Term Borrowings. Subject to the terms and conditions set forth herein, each Term Lender severally agrees to make to the Borrower on the Closing Date one or more Initial Term Loans denominated in Dollars in an aggregate principal amount equal to such Term Lenders Term B Commitment on the Closing Date. Amounts borrowed under this Section 2.01 and repaid or prepaid may not be reborrowed. The Initial Term Loans may be Base Rate Loans or Eurodollar Rate Loans, as further provided herein.
SECTION 2.02 Borrowings, Conversions and Continuations of Loans.
(a) Each Term Borrowing, each conversion of Term Loans from one Type to the other, and each continuation of Eurodollar Rate Loans shall be made upon the Borrowers irrevocable notice to the Administrative Agent (provided that the notice in respect of the Initial Term Loans or in connection with any Permitted Acquisition or other acquisition permitted under this Agreement, may be conditioned on the closing of the Acquisition or such Permitted Acquisition or other acquisition, as applicable), which may be given by telephone. Each such notice must be received by the Administrative Agent not later than 12:00 p.m., New York time, (i) three (3) Business Days prior to the requested date of any Borrowing or continuation of Eurodollar Rate Loans or any conversion of Base Rate Loans to Eurodollar Rate Loans, and (ii) on the requested date of any Borrowing of Base Rate Loans; provided, that the notice referred to in subclause (i) above may be delivered no later than one (1) Business Day prior to the Closing Date in the case of the Initial Term Loans. Each telephonic notice by the Borrower pursuant to this Section 2.02(a) must be confirmed promptly by delivery to the Administrative Agent of a written Committed Loan Notice, appropriately completed and signed by a Responsible Officer of the Borrower. Except as provided in Sections 2.12, 2.13 and 2.14, each Borrowing of, conversion to or continuation of Eurodollar
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Rate Loans shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof. Except as provided in Sections 2.12, 2.13 and 2.14, each Borrowing of or conversion to Base Rate Loans shall be in a principal amount of $1,000,000 or a whole multiple of $500,000 in excess thereof. Each Committed Loan Notice (whether telephonic or written) shall specify (i) whether the Borrower is requesting a Term Borrowing, a conversion of Term Loans from one Type to the other or a continuation of Eurodollar Rate Loans, (ii) the requested date of the Borrowing, conversion or continuation, as the case may be (which shall be a Business Day), (iii) the principal amount of Loans to be borrowed, converted or continued, (iv) the Class and Type of Loans to be borrowed or to which existing Term Loans are to be converted, (v) if applicable, the duration of the Interest Period with respect thereto and (vi) wire instructions of the account(s) to which funds are to be disbursed. If the Borrower fails to specify a Type of Loan to be made in a Committed Loan Notice, then the applicable Loans shall be made as Eurodollar Rate Loans with an Interest Period of one (1) month. If the Borrower fails to give a timely notice requesting a conversion or continuation, then the applicable Loans shall be made or continued as the same Type of Loan, which if a Eurodollar Rate Loan, shall have a one-month Interest Period. Any such automatic continuation of Eurodollar Rate Loans shall be effective as of the last day of the Interest Period then in effect with respect to the applicable Eurodollar Rate Loans. If the Borrower requests a Borrowing of, conversion to, or continuation of Eurodollar Rate Loans in any such Committed Loan Notice, but fails to specify an Interest Period, it will be deemed to have specified an Interest Period of one (1) month.
(b) Following receipt of a Committed Loan Notice, the Administrative Agent shall promptly notify each Lender of the amount of its Pro Rata Share or other applicable share provided for under this Agreement of the applicable Class of Loans, and if no timely notice of a conversion or continuation is provided by the Borrower, the Administrative Agent shall notify each Lender of the details of any automatic continuation of Eurodollar Rate Loans or continuation of Loans described in Section 2.02(a). In the case of each Borrowing, each Appropriate Lender shall make the amount of its Loan available to the Administrative Agent in Same Day Funds at the Administrative Agents Office not later than, in the case of Borrowing on the Closing Date, 10:00 a.m., New York time, and otherwise 2:00 p.m., New York time, on the Business Day specified in the applicable Committed Loan Notice. Upon satisfaction of the applicable conditions set forth in Section 4.01 for the Borrowing on the Closing Date, the Administrative Agent shall make all funds so received available to the Borrower in like funds as received by the Administrative Agent either by (i) crediting the account(s) of the Borrower on the books of the Administrative Agent with the amount of such funds or (ii) wire transfer of such funds, in each case in accordance with instructions provided by the Borrower to (and reasonably acceptable to) the Administrative Agent.
(c) Except as otherwise provided herein, a Eurodollar Rate Loan may be continued or converted only on the last day of an Interest Period for such Eurodollar Rate Loan, unless the Borrower pays the amount due, if any, under Section 3.05 in connection therewith. Upon the occurrence and during the continuation of an Event of Default, the Administrative Agent or the Required Facility Lenders under the applicable Facility may require by notice to the Borrower that no Loans may be converted to or continued as Eurodollar Rate Loans.
(d) The Administrative Agent shall promptly notify the Borrower and the Lenders of the interest rate applicable to any Interest Period for Eurodollar Rate Loans upon determination of such interest rate. The determination of the Eurodollar Rate by the Administrative Agent shall be conclusive in the absence of manifest error. At any time when Base Rate Loans are outstanding, the Administrative Agent shall notify the Borrower and the Lenders of any change in the Administrative Agents prime rate used in determining the Base Rate promptly following the public announcement of such change.
(e) After giving effect to all Term Borrowings, all conversions of Term Loans from one Type to the other, and all continuations of Term Loans as the same Type, there shall not be more than five (5) Interest Periods in effect unless otherwise agreed between the Borrower and the Administrative Agent; provided that after the establishment of any new Class of Loans pursuant to an Incremental Amendment, a Refinancing Amendment, an Extension Amendment or an amendment in respect of Replacement Loans, the number of Interest Periods otherwise permitted by this Section 2.02(e) shall increase by three (3) Interest Periods for each applicable Class so established.
(f) The failure of any Lender to make the Loan to be made by it as part of any Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Loan on the date of such Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Loan to be made by such other Lender on the date of any Borrowing.
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(g) Unless the Administrative Agent shall have received notice from a Lender prior to the date of any Borrowing, or, in the case of any Borrowing of Base Rate Loans, prior to 1:00 p.m., New York time, on the date of such Borrowing, that such Lender will not make available to the Administrative Agent such Lenders Pro Rata Share of such Borrowing, the Administrative Agent may assume that such Lender has made such Pro Rata Share available to the Administrative Agent on the date of such Borrowing in accordance with paragraph (b) above, and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If the Administrative Agent shall have so made funds available, then, to the extent that such Lender shall not have made such portion available to the Administrative Agent, each of such Lender and the Borrower severally agrees to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent at (i) in the case of the Borrower, the interest rate applicable at the time to the Loans comprising such Borrowing and (ii) in the case of such Lender, the Overnight Rate plus any administrative, processing, or similar fees customarily charged by the Administrative Agent in accordance with the foregoing. A certificate of the Administrative Agent submitted to any Lender with respect to any amounts owing under this Section 2.02(g) shall be conclusive in the absence of manifest error. If the Borrower and such Lender shall pay such interest to the Administrative Agent for the same or an overlapping period, the Administrative Agent shall promptly remit to the Borrower the amount of such interest paid by the Borrower for such period. If such Lender pays its share of the applicable Borrowing to the Administrative Agent, then the amount so paid shall constitute such Lenders Loan included in such Borrowing. Any payment by the Borrower shall be without prejudice to any claim the Borrower may have against a Lender that shall have failed to make such payment to the Administrative Agent.
SECTION 2.03 Prepayments.
(a) Optional.
(i) The Borrower may, upon notice to the Administrative Agent by the Borrower, at any time or from time to time voluntarily prepay any Class or Classes of Term Loans in whole or in part without premium (except as set forth in Section 2.15) or penalty; provided that (1) such notice must be received by the Administrative Agent not later than 12:00 p.m., New York time, (A) three (3) Business Days prior to any date of prepayment of Eurodollar Rate Loans and (B) on the date of prepayment of Base Rate Loans; (2) any partial prepayment of Eurodollar Rate Loans shall be in a principal amount of $2,000,000 or a whole multiple of $500,000 in excess thereof or, if less, the entire principal amount thereof then outstanding; and (3) any prepayment of Base Rate Loans shall be in a principal amount of $1,000,000 or a whole multiple of $100,000 in excess thereof or, if less, the entire principal amount thereof then outstanding. Each such notice shall specify the date and amount of such prepayment and the Class(es) and Type(s) of Loans to be prepaid. The Administrative Agent will promptly notify each Appropriate Lender of its receipt of each such notice, and of the amount of such Lenders Pro Rata Share or other applicable share provided for under this Agreement of such prepayment. Any prepayment of a Eurodollar Rate Loan shall be accompanied by all accrued interest thereon, together with any additional amounts required pursuant to Section 3.05. In the case of each prepayment of the Loans pursuant to this Section 2.03(a), the Borrower may in its sole discretion select the Borrowing or Borrowings (and the order of maturity of principal payments) to be repaid, and such payment shall be paid to the Appropriate Lenders in accordance with their respective Pro Rata Shares or other applicable share provided for under this Agreement.
(ii) [Reserved].
(iii) Voluntary prepayments of any Class of Term Loans permitted hereunder shall be applied to the remaining scheduled installments of principal thereof pursuant to Section 2.05 (or pursuant to the applicable Extension Amendment, Incremental Amendment, Refinancing Amendment, amendment in respect of any Replacement Loans or otherwise) in a manner determined at the discretion of the Borrower and specified in the notice of prepayment (and absent such direction, in direct order of maturity). Each prepayment in respect of any Term Loans pursuant to this Section 2.03 may be applied to
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any Class of Term Loans as directed by the Borrower. For the avoidance of doubt, the Borrower may (i) prepay Term Loans of an Existing Term Loan Class pursuant to this Section 2.03 without any requirement to prepay Extended Term Loans that were converted or exchanged from such Existing Term Loan Class and (ii) prepay Extended Term Loans pursuant to this Section 2.03 without any requirement to prepay Term Loans of an Existing Term Loan Class that were converted or exchanged for such Extended Term Loans. In the event that the Borrower does not specify the order in which to apply prepayments to reduce scheduled installments of principal or as between Classes of Term Loans, the Borrower shall be deemed to have elected that such proceeds be applied to reduce the scheduled installments of principal in direct order of maturity on a pro-rata basis among Term Loan Classes.
(iv) Notwithstanding anything in any Loan Document to the contrary, so long as no Default or Event of Default has occurred and is continuing, any Borrower Party may (i) purchase outstanding Term Loans on a non-pro rata basis through open market purchases or (ii) prepay the outstanding Term Loans, which shall, in each case, for the avoidance of doubt, be automatically and permanently canceled immediately upon acquisition by the Borrower Parties, and in the case of this clause (ii) only, which shall be prepaid on the following basis:
(A) The Borrower Party shall have the right to make a voluntary prepayment of Loans at a discount to par pursuant to a Borrower Offer of Specified Discount Prepayment, Borrower Solicitation of Discount Range Prepayment Offers or Borrower Solicitation of Discounted Prepayment Offers (any such prepayment, the Discounted Term Loan Prepayment), in each case made in accordance with this Section 2.03(a)(iv); provided that no Borrower Party shall initiate any action under this Section 2.03(a)(iv) in order to make a Discounted Term Loan Prepayment unless (I) at least ten (10) Business Days shall have passed since the consummation of the most recent Discounted Term Loan Prepayment as a result of a prepayment made by a Borrower Party on the applicable Discounted Prepayment Effective Date; or (II) at least three (3) Business Days shall have passed since the date the Borrower Party was notified that no Term Lender was willing to accept any prepayment of any Term Loan at the Specified Discount, within the Discount Range or at any discount to par value, as applicable, or in the case of Borrower Solicitation of Discounted Prepayment Offers, the date of the Borrower Partys election not to accept any Solicited Discounted Prepayment Offers.
(B) (1) Subject to the proviso to subsection (A) above, the Borrower Party may from time to time offer to make a Discounted Term Loan Prepayment by providing the Auction Agent with five (5) Business Days notice in the form of a Specified Discount Prepayment Notice; provided that (I) any such offer shall be made available, at the sole discretion of the Borrower Party, to (x) each Term Lender and/or (y) each Term Lender with respect to any Class of Term Loans on an individual Class basis, (II) any such offer shall specify the aggregate principal amount offered to be prepaid (the Specified Discount Prepayment Amount) with respect to each applicable Class, the Class or Classes of Term Loans subject to such offer and the specific percentage discount to par (the Specified Discount) of such Term Loans to be prepaid (it being understood that different Specified Discounts and/or Specified Discount Prepayment Amounts may be offered with respect to different Classes of Term Loans and, in such event, each such offer will be treated as a separate offer pursuant to the terms of this Section 2.03(a)(iv)(B)), (III) the Specified Discount Prepayment Amount shall be in an aggregate amount not less than $5,000,000 and whole increments of $1,000,000 in excess thereof and (IV) each such offer shall remain outstanding through the Specified Discount Prepayment Response Date. The Auction Agent will promptly provide each Appropriate Lender with a copy of such Specified Discount Prepayment Notice and a form of the Specified Discount Prepayment Response to be completed and returned by each such Term Lender to the Auction Agent (or its delegate) by no later than 5:00 p.m., New York time, on the third Business Day after the date of delivery of such notice to such Lenders (the Specified Discount Prepayment Response Date).
(2) Each Term Lender receiving such offer shall notify the Auction Agent (or its delegate) by the Specified Discount Prepayment Response Date whether or not it agrees to accept a prepayment of any of its applicable then outstanding Term Loans at the
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Specified Discount and, if so (such accepting Lender, a Discount Prepayment Accepting Lender), the amount and the Classes of such Lenders Term Loans to be prepaid at such offered discount. Each acceptance of a Discounted Term Loan Prepayment by a Discount Prepayment Accepting Lender shall be irrevocable. Any Term Lender whose Specified Discount Prepayment Response is not received by the Auction Agent by the Specified Discount Prepayment Response Date shall be deemed to have declined to accept the applicable Borrower Offer of Specified Discount Prepayment.
(3) If there is at least one Discount Prepayment Accepting Lender, the relevant Borrower Party will make a prepayment of outstanding Term Loans pursuant to this paragraph (B) to each Discount Prepayment Accepting Lender in accordance with the respective outstanding amount and Classes of Term Loans specified in such Lenders Specified Discount Prepayment Response given pursuant to subsection (2) above; provided that, if the aggregate principal amount of Term Loans accepted for prepayment by all Discount Prepayment Accepting Lenders exceeds the Specified Discount Prepayment Amount, such prepayment shall be made pro rata among the Discount Prepayment Accepting Lenders in accordance with the respective principal amounts accepted to be prepaid by each such Discount Prepayment Accepting Lender and the Auction Agent (in consultation with such Borrower Party and subject to rounding requirements of the Auction Agent made in its reasonable discretion) will calculate such proration (the Specified Discount Proration). The Auction Agent shall promptly, and in any case within three (3) Business Days following the Specified Discount Prepayment Response Date, notify (I) the relevant Borrower Party of the respective Term Lenders responses to such offer, the Discounted Prepayment Effective Date and the aggregate principal amount of the Discounted Term Loan Prepayment and the Classes to be prepaid, (II) each Term Lender of the Discounted Prepayment Effective Date, and the aggregate principal amount and the Classes of Term Loans to be prepaid at the Specified Discount on such date and (III) each Discount Prepayment Accepting Lender of the Specified Discount Proration, if any, and confirmation of the principal amount, Class and Type of Term Loans of such Lender to be prepaid at the Specified Discount on such date. Each determination by the Auction Agent of the amounts stated in the foregoing notices to the Borrower Party and such Term Lenders shall be conclusive and binding for all purposes absent manifest error. The payment amount specified in such notice to the Borrower Party shall be due and payable by such Borrower Party on the Discounted Prepayment Effective Date in accordance with subsection (F) below (subject to subsection (J) below).
(C) (1) Subject to the proviso to subsection (A) above, the Borrower Party may from time to time solicit Discount Range Prepayment Offers by providing the Auction Agent with five (5) Business Days notice in the form of a Discount Range Prepayment Notice; provided that (I) any such solicitation shall be extended, at the sole discretion of such Borrower Party, to (x) each Term Lender and/or (y) each Term Lender with respect to any Class of Term Loans on an individual Class basis, (II) any such notice shall specify the maximum aggregate principal amount of the relevant Term Loans (the Discount Range Prepayment Amount), the Class or Classes of Term Loans subject to such offer and the maximum and minimum percentage discounts to par (the Discount Range) of the principal amount of such Term Loans with respect to each relevant Class of Term Loans willing to be prepaid by such Borrower Party (it being understood that different Discount Ranges and/or Discount Range Prepayment Amounts may be offered with respect to different Classes of Term Loans and, in such event, each such offer will be treated as separate offer pursuant to the terms of this Section 2.03(a)(iv)(C)), (III) the Discount Range Prepayment Amount shall be in an aggregate amount not less than $5,000,000 and whole increments of $1,000,000 in excess thereof and (IV) each such solicitation by the Borrower Party shall remain outstanding through the Discount Range Prepayment Response Date. The Auction Agent will promptly provide each Appropriate Lender with a copy of such Discount Range Prepayment Notice and a form of the Discount Range Prepayment Offer to be submitted by a responding Term Lender to the Auction Agent (or its delegate) by no later than 5:00 p.m., New York time, on the third Business Day after the date of delivery of such notice to such Lenders (the Discount Range Prepayment Response Date). Each Term Lenders Discount Range Prepayment Offer shall be irrevocable and shall specify a discount to par within the Discount
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Range (the Submitted Discount) at which such Lender is willing to allow prepayment of any or all of its then outstanding Term Loans of the applicable Class or Classes and the maximum aggregate principal amount and Classes of such Lenders Term Loans (the Submitted Amount) such Term Lender is willing to have prepaid at the Submitted Discount. Any Term Lender whose Discount Range Prepayment Offer is not received by the Auction Agent by the Discount Range Prepayment Response Date shall be deemed to have declined to accept a Discounted Term Loan Prepayment of any of its Term Loans at any discount to their par value within the Discount Range.
(2) The Auction Agent shall review all Discount Range Prepayment Offers received on or before the applicable Discount Range Prepayment Response Date and shall determine (in consultation with such Borrower Party and subject to rounding requirements of the Auction Agent made in its sole reasonable discretion) the Applicable Discount and Term Loans to be prepaid at such Applicable Discount in accordance with this subsection (C). The relevant Borrower Party agrees to accept on the Discount Range Prepayment Response Date all Discount Range Prepayment Offers received by Auction Agent by the Discount Range Prepayment Response Date, in the order from the Submitted Discount that is the largest discount to par to the Submitted Discount that is the smallest discount to par, up to and including the Submitted Discount that is the smallest discount to par within the Discount Range (such Submitted Discount that is the smallest discount to par within the Discount Range being referred to as the Applicable Discount) which yields a Discounted Term Loan Prepayment in an aggregate principal amount equal to the lower of (I) the Discount Range Prepayment Amount and (II) the sum of all Submitted Amounts. Each Term Lender that has submitted a Discount Range Prepayment Offer to accept prepayment at a discount to par that is larger than or equal to the Applicable Discount shall be deemed to have irrevocably consented to prepayment of Term Loans equal to its Submitted Amount (subject to any required proration pursuant to the following subsection (3)) at the Applicable Discount (each such Term Lender, a Participating Lender).
(3) If there is at least one Participating Lender, the relevant Borrower Party will prepay the respective outstanding Term Loans of each Participating Lender in the aggregate principal amount and of the Classes specified in such Lenders Discount Range Prepayment Offer at the Applicable Discount; provided that if the Submitted Amount by all Participating Lenders offered at a discount to par greater than the Applicable Discount exceeds the Discount Range Prepayment Amount, prepayment of the principal amount of the relevant Term Loans for those Participating Lenders whose Submitted Discount is a discount to par greater than or equal to the Applicable Discount (the Identified Participating Lenders) shall be made pro rata among the Identified Participating Lenders in accordance with the Submitted Amount of each such Identified Participating Lender and the Auction Agent (in consultation with such Borrower Party and subject to rounding requirements of the Auction Agent made in its sole reasonable discretion) will calculate such proration (the Discount Range Proration). The Auction Agent shall promptly, and in any case within five (5) Business Days following the Discount Range Prepayment Response Date, notify (I) the relevant Borrower Party of the respective Term Lenders responses to such solicitation, the Discounted Prepayment Effective Date, the Applicable Discount, and the aggregate principal amount of the Discounted Term Loan Prepayment and the Classes to be prepaid, (II) each Term Lender of the Discounted Prepayment Effective Date, the Applicable Discount, and the aggregate principal amount and Classes of Term Loans to be prepaid at the Applicable Discount on such date, (III) each Participating Lender of the aggregate principal amount and Classes of such Term Lender to be prepaid at the Applicable Discount on such date, and (IV) if applicable, each Identified Participating Lender of the Discount Range Proration. Each determination by the Auction Agent of the amounts stated in the foregoing notices to the relevant Borrower Party and Term Lenders shall be conclusive and binding for all purposes absent manifest error. The payment amount specified in such notice to the Borrower Party shall be due and payable by such Borrower Party on the Discounted Prepayment Effective Date in accordance with subsection (F) below (subject to subsection (J) below).
(D) (1) Subject to the proviso to subsection (A) above, the Borrower Party may from time to time solicit Solicited Discounted Prepayment Offers by providing the Auction
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Agent with five (5) Business Days notice in the form of a Solicited Discounted Prepayment Notice; provided that (I) any such solicitation shall be extended, at the sole discretion of such Borrower Party, to (x) each Term Lender and/or (y) each Lender with respect to any Class of Term Loans on an individual Class basis, (II) any such notice shall specify the maximum aggregate amount of the Term Loans (the Solicited Discounted Prepayment Amount) and the Class or Classes of Term Loans the applicable Borrower Party is willing to prepay at a discount (it being understood that different Solicited Discounted Prepayment Amounts may be offered with respect to different Classes of Term Loans and, in such event, each such offer will be treated as separate offer pursuant to the terms of this Section 2.03(a)(iv)(D)), (III) the Solicited Discounted Prepayment Amount shall be in an aggregate amount not less than $5,000,000 and whole increments of $1,000,000 in excess thereof and (IV) each such solicitation by the Borrower Party shall remain outstanding through the Solicited Discounted Prepayment Response Date. The Auction Agent will promptly provide each Appropriate Lender with a copy of such Solicited Discounted Prepayment Notice and a form of the Solicited Discounted Prepayment Offer to be submitted by a responding Lender to the Auction Agent (or its delegate) by no later than 5:00 p.m., New York time, on the third Business Day after the date of delivery of such notice to such Term Lenders (the Solicited Discounted Prepayment Response Date). Each Term Lenders Solicited Discounted Prepayment Offer shall (x) be irrevocable, (y) remain outstanding until the Acceptance Date, and (z) specify both a discount to par (the Offered Discount) at which such Term Lender is willing to allow prepayment of its then outstanding Term Loan and the maximum aggregate principal amount and Classes of such Term Loans (the Offered Amount) such Term Lender is willing to have prepaid at the Offered Discount. Any Term Lender whose Solicited Discounted Prepayment Offer is not received by the Auction Agent by the Solicited Discounted Prepayment Response Date shall be deemed to have declined prepayment of any of its Term Loans at any discount.
(2) The Auction Agent shall promptly provide the relevant Borrower Party with a copy of all Solicited Discounted Prepayment Offers received on or before the Solicited Discounted Prepayment Response Date. Such Borrower Party shall review all such Solicited Discounted Prepayment Offers and select the largest of the Offered Discounts specified by the relevant responding Term Lenders in the Solicited Discounted Prepayment Offers that is acceptable to the Borrower Party (the Acceptable Discount), if any. If the Borrower Party elects to accept any Offered Discount as the Acceptable Discount, then as soon as practicable after the determination of the Acceptable Discount, but in no event later than by the third Business Day after the date of receipt by such Borrower Party from the Auction Agent of a copy of all Solicited Discounted Prepayment Offers pursuant to the first sentence of this subsection (2) (the Acceptance Date), the Borrower Party shall submit an Acceptance and Prepayment Notice to the Auction Agent setting forth the Acceptable Discount. If the Auction Agent shall fail to receive an Acceptance and Prepayment Notice from the Borrower Party by the Acceptance Date, such Borrower Party shall be deemed to have rejected all Solicited Discounted Prepayment Offers.
(3) Based upon the Acceptable Discount and the Solicited Discounted Prepayment Offers received by Auction Agent by the Solicited Discounted Prepayment Response Date, within three (3) Business Days after receipt of an Acceptance and Prepayment Notice (the Discounted Prepayment Determination Date), the Auction Agent will determine (in consultation with such Borrower Party and subject to rounding requirements of the Auction Agent made in its sole reasonable discretion) the aggregate principal amount and the Classes of Term Loans (the Acceptable Prepayment Amount) to be prepaid by the relevant Borrower Party at the Acceptable Discount in accordance with this Section 2.03(a)(iv)(D). If the Borrower Party elects to accept any Acceptable Discount, then the Borrower Party agrees to accept all Solicited Discounted Prepayment Offers received by Auction Agent by the Solicited Discounted Prepayment Response Date, in the order from largest Offered Discount to smallest Offered Discount, up to and including the Acceptable Discount. Each Term Lender that has submitted a Solicited Discounted Prepayment Offer with an Offered Discount that is greater than or equal to the Acceptable Discount shall be deemed to have irrevocably consented to prepayment of Term Loans equal to its Offered Amount (subject to any required pro-rata reduction pursuant to
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the following sentence) at the Acceptable Discount (each such Lender, a Qualifying Lender). The Borrower Party will prepay outstanding Term Loans pursuant to this subsection (D) to each Qualifying Lender in the aggregate principal amount and of the Classes specified in such Lenders Solicited Discounted Prepayment Offer at the Acceptable Discount; provided that if the aggregate Offered Amount by all Qualifying Lenders whose Offered Discount is greater than or equal to the Acceptable Discount exceeds the Solicited Discounted Prepayment Amount, prepayment of the principal amount of the Term Loans for those Qualifying Lenders whose Offered Discount is greater than or equal to the Acceptable Discount (the Identified Qualifying Lenders) shall be made pro rata among the Identified Qualifying Lenders in accordance with the Offered Amount of each such Identified Qualifying Lender and the Auction Agent (in consultation with such Borrower Party and subject to rounding requirements of the Auction Agent made in its sole reasonable discretion) will calculate such proration (the Solicited Discount Proration). On or prior to the Discounted Prepayment Determination Date, the Auction Agent shall promptly notify (I) the relevant Borrower Party of the Discounted Prepayment Effective Date and Acceptable Prepayment Amount comprising the Discounted Term Loan Prepayment and the Classes to be prepaid, (II) each Term Lender of the Discounted Prepayment Effective Date, the Acceptable Discount, and the Acceptable Prepayment Amount of all Term Loans and the Classes to be prepaid to be prepaid at the Applicable Discount on such date, (III) each Qualifying Lender of the aggregate principal amount and the Classes of such Term Lender to be prepaid at the Acceptable Discount on such date, and (IV) if applicable, each Identified Qualifying Lender of the Solicited Discount Proration. Each determination by the Auction Agent of the amounts stated in the foregoing notices to such Borrower Party and Term Lenders shall be conclusive and binding for all purposes absent manifest error. The payment amount specified in such notice to such Borrower Party shall be due and payable by such Borrower Party on the Discounted Prepayment Effective Date in accordance with subsection (F) below (subject to subsection (J) below).
(E) In connection with any Discounted Term Loan Prepayment, the Borrower Parties and the Term Lenders acknowledge and agree that the Auction Agent may require as a condition to any Discounted Term Loan Prepayment, the payment of customary fees and expenses from a Borrower Party in connection therewith.
(F) If any Term Loan is prepaid in accordance with subsections (B) through (D) above, a Borrower Party shall prepay such Term Loans on the Discounted Prepayment Effective Date. The relevant Borrower Party shall make such prepayment to the Administrative Agent, for the account of the Discount Prepayment Accepting Lenders, Participating Lenders, or Qualifying Lenders, as applicable, at the Administrative Agents Office in immediately available funds not later than 12:00 p.m., New York time, on the Discounted Prepayment Effective Date and all such prepayments shall be applied to the remaining principal installments of the relevant Class(es) of Loans on a pro rata basis across such installments. The Term Loans so prepaid shall be accompanied by all accrued and unpaid interest on the par principal amount so prepaid up to, but not including, the Discounted Prepayment Effective Date. Each prepayment of the outstanding Term Loans pursuant to this Section 2.03(a)(iv) shall be paid to the Discount Prepayment Accepting Lenders, Participating Lenders, or Qualifying Lenders, as applicable, and shall be applied to the relevant Term Loans of such Lenders in accordance with their respective Pro Rata Share or other applicable share provided for under this Agreement. The aggregate principal amount of the Classes and installments of the relevant Term Loans outstanding shall be deemed reduced by the full par value of the aggregate principal amount of the Classes of Term Loans prepaid on the Discounted Prepayment Effective Date in any Discounted Term Loan Prepayment. In connection with each prepayment pursuant to this Section 2.03(a)(iv), the relevant Borrower Party shall make a customary representation to the assigning or assignee Term Lenders, as applicable, that it does not possess material non-public information (or material information of the type that would not be public if the Borrower or any Parent Entity were a publicly-reporting company) with respect to the Borrower and its Subsidiaries that either (1) has not been disclosed to the Term Lenders generally (other than Term Lenders that have elected not to receive such information) or (2) if not disclosed to the Term Lenders, would reasonably be expected to have a material effect on, or otherwise be material to (A) a Term Lenders decision to participate in any
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such Discounted Term Loan Prepayment or (B) the market price of such Term Loans (for the avoidance of doubt, no such representation will be required in the case of open market purchases by Affiliated Lenders, which may possess such material non-public information), or shall make a statement that such representation cannot be made.
(G) To the extent not expressly provided for herein, each Discounted Term Loan Prepayment shall be consummated pursuant to procedures consistent with the provisions in this Section 2.03(a)(iv), established by the Auction Agent acting in its reasonable discretion and as reasonably agreed by the Borrower.
(H) Notwithstanding anything in any Loan Document to the contrary, for purposes of this Section 2.03(a)(iv), each notice or other communication required to be delivered or otherwise provided to the Auction Agent (or its delegate) shall be deemed to have been given upon Auction Agents (or its delegates) actual receipt during normal business hours of such notice or communication; provided that any notice or communication actually received outside of normal business hours shall be deemed to have been given as of the opening of business on the next Business Day.
(I) Each of the Borrower Parties and the Term Lenders acknowledge and agree that the Auction Agent may perform any and all of its duties under this Section 2.03(a)(iv) by itself or through any Affiliate of the Auction Agent and expressly consents to any such delegation of duties by the Auction Agent to such Affiliate and the performance of such delegated duties by such Affiliate. The exculpatory provisions pursuant to this Agreement shall apply to each Affiliate of the Auction Agent and its respective activities in connection with any Discounted Term Loan Prepayment provided for in this Section 2.03(a)(iv) as well as activities of the Auction Agent.
(J) The Borrower Party shall have the right, by written notice to the Auction Agent, to revoke in full (but not in part) its offer to make a Discounted Term Loan Prepayment and rescind the applicable Specified Discount Prepayment Notice, Discount Range Prepayment Notice or Solicited Discounted Prepayment Notice therefor at its discretion at any time on or prior to the applicable Specified Discount Prepayment Response Date (and if such offer is revoked pursuant to the preceding clauses, any failure by such Borrower Party to make any prepayment to a Lender, as applicable, pursuant to this Section 2.03(a)(iv) shall not constitute a Default or Event of Default under Section 8.01 or otherwise).
(b) Mandatory.
(i) Within five (5) Business Days after financial statements have been delivered pursuant to Section 6.01(a) (commencing with financial statements for the fiscal year ending December 31, 2014; provided that the Excess Cash Flow for the fiscal year ending December 31, 2014 shall be calculated solely with respect to each full fiscal quarter therein occurring after the Closing Date) and the related Compliance Certificate has been delivered pursuant to Section 6.02(a), the Borrower shall, subject to clauses (b)(v) and (vi) of this Section 2.03, prepay, or cause to be prepaid, an aggregate principal amount of Term Loans equal to (A) 50% (such percentage as it may be reduced as described below, the ECF Percentage) of Excess Cash Flow, if any, for the fiscal year (or the relevant portion thereof in the case of the 2013 fiscal year) covered by such financial statements minus (B) the sum of all voluntary prepayments of Term Loans made pursuant to Section 2.03(a)(i) or 2.03(a)(iv) (in an amount, in the case of prepayments pursuant to Section 2.03(a)(iv), equal to the discounted amount actually paid in respect of the principal amount of such Term Loans and only to the extent that such Loans have been cancelled) and voluntary prepayments of the Senior Notes and (ii) all voluntary prepayments of loans under the ABL Credit Agreement and any other revolving facility that is secured, in whole or in part (in each case, to the extent accompanied by a permanent reduction in the corresponding revolving commitments), in the case of each of the immediately preceding clauses (i) and (ii), made during such fiscal year (without duplication of any prepayments in such fiscal year that reduced the amount of Excess Cash Flow required to be repaid pursuant to this Section 2.03(b)(i) for any prior fiscal year) or after such fiscal year-end and prior to the
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time such prepayment pursuant to this Section 2.03(b)(i) is due and to the extent such prepayments are not funded with Excluded Proceeds; provided that (x) the ECF Percentage shall be 25% if the Secured Net Leverage Ratio as of the end of the fiscal year covered by such financial statements was less than or equal to 3.25 to 1.00 and greater than 2.75 to 1.00 and (y) the ECF Percentage shall be 0% if the Secured Net Leverage Ratio as of the end of the fiscal year covered by such financial statements was less than or equal to 2.75 to 1.00.
(ii) (A) If (x) the Borrower or any Restricted Subsidiary Disposes of any property or assets (other than any Disposition of any property or assets permitted by Section 7.05(a), (b), (c), (d) (to the extent constituting a Disposition to the Borrower or a Restricted Subsidiary that is a Guarantor), (e), (g), (h), (i), (k), (l), (m), (n), (o), (p), (q), (r), (s) or (t) or the Disposition of the Commercial and Retread Business) or (y) any Casualty Event occurs, which results in the realization or receipt by the Borrower or such Restricted Subsidiary of Net Cash Proceeds, the Borrower shall prepay, or cause to be prepaid, on or prior to the date which is ten (10) Business Days after the date of the realization or receipt by the Borrower or such Restricted Subsidiary of such Net Cash Proceeds, subject to clause (B) of this Section 2.03(b)(ii) and clauses (b)(v) and (vi) of this Section 2.03, an aggregate principal amount of Term Loans equal to 100% of all Net Cash Proceeds realized or received; provided, that if at the time that any such prepayment would be required, the Borrower (or any Restricted Subsidiary) are required to offer to repurchase the Senior Notes or Permitted Incremental Equivalent Debt or any Credit Agreement Refinancing Indebtedness secured on an equal priority basis with the Obligations (or any Refinancing Indebtedness in respect thereof that is secured on an equal priority basis with the Obligations) pursuant to the terms of the documentation governing such Indebtedness with the net proceeds of such Disposition or Casualty Event (such Permitted Incremental Equivalent Debt and Credit Agreement Refinancing Indebtedness secured on an equal priority basis with the Obligations (or such Refinancing Indebtedness in respect of any of the foregoing that is secured on an equal priority basis with the Obligations) required to be offered to be so repurchased, Other Applicable Indebtedness), then the Borrower (or any Restricted Subsidiary) may apply such Net Cash Proceeds on a pro rata basis (determined on the basis of the aggregate outstanding principal amount of the Term Loans and Other Applicable Indebtedness at such time; provided that the portion of such net proceeds allocated to the Other Applicable Indebtedness shall not exceed the amount of such net proceeds required to be allocated to the Other Applicable Indebtedness pursuant to the terms thereof, and the remaining amount, if any, of such net proceeds shall be allocated to the Term Loans in accordance with the terms hereof) to the prepayment of the Term Loans and to the repurchase or prepayment of Other Applicable Indebtedness, and the amount of prepayment of the Term Loans that would have otherwise been required pursuant to this Section 2.03(b)(ii)(A) shall be reduced accordingly; provided, further, that to the extent the holders of Other Applicable Indebtedness decline to have such indebtedness repurchased or prepaid, the declined amount shall promptly (and in any event within ten (10) Business Days after the date of such rejection) be applied to prepay the Term Loans in accordance with the terms hereof; provided, further, that no prepayment shall be required pursuant to this Section 2.03(b)(ii)(A) with respect to such portion of such Net Cash Proceeds that the Borrower shall have, on or prior to such date, given written notice to the Administrative Agent of its intent to reinvest (or entered into a binding commitment to reinvest) in accordance with Section 2.03(b)(ii)(B).
(B) With respect to any Net Cash Proceeds realized or received with respect to any Disposition (other than any Disposition specifically excluded from the application of Section 2.03(b)(ii)(A)) or any Casualty Event, at the option of the Borrower, the Borrower and the Restricted Subsidiaries may reinvest all or any portion of such Net Cash Proceeds in assets useful for their business within (x) twelve (12) months following receipt of such Net Cash Proceeds or (y) if the Borrower or any Restricted Subsidiary enters into a legally binding commitment to reinvest such Net Cash Proceeds within twelve (12) months following receipt thereof, within the later of (1) twelve (12) months following receipt thereof and (2) one hundred eighty (180) days of the date of such legally binding commitment; provided, that if any Net Cash Proceeds are no longer intended to be or cannot be so reinvested at any time after delivery of a notice of reinvestment election, and subject to clauses (v) and (vi) of this Section 2.03(b), an amount equal to any such Net Cash Proceeds shall be applied within five (5) Business Days after the Borrower reasonably determines that such Net Cash Proceeds are no longer intended to be or cannot be so reinvested to the prepayment of the Term Loans as set forth in this Section 2.03.
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(iii) If the Borrower or any Restricted Subsidiary incurs or issues any Indebtedness (A) not expressly permitted to be incurred or issued pursuant to Section 7.03 or (B) that constitutes Credit Agreement Refinancing Indebtedness or Other Term Loans, the Borrower shall prepay, or cause to be prepaid, an aggregate principal amount of Term Loans of Class or Classes being refinanced (in each case, as directed by the Borrower) equal to 100% of all Net Cash Proceeds received therefrom on or prior to the date which is five (5) Business Days after the receipt by the Borrower or such Restricted Subsidiary of such Net Cash Proceeds.
(iv) (A) Except as otherwise set forth in any Refinancing Amendment, Extension Amendment or Incremental Amendment, each prepayment of Term Loans required by Section 2.03(b)(i), (ii) and (iii)(A) shall be allocated to the Classes of Term Loans outstanding based upon the then outstanding principal amounts of the respective Classes of Term Loans, pro rata, based upon the applicable remaining scheduled installments of principal due in respect of each such Class of Term Loans, shall be applied pro rata to Term Lenders within each Class, based upon the outstanding principal amounts owing to each such Term Lender under each such Class of Term Loans and shall be applied to reduce such remaining scheduled installments of principal within each such Class in direct order of maturity; provided that with respect to the allocation of such prepayments under this clause (A) between an Existing Term Loan Class and Extended Term Loans of the same Term Loan Extension Series, the Borrower may allocate such prepayments as the Borrower may specify, subject to the limitation that the Borrower shall not allocate to Extended Term Loans of any Term Loan Extension Series any such mandatory prepayment unless such prepayment under this clause (A) is accompanied by at least a pro rata prepayment, based upon the applicable remaining scheduled installments of principal due in respect thereof, of the Term Loans of the Existing Term Loan Class, if any, from which such Extended Term Loans were converted or exchanged (or such Term Loans of the Existing Term Loan Class have otherwise been repaid in full) and (B) each prepayment of Term Loans required by Section 2.03(b)(iii)(B) shall be allocated to any Class or Classes of Term Loans outstanding as directed by the Borrower (subject to the requirement that the proceeds shall be applied to prepay or repay the applicable Refinanced Indebtedness), shall be applied pro rata to Term Lenders within each such Class, based upon the outstanding principal amounts owing to each such Term Lender under each such Class or Classes of Term Loans and shall be applied to reduce such remaining scheduled installments of principal within each such Class or Classes in direct order of maturity.
(v) The Borrower shall notify the Administrative Agent in writing of any mandatory prepayment of Term Loans required to be made pursuant to clauses (i) through (iii) of this Section 2.03(b) at least three (3) Business Days prior to the date of such prepayment. Each such notice shall specify the date of such prepayment and provide a reasonably detailed calculation of the aggregate amount of such prepayment to be made by the Borrower. The Administrative Agent will promptly notify each Appropriate Lender of the contents of the Borrowers prepayment notice and of such Appropriate Lenders Pro Rata Share of the prepayment or other applicable share provided for under this Agreement. Each Term Lender may reject all or a portion of its Pro Rata Share, or other applicable share provided for under this Agreement, of any mandatory prepayment (such declined amounts, the Declined Proceeds) of Term Loans required to be made pursuant to clauses (i) and (ii) of this Section 2.03(b) by providing written notice (each, a Rejection Notice) to the Administrative Agent and the Borrower no later than 5:00 p.m., New York time, two (2) Business Days after the date of such Lenders receipt of notice from the Administrative Agent regarding such prepayment. Each Rejection Notice from a given Lender shall specify the principal amount of the mandatory repayment of Term Loans to be rejected by such Lender. If a Term Lender fails to deliver a Rejection Notice to the Administrative Agent within the time frame specified above or such Rejection Notice fails to specify the principal amount of the Term Loans to be rejected, any such failure will be deemed an acceptance of the total amount of such mandatory prepayment of Term Loans. Subject to the terms of the ABL Credit Documents, any Declined Proceeds remaining shall be retained by the Borrower.
(vi) Notwithstanding any other provisions of this Section 2.03(b), (A) to the extent that any or all of the Net Cash Proceeds of any Disposition by a Foreign Subsidiary giving rise to a prepayment event pursuant to Section 2.03(b)(ii) (a Foreign Disposition), the Net Cash Proceeds of any Casualty Event from a Foreign Subsidiary (a Foreign Casualty Event), or Excess Cash Flow are prohibited or delayed by applicable local law from being repatriated to the United States, the portion of
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such Net Cash Proceeds or Excess Cash Flow so affected will not be required to be applied to repay Term Loans at the times provided in this Section 2.03(b) but may be retained by the applicable Foreign Subsidiary so long, but only so long, as the applicable local law will not permit repatriation to the United States (the Borrower hereby agreeing to cause the applicable Foreign Subsidiary to promptly take all actions reasonably required by the applicable local law to permit such repatriation), and once such repatriation of any of such affected Net Cash Proceeds or Excess Cash Flow is permitted under the applicable local law, such repatriation will be promptly effected and an amount equal to such repatriated Net Cash Proceeds or Excess Cash Flow will be promptly (and in any event not later than two (2) Business Days after such repatriation) applied (net of additional taxes payable or reserved against as a result thereof) to the repayment of the Term Loans pursuant to this Section 2.03(b) to the extent otherwise provided herein and (B) to the extent that the Borrower has determined in good faith that repatriation of any of or all the Net Cash Proceeds of any Foreign Disposition, any Foreign Casualty Event or Excess Cash Flow would have a material adverse tax cost consequence (taking into account any foreign tax credit or benefit actually realized in connection with such repatriation) with respect to such Net Cash Proceeds or Excess Cash Flow, the Net Cash Proceeds or Excess Cash Flow so affected may be retained by the applicable Foreign Subsidiary.
(c) Interest, Funding Losses, Etc. All prepayments under this Section 2.03 shall be accompanied by all accrued interest thereon, together with, in the case of any such prepayment of a Eurodollar Rate Loan on a date prior to the last day of an Interest Period therefor, any amounts owing in respect of such Eurodollar Rate Loan pursuant to Section 3.05.
Notwithstanding any of the other provisions of this Section 2.03, so long as no Event of Default shall have occurred and be continuing, if any prepayment of Eurodollar Rate Loans is required to be made under this Section 2.03 prior to the last day of the Interest Period therefor, in lieu of making any payment pursuant to this Section 2.03 in respect of any such Eurodollar Rate Loan prior to the last day of the Interest Period therefor, the Borrower may, in their sole discretion, deposit an amount sufficient to make any such prepayment otherwise required to be made thereunder together with accrued interest to the last day of such Interest Period into a Cash Collateral Account until the last day of such Interest Period, at which time the Administrative Agent shall be authorized (without any further action by or notice to or from the Borrower or any other Loan Party) to apply such amount to the prepayment of such Loans in accordance with this Section 2.03. Upon the occurrence and during the continuance of any Event of Default, the Administrative Agent shall also be authorized (without any further action by or notice to or from the Borrower or any other Loan Party) to apply such amount to the prepayment of the outstanding Loans in accordance with the relevant provisions of this Section 2.03. Such deposit shall be deemed to be a prepayment of such Loans by the Borrower for all purposes under this Agreement.
SECTION 2.04 Termination of Commitments. The Term B Commitment of each Term Lender on the Closing Date shall be automatically and permanently reduced to $0 upon the making of such Lenders Initial Term Loans pursuant to Section 2.01.
SECTION 2.05 Repayment of Loans. The Borrower shall repay to the Administrative Agent for the ratable account of the Appropriate Lenders (i) on the last Business Day of each March, June, September and December, commencing with the last Business Day of June, 2014, an aggregate principal amount equal to 0.25% of the aggregate principal amount of all Initial Term Loans outstanding on the Closing Date (which payments shall be reduced as a result of the application of prepayments in accordance with the order of priority set forth in Section 8.03) and (ii) on the Maturity Date for the Initial Term Loans, the aggregate principal amount of all Initial Term Loans outstanding on such date.
SECTION 2.06 Interest.
(a) Subject to the provisions of Section 2.06(b), (i) each Eurodollar Rate Loan shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to the Eurodollar Rate for such Interest Period plus the Applicable Rate and (ii) each Base Rate Loan shall bear interest on the outstanding principal amount thereof from the applicable Borrowing date at a rate per annum equal to the Base Rate plus the Applicable Rate.
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(b) During the continuance of an Event of Default under Section 8.01(a), the Borrower shall pay interest on past due amounts hereunder at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws. Accrued and unpaid interest on past due amounts (including interest on past due interest) shall be due and payable upon demand.
(c) Interest on each Loan shall be due and payable in arrears on each Interest Payment Date applicable thereto and at such other times as may be specified herein. Interest hereunder shall be due and payable in accordance with the terms hereof before and after judgment, and before and after the commencement of any proceeding under any Debtor Relief Law.
SECTION 2.07 Fees. The Borrower shall pay to the Agents such fees as shall have been separately agreed upon in writing in the amounts and at the times so specified. Such fees shall be fully earned when paid and shall not be refundable for any reason whatsoever (except as expressly agreed between the Borrower and the applicable Agent).
SECTION 2.08 Computation of Interest and Fees. (a) All computations of interest for Base Rate Loans shall be made on the basis of a year of 365 days or 366 days, as the case may be, and actual days elapsed. All other computations of fees and interest shall be made on the basis of a 360 day year and actual days elapsed (which results in more fees or interest, as applicable, being paid than if computed on the basis of a 365-day year). Interest shall accrue on each Loan for the day on which the Loan is made, and shall not accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is paid; provided that any Loan that is repaid on the same day on which it is made shall, subject to Section 2.10(a), bear interest for one day. Each determination by the Administrative Agent of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error.
(b) If, as a result of any restatement of or other adjustment to the financial statements of any Restricted Subsidiary or for any other reason, the Borrower, Holdings or the Lenders determine that (i) the Consolidated Net Leverage Ratio of the Borrower and its Restricted Subsidiaries as calculated by the Borrower or Holdings as of any applicable date was inaccurate and (ii) a proper calculation of such Consolidated Net Leverage Ratio would have resulted in a higher Applicable Rate for such period, the Borrower shall immediately and retroactively be obligated to pay to the Administrative Agent for the account of the applicable Lenders on demand by the Administrative Agent within ten Business Days (or, after the occurrence of an actual or deemed entry of an order for relief with respect to the Borrower under the Bankruptcy Code, automatically and without further action by the Administrative Agent or any Lender), an amount equal to the excess of the amount of interest and fees that should have been paid for such period over the amount of interest and fees actually paid for such period. This paragraph shall not limit the rights of the Administrative Agent or any Lender, as the case may be, under Article VIII.
SECTION 2.09 Evidence of Indebtedness.
(a) The Borrowings extended by each Lender shall be evidenced by one or more accounts or records maintained by such Lender and evidenced by one or more entries in the Register maintained by the Administrative Agent, acting solely for purposes of Treasury Regulation Section 5f.103-1(c), as agent for the Borrower, in each case in the ordinary course of business. The accounts or records maintained by the Administrative Agent and each Lender shall be prima facie evidence absent manifest error of the amount of the Borrowings extended by the Lenders to the Borrower and the interest and payments thereon. Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrower hereunder to pay any amount owing with respect to the Obligations. In the event of any conflict between the accounts and records maintained by any Lender and the accounts and records of the Administrative Agent, as set forth in the Register, in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error. Upon the request of any Lender made through the Administrative Agent, the Borrower shall execute and deliver to such Lender (through the Administrative Agent) a Term Note payable to such Lender, which shall evidence such Lenders Loans in addition to such accounts or records. Each Lender may attach schedules to its Term Note and endorse thereon the date, Type (if applicable), amount and maturity of its Loans and payments with respect thereto.
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(b) In the event of any conflict between the accounts and records maintained by the Administrative Agent and the accounts and records of any Lender in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error.
(c) Entries made in good faith by the Administrative Agent in the Register pursuant to Sections 2.09(a) and (b), and by each Lender in its account or accounts pursuant to Sections 2.09(a) and (b), shall be prima facie evidence of the amount of principal and interest due and payable or to become due and payable from the Borrower to, in the case of the Register, each Lender and, in the case of such account or accounts, such Lender, under this Agreement and the other Loan Documents, absent manifest error; provided that the failure of the Administrative Agent or such Lender to make an entry, or any finding that an entry is incorrect, in the Register or such account or accounts shall not limit or otherwise affect the obligations of the Borrower under this Agreement and the other Loan Documents.
SECTION 2.10 Payments Generally.
(a) All payments to be made by the Borrower shall be made without condition or deduction for any counterclaim, defense, recoupment or setoff. Except as otherwise expressly provided herein, all payments by the Borrower hereunder shall be made to the Administrative Agent, for the account of the respective Lenders to which such payment is owed, at the applicable Administrative Agents Office for payment and in Same Day Funds not later than 2:00 p.m., New York time, on the date specified herein. The Administrative Agent will promptly distribute to each Appropriate Lender its Pro Rata Share (or other applicable share as provided herein) of such payment in like funds as received by wire transfer to such Lenders Lending Office. Any payments under this Agreement that are made later than 2:00 p.m., New York time, shall be deemed to have been made on the next succeeding Business Day (but the Administrative Agent may extend such deadline for purposes of computing interest and fees (but not beyond the end of such day) in its sole discretion whether or not such payments are in process).
(b) If any payment to be made by the Borrower shall come due on a day other than a Business Day, payment shall be made on the next following Business Day, and such extension of time shall be reflected in computing interest or fees, as the case may be.
(c) Unless the Borrower or any Lender has notified the Administrative Agent, prior to the date, or in the case of any Borrowing of Base Rate Loans, prior to 1:00 p.m. on the date of such Borrowing, any payment is required to be made by it to the Administrative Agent hereunder (in the case of the Borrower, for the account of any Lender hereunder or, in the case of the Lenders, for the account of the Borrower), that the Borrower or such Lender, as the case may be, will not make such payment, the Administrative Agent may assume that the Borrower or such Lender, as the case may be, has timely made such payment and may (but shall not be so required to), in reliance thereon, make available a corresponding amount to the Person entitled thereto. If and to the extent that such payment was not in fact made to the Administrative Agent in Same Day Funds, then:
(i) if the Borrower failed to make such payment, each Lender shall forthwith on demand repay to the Administrative Agent the portion of such assumed payment that was made available to such Lender in Same Day Funds, together with interest thereon in respect of each day from and including the date such amount was made available by the Administrative Agent to such Lender to the date such amount is repaid to the Administrative Agent in Same Day Funds at the applicable Overnight Rate from time to time in effect; and
(ii) if any Lender failed to make such payment, such Lender shall forthwith on demand pay to the Administrative Agent the amount thereof in Same Day Funds, together with interest thereon for the period from the date such amount was made available by the Administrative Agent to the Borrower to the date such amount is recovered by the Administrative Agent (the Compensation Period) at a rate per annum equal to the applicable Overnight Rate from time to time in effect. When such Lender makes payment to the Administrative Agent (together with all accrued interest thereon), then such payment amount (excluding the amount of any interest which may have accrued and been paid in respect of such late payment) shall constitute such Lenders Loan included in the applicable Borrowing. If such Lender does not pay such amount forthwith upon the Administrative Agents demand therefor, the Administrative Agent
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may make a demand therefor upon the Borrower, and the Borrower shall pay such amount, or cause such amount to be paid, to the Administrative Agent, together with interest thereon for the Compensation Period at a rate per annum equal to the rate of interest applicable to the applicable Borrowing. Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill its Commitment or to prejudice any rights which the Administrative Agent or the Borrower may have against any Lender as a result of any default by such Lender hereunder. A notice of the Administrative Agent to any Lender or the Borrower with respect to any amount owing under this Section 2.10(c) shall be conclusive, absent manifest error.
(d) If any Lender makes available to the Administrative Agent funds for any Loan to be made by such Lender as provided in the foregoing provisions of this Article II, and such funds are not made available to the Borrower by the Administrative Agent because the conditions to the applicable Borrowing set forth in Section 4.01 are not satisfied or waived in accordance with the terms hereof, the Administrative Agent shall return such funds (in like funds as received from such Lender) to such Lender, without interest.
(e) The obligations of the Lenders hereunder to make Loans are several and not joint. The failure of any Lender to make any Loan on any date required hereunder shall not relieve any other Lender of its corresponding obligation to do so on such date, and no Lender shall be responsible for the failure of any other Lender to so make its Loan.
(f) Nothing herein shall be deemed to obligate any Lender to obtain the funds for any Loan in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for any Loan in any particular place or manner.
(g) Whenever any payment received by the Administrative Agent under this Agreement or any of the other Loan Documents is insufficient to pay in full all amounts due and payable to the Administrative Agent and the Lenders under or in respect of this Agreement and the other Loan Documents on any date, such payment shall be distributed by the Administrative Agent and applied by the Administrative Agent and the Lenders in the order of priority set forth in Section 8.03 (or otherwise expressly set forth herein). If the Administrative Agent receives funds for application to the Obligations of the Loan Parties under or in respect of the Loan Documents under circumstances for which the Loan Documents do not specify the manner in which such funds are to be applied, the Administrative Agent may, but shall not be obligated to, elect to distribute such funds to each of the Lenders in accordance with such Lenders Pro Rata Share or other applicable share provided for under this Agreement of the sum of the Outstanding Amount of all Loans outstanding at such time, in repayment or prepayment of such of the outstanding Loans or other Obligations then owing to such Lender.
SECTION 2.11 Sharing of Payments. If, other than as expressly provided elsewhere herein, any Lender shall obtain payment in respect of any principal of or interest on account of the Loans made by it (whether voluntary, involuntary, through the exercise of any right of setoff, or otherwise) in excess of its ratable share (or other share contemplated hereunder) thereof, such Lender shall immediately (a) notify the Administrative Agent of such fact, and (b) purchase from the other Lenders such participations in the Loans of such Class made by them as shall be necessary to cause such purchasing Lender to share the excess payment in respect of any principal of or interest on such Loans of such Class pro rata with each of them; provided that if all or any portion of such excess payment is thereafter recovered from the purchasing Lender under any of the circumstances described in Section 10.06 (including pursuant to any settlement entered into by the purchasing Lender in its discretion), such purchase shall to that extent be rescinded and each other Lender shall repay to the purchasing Lender the purchase price paid therefor, together with an amount equal to such paying Lenders ratable share (according to the proportion of (i) the amount of such paying Lenders required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered, without further interest thereon. For avoidance of doubt, the provisions of this Section 2.11 shall not be construed to apply to (A) any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement as in effect from time to time or (B) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans to any assignee or participant permitted hereunder. The Borrower agrees that any Lender so purchasing a participation from another Lender may, to the fullest extent permitted by applicable Law, exercise all its rights of payment (including the right of setoff, but subject to Section 10.09) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. The Administrative Agent will keep records (which shall be
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conclusive and binding in the absence of manifest error) of participations purchased under this Section 2.11 and will in each case notify the Lenders following any such purchases or repayments. Each Lender that purchases a participation pursuant to this Section 2.11 shall from and after such purchase have the right to give all notices, requests, demands, directions and other communications under this Agreement with respect to the portion of the Obligations purchased to the same extent as though the purchasing Lender were the original owner of the Obligations purchased.
SECTION 2.12 Incremental Facilities.
(a) Incremental Loan Request. The Borrower may at any time or from time to time after the Closing Date, by notice to the Administrative Agent (an Incremental Loan Request), request one or more new commitments which may be of the same Class as any outstanding Term Loans (a Term Loan Increase) or a new Class of term loans (collectively with any Term Loan Increase, the Incremental Term Commitments), whereupon the Administrative Agent shall promptly deliver a copy to each of the Lenders. Each Incremental Loan Request from the Borrower pursuant to this Section 2.12 shall set forth the requested amount and proposed terms of the relevant Incremental Term Commitments.
(b) Incremental Term Loans. Any Incremental Term Loans effected through the establishment of one or more new term loans made on an Incremental Facility Closing Date (other than a Term Loan Increase) shall be designated a separate Class of Incremental Term Loans for all purposes of this Agreement. On any Incremental Facility Closing Date on which any Incremental Term Commitments of any Class are effected (including through any Term Loan Increase), subject to the satisfaction of the terms and conditions in this Section 2.12, (i) each Incremental Term Lender of such Class shall make a Loan to the Borrower (an Incremental Term Loan) in an amount equal to its Incremental Term Commitment of such Class and (ii) each Incremental Term Lender of such Class shall become a Lender hereunder with respect to the Incremental Term Commitment of such Class and the Incremental Term Loans of such Class made pursuant thereto. Notwithstanding the foregoing, Incremental Term Loans may have identical terms to any of the Term Loans and be treated as the same Class as any of such Term Loans.
(c) Incremental Term Lenders. Incremental Term Loans may be made by any existing Lender (but no existing Lender will have an obligation to make any Incremental Term Commitment (or Incremental Term Loan), nor will the Borrower have any obligation to approach any existing Lenders to provide any Incremental Term Commitment (or Incremental Term Loan)) or by any Additional Lender (each such existing Lender or Additional Lender providing such Loan or Commitment, an Incremental Term Lender); provided that (i) the Administrative Agent shall have consented to such Additional Lenders making such Incremental Term Loans to the extent such consent, if any, would be required under Section 10.07(b) for an assignment of Loans to such Additional Lender and (ii) with respect to Incremental Term Commitments, any Affiliated Lender providing an Incremental Term Commitment shall be subject to the same restrictions set forth in Section 10.07(h) as they would otherwise be subject to with respect to any purchase by or assignment to such Affiliated Lender of Term Loans.
(d) Effectiveness of Incremental Amendment. The effectiveness of any Incremental Amendment shall be subject to the satisfaction on the date thereof (the Incremental Facility Closing Date) of each of the following conditions:
(i) no Default or Event of Default shall exist after giving effect to such Incremental Term Commitments; provided that, with respect to any Incremental Amendment the primary purpose of which is to finance an acquisition permitted by this Agreement, the requirement pursuant to this clause (d)(i) shall be that no Event of Default under Section 8.01(a) or (f) shall exist after giving effect to such Incremental Term Commitments (in the case of an acquisition which is a Limited Condition Acquisition, such determination to be subject to Section 1.10);
(ii) each Incremental Term Commitment shall be in an aggregate principal amount that is not less than $10,000,000 and shall be in an increment of $1,000,000 (provided that such amount may be less than $10,000,000 if such amount represents all remaining availability under the limit set forth clause (iii) of this Section 2.12(d)); and
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(iii) the aggregate principal amount of Incremental Term Loans together with the aggregate principal amount of Permitted Incremental Equivalent Debt, calculated on a pro forma basis after giving effect to any such incurrence, shall not result in a Secured Net Leverage Ratio for the Test Period most recently ended in excess of 4.00 to 1.00 (calculating the Secured Net Leverage Ratio without netting the cash proceeds from such Incremental Term Loans) (the Available Incremental Amount).
(e) Required Terms. The terms, provisions and documentation of the Incremental Term Loans and Incremental Term Commitments of any Class and any Term Loan Increase shall be as agreed between the Borrower and the applicable Incremental Term Lenders providing such Incremental Term Commitments, and except as otherwise set forth herein, to the extent not identical to the Term Loans existing on the Incremental Facility Closing Date, shall be reasonably satisfactory to Administrative Agent; provided that the documentation governing any Incremental Term Loans may include any Previously Absent Financial Maintenance Covenant so long as the Administrative Agent shall have been given prompt written notice thereof and this Agreement is amended to include such Previously Absent Financial Maintenance Covenant for the benefit of each Facility; provided, further, that in the case of a Term Loan Increase, the terms, provisions and documentation of such Term Loan Increase shall be identical (other than with respect to upfront fees, OID or similar fees, it being understood that, if required to consummate such Term Loan Increase transaction, the interest rate margins and rate floors may be increased and additional upfront or similar fees may be payable to the lenders providing the Term Loan Increase) to the applicable Term Loans being increased, in each case, as existing on the Incremental Facility Closing Date. In any event:
(i) the Incremental Term Loans:
(A) shall rank equal in priority in right of payment and of security with the Initial Term Loans,
(B) shall not mature earlier than the Original Term Loan Maturity Date,
(C) shall have a Weighted Average Life to Maturity not shorter than the remaining Weighted Average Life to Maturity of the Initial Term Loans on the date of incurrence of such Incremental Term Loans (without giving effect to any amortization or prepayment of Term Loans prior to the time of such incurrence),
(D) shall have an Applicable Rate and, subject to clauses (e)(i)(B) and (e)(i)(C) above and clause (e)(ii) below, amortization determined by the Borrower and the applicable Incremental Term Lenders, and
(E) may participate on a pro rata basis or less than pro rata basis (but, except as otherwise permitted by this Agreement, not on a greater than pro rata basis) in any mandatory prepayments of Term Loans under Section 2.03(b)(i), (ii) or (iii)(A), as specified in the applicable Incremental Amendment.
(ii) the amortization schedule applicable to any Incremental Term Loans and the All-In Yield applicable to the Incremental Term Loans of each Class shall be determined by the Borrower and the applicable Incremental Term Lenders and shall be set forth in each applicable Incremental Amendment; provided, however, that with respect to any Loans made under Incremental Term Commitments within twelve (12) months after the Closing Date, the All-In Yield applicable to such Incremental Term Loans shall not be greater than the applicable All-In Yield payable pursuant to the terms of this Agreement as amended through the date of such calculation with respect to Initial Term Loans plus 50 basis points per annum unless the interest rate (together with, as provided in the proviso below, the Eurodollar Rate floor) with respect to the Initial Term Loans is increased so as to cause the then applicable All-In Yield under this Agreement on the Initial Term Loans to equal the All-In Yield then applicable to the Incremental Term Loans minus 50 basis points; provided that any increase in All-In Yield on the Initial Term Loans due to the application of a Eurodollar Rate floor on any Incremental Term Loan shall be effected solely through an increase in (or implementation of, as applicable) the Eurodollar Rate floor applicable to such Loans.
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(f) Incremental Amendment. Commitments in respect of Incremental Term Loans shall become Commitments, under this Agreement pursuant to an amendment (an Incremental Amendment) to this Agreement and, as appropriate, the other Loan Documents, executed by the Borrower, each Incremental Term Lender providing such Incremental Term Commitments and the Administrative Agent. The Incremental Amendment may, without the consent of any other Loan Party, Agent or Lender, effect such amendments to this Agreement and the other Loan Documents as may be necessary or appropriate, in the reasonable opinion of the Administrative Agent and the Borrower, to effect the provisions of this Section 2.12. For the avoidance of doubt, unless otherwise required by the Incremental Term Lenders, the effectiveness of any Incremental Amendment shall not be subject to the bring-down of the representations and warranties of the Borrower and each other Loan Party contained in this Agreement or any other Loan Document on and as of the date of such Borrowing of Incremental Term Loans; provided, however, that with respect to any Incremental Term Loans to finance an acquisition permitted by this Agreement, the condition to the availability or borrowing of such Incremental Term Loans that the Specified Representations as they relate to the target of such acquisition (conformed as necessary for such acquisition) be true and correct in all material respects as of the date of such Borrowing, may not be waived without the consent of the Required Lenders. In connection with any Incremental Amendment, the Borrower shall, if reasonably requested by the Administrative Agent, deliver customary reaffirmation agreements and/or such amendments to the Collateral Documents as may be reasonably requested by the Administrative Agent in order to ensure that such Incremental Term Loans are provided with the benefit of the applicable Loan Documents. The Borrower will use the proceeds of the Incremental Term Loans for any purpose not prohibited by this Agreement. No Lender shall be obligated to provide any Incremental Term Commitments or Incremental Term Loans unless it so agrees.
(g) This Section 2.12 shall supersede any provisions in Section 2.10, 2.11 or 10.01 to the contrary. For the avoidance of doubt, any of the provisions of this Section 2.12 may be amended with the consent of the Required Lenders. For the avoidance of doubt, no Incremental Amendment shall effect any amendments that would require the consent of each affected Lender or all Lenders pursuant to the proviso in the first paragraph of Section 10.01, unless each such Lender has, or all such Lenders have, as the case may, given its or their consent to such amendment.
SECTION 2.13 Refinancing Amendments.
(a) At any time after the Closing Date, the Borrower may obtain, from any Lender or any Additional Lender, Other Term Loans to refinance all or any portion of the applicable Class or Classes of Loans then outstanding under this Agreement which will be made pursuant to Other Term Loan Commitments, pursuant to a Refinancing Amendment; provided that such Other Term Loans (i) may rank equal in priority in right of payment and of security with the other Loans and Commitments hereunder, (ii)(A) will have interest rates (including through fixed interest rates), interest margins, rate floors, upfront fees, funding discounts, original issue discounts and prepayment terms and premiums as may be agreed by the Borrower and the Lenders thereof and/or (B) additional fees and/or premiums may be payable to the Lenders providing such Other Term Loans in addition to any of the items contemplated by the preceding clause (A), in each case, to the extent provided in the applicable Refinancing Amendment, (iii) may have optional prepayment terms (including call protection and prepayment terms and premiums) as may be agreed between the Borrower and the Lenders thereof, (iv) will have a final maturity date no earlier than, and will have a Weighted Average Life to Maturity equal to or greater than, the Loans being refinanced (except by virtue of amortization or prepayment of the Loans prior to the time of such refinancing) and (v) will have such other terms and conditions (other than as provided in foregoing clauses (ii) through (iv)) that are identical in all material respects to, or (taken as a whole) are no more restrictive on the Borrower than those applicable to the Loans being refinanced (provided that such terms shall not be deemed to be more restrictive solely as a result of the inclusion in the documentation governing such Other Term Loan Commitments and Other Term Loans of a Previously Absent Financial Maintenance Covenant so long as the Administrative Agent shall be given prompt written notice thereof and this Agreement is amended to include such Previously Absent Financial Maintenance Covenant for the benefit of each Facility); provided, further, that the terms and conditions applicable to such Other Term Loan Commitments and Other Term Loans may provide for any additional or different financial or other covenants or other provisions that are agreed between the Borrower and the Lenders thereof and applicable only during periods after the Latest Maturity Date in respect of Term Loans that is in effect immediately prior to the date in respect of the Class of Loans being refinanced that is in effect on the date such Other Term Loan Commitments and Other Term Loans are incurred or obtained. Any Other Term Loans may participate on a pro rata basis or on a
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less than pro rata basis (but, except as otherwise permitted by this Agreement, not on a greater than pro rata basis) in any mandatory prepayments under Section 2.03(b)(i), (ii) or (iii)(A), as specified in the applicable Refinancing Amendment. In connection with any Refinancing Amendment, the Borrower shall, if reasonably requested by the Administrative Agent, deliver customary reaffirmation agreements and/or such amendments to the Collateral Documents as may be reasonably requested by the Administrative Agent in order to ensure that such Other Term Loans are provided with the benefit of the applicable Loan Documents.
(b) Each Class of Other Term Loan Commitments and Other Term Loans incurred under this Section 2.13 shall be in an aggregate principal amount that is not less than $20,000,000 (or such lesser amount as the Administrative Agent may determine in its sole discretion). The Administrative Agent shall promptly notify each Lender as to the effectiveness of each Refinancing Amendment. Each of the parties hereto hereby agrees that, upon the effectiveness of any Refinancing Amendment, this Agreement shall be deemed amended to the extent (but only to the extent) necessary to reflect the existence and terms of the Other Term Loan Commitments and Other Term Loans incurred pursuant thereto (including any amendments necessary to treat the Other Term Loans and/or Other Term Loan Commitments as Loans and Commitments). Any Refinancing Amendment may, without the consent of any other Lenders, effect such amendments to this Agreement and the other Loan Documents as may be necessary or appropriate, in the reasonable opinion of the Administrative Agent and the Borrower, to effect the provisions of this Section 2.13.
(c) This Section 2.13 shall supersede any provisions in Section 2.10, 2.11 or 10.01 to the contrary. For the avoidance of doubt, any of the provisions of this Section 2.13 may be amended with the consent of the Required Lenders. For the avoidance of doubt, no Refinancing Amendment shall effect any amendments that would require the consent of each affected Lender or all Lenders pursuant to the proviso in the first paragraph of Section 10.01, unless each such Lender has, or all such Lenders have, as the case may be, given its or their consent to such amendment. No Lender shall be under any obligation to provide any Other Term Loan Commitment unless such Lender executes a Refinancing Amendment.
SECTION 2.14 Extensions of Loans.
(a) Extension of Term Loans. The Borrower, at any time and from time to time request that all or a portion of the Term Loans of any Class (each, an Existing Term Loan Class) be converted or exchanged to extend the scheduled Maturity Date(s) of any payment of principal with respect to all or a portion of any principal amount of such Term Loans (any such Term Loans which have been so extended, Extended Term Loans) and to provide for other terms consistent with this Section 2.14. Prior to entering into any Extension Amendment with respect to any Extended Term Loans, the Borrower shall provide written notice to the Administrative Agent (who shall provide a copy of such notice to each of the Lenders under the applicable Existing Term Loan Class, with such request offered equally to all such Lenders of such Existing Term Loan Class) (each, a Term Loan Extension Request) setting forth the proposed terms of the Extended Term Loans to be established, which terms shall be identical in all material respects to the Term Loans of the Existing Term Loan Class from which they are to be extended except that (i) the scheduled final maturity date shall be extended and all or any of the scheduled amortization payments, if any, of all or a portion of any principal amount of such Extended Term Loans may be delayed to later dates than the scheduled amortization, if any, of principal of the Term Loans of such Existing Term Loan Class (with any such delay resulting in a corresponding adjustment to the scheduled amortization payments reflected in the Extension Amendment, the Incremental Amendment, the Refinancing Amendment or any other amendment, as the case may be, with respect to the Existing Term Loan Class from which such Extended Term Loans were extended, in each case as more particularly set forth in Section 2.14(b) below), (ii)(A) the interest rates (including through fixed interest rates), interest margins, rate floors, upfront fees, funding discounts, original issue discounts and voluntary prepayment terms and premiums with respect to the Extended Term Loans may be different than those for the Term Loans of such Existing Term Loan Class and/or (B) additional fees and/or premiums may be payable to the Lenders providing such Extended Term Loans in addition to any of the items contemplated by the preceding clause (A), in each case, to the extent provided in the applicable Extension Amendment, (iii) the Extended Term Loans may have optional prepayment terms (including call protection and prepayment terms and premiums) as may be agreed between the Borrower and the Lenders thereof, (iv) any Extended Term Loans may participate on a pro rata basis or less than a pro rata basis (but, except as otherwise permitted by this Agreement, not greater than a pro rata basis) in any mandatory prepayments under Section 2.03(b)(i), (ii) or (iii)(A), in each case as specified in the respective Term Loan Extension Request, and (v) the Extension Amendment may provide for other covenants
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and terms that apply to any period after the Latest Maturity Date in respect of Term Loans that is in effect immediately prior to the establishment of such Extended Term Loans. No Lender shall have any obligation to agree to have any of its Term Loans of any Existing Term Loan Class converted into Extended Term Loans pursuant to any Term Loan Extension Request. Any Extended Term Loans extended pursuant to any Term Loan Extension Request shall be designated a series (each, a Term Loan Extension Series) of Extended Term Loans for all purposes of this Agreement and shall constitute a separate Class of Loans from the Existing Term Loan Class from which they were extended; provided that any Extended Term Loans amended from an Existing Term Loan Class may, to the extent provided in the applicable Extension Amendment, be designated as an increase in any previously established Term Loan Extension Series with respect to such Existing Term Loan Class.
(b) Extension Request. The Borrower shall provide the applicable Term Loan Extension Request to the Administrative Agent at least five (5) Business Days (or such shorter period as the Administrative Agent may determine in its sole discretion) prior to the date on which Lenders under the applicable Existing Term Loan Class are requested to respond. Any Lender holding a Term Loan under an Existing Term Loan Class (each, an Extending Term Lender) wishing to have all or a portion of its Term Loans of an Existing Term Loan Class or Existing Term Loan Classes, as applicable, subject to such Term Loan Extension Request converted or exchanged into Extended Term Loans shall notify the Administrative Agent (each, an Extension Election) on or prior to the date specified in such Term Loan Extension Request of the amount of its Term Loans which it has elected to convert or exchange into Extended Term Loans. In the event that the aggregate principal amount of Term Loans subject to Extension Elections exceeds the amount of Extended Term Loans requested pursuant to the Term Loan Extension Request, Term Loans subject to Extension Elections shall be converted or exchanged into Extended Term Loans on a pro rata basis (subject to such rounding requirements as may be established by the Administrative Agent) based on the aggregate principal amount of Term Loans included in each such Extension Election or as may be otherwise agreed to in the applicable Extension Amendment.
(c) Extension Amendment. Extended Term Loans shall be established pursuant to an amendment (each, a Extension Amendment) to this Agreement (which, except to the extent expressly contemplated by the penultimate sentence of this Section 2.14(c) and notwithstanding anything to the contrary set forth in Section 10.01, shall not require the consent of any Lender other than the Extending Term Lenders with respect to the Extended Term Loans established thereby, as the case may be) executed by the Borrower, the Administrative Agent and the Extending Term Lenders. Each request for a Term Loan Extension Series of Extended Term Loans proposed to be incurred under this Section 2.14 shall be in an aggregate principal amount that is not less than $20,000,000 (or such lesser amount as the Administrative Agent may determine in its sole discretion) (it being understood that the actual principal amount thereof provided by the applicable Lenders may be lower than such minimum amount). In addition to any terms and changes required or permitted by Section 2.14(a), each of the parties hereto agrees that this Agreement and the other Loan Documents may be amended pursuant to an Extension Amendment, without the consent of any other Lenders, to the extent necessary to (i) in respect of each Extension Amendment in respect of Extended Term Loans, amend the scheduled amortization payments pursuant to Section 2.05 or the applicable Incremental Amendment, Extension Amendment, Refinancing Amendment or other amendment, as the case may be, with respect to the Existing Term Loan Class from which the Extended Term Loans were exchanged to reduce each scheduled repayment amount for the Existing Term Loan Class in the same proportion as the amount of Term Loans of the Existing Term Loan Class is to be reduced pursuant to such Extension Amendment (it being understood that the amount of any repayment amount payable with respect to any individual Term Loan of such Existing Term Loan Class that is not an Extended Term Loan shall not be reduced as a result thereof); (ii) reflect the existence and terms of the Extended Term Loans incurred pursuant thereto; (iii) modify the prepayments set forth in Section 2.03 to reflect the existence of the Extended Term Loans and the application of prepayments with respect thereto and (iv) effect such other amendments to this Agreement and the other Loan Documents as may be necessary or appropriate, in the reasonable opinion of the Administrative Agent and the Borrower, to effect the provisions of this Section 2.14, and the Lenders hereby expressly authorize the Administrative Agent to enter into any such Extension Amendment. In connection with any Extension Amendment, the Borrower shall, if reasonably requested by the Administrative Agent, deliver customary reaffirmation agreements and/or such amendments to the Collateral Documents as may be reasonably requested by the Administrative Agent in order to ensure that such Extended Term Loans are provided with the benefit of the applicable Loan Documents.
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(d) Notwithstanding anything to the contrary contained in this Agreement, on any date on which any Existing Term Loan Class and is converted or exchanged to extend the related scheduled maturity date(s) in accordance with paragraphs (a) and (b) of this Section 2.14, in the case of the existing Term Loans of each Extending Term Lender, the aggregate principal amount of such existing Loans shall be deemed reduced by an amount equal to the aggregate principal amount of Extended Term Loans so converted or exchanged by such Lender on such date, and the Extended Term Loans shall be established as a separate Class of Loans (together with any other Extended Term Loans so established on such date), except as otherwise provided under Section 2.14(a).
(e) In the event that the Administrative Agent determines in its sole discretion that the allocation of Extended Term Loans of a given Term Loan Extension Series to a given Lender was incorrectly determined as a result of manifest administrative error in the receipt and processing of an Extension Election timely submitted by such Lender in accordance with the procedures set forth in the applicable Extension Amendment, then the Administrative Agent, the Borrower and such affected Lender may (and hereby are authorized to), in their sole discretion and without the consent of any other Lender, enter into an amendment to this Agreement and the other Loan Documents (each, a Corrective Extension Amendment) within 15 days following the effective date of such Extension Amendment, as the case may be, which Corrective Extension Amendment shall (i) provide for the conversion or exchange and extension of Term Loans under the Existing Term Loan Class, in such amount as is required to cause such Lender to hold Extended Term Loans of the applicable Term Loan Extension Series into which such other Term Loans were initially converted or exchanged, as the case may be, in the amount such Lender would have held had such administrative error not occurred and had such Lender received the minimum allocation of the applicable Loans or Commitments to which it was entitled under the terms of such Extension Amendment, in the absence of such error, (ii) be subject to the satisfaction of such conditions as the Administrative Agent, the Borrower and such Lender may agree, and (iii) effect such other amendments of the type (with appropriate reference and nomenclature changes) described in the penultimate sentence of Section 2.14(c).
(f) No conversion or exchange of Loans or Commitments pursuant to any Extension Amendment in accordance with this Section 2.14 shall constitute a voluntary or mandatory payment or prepayment for purposes of this Agreement.
(g) This Section 2.14 shall supersede any provisions in Section 2.10, 2.11 or 10.01 to the contrary. For the avoidance of doubt, any of the provisions of this Section 2.14 may be amended with the consent of the Required Lenders. For the avoidance of doubt, no Extension Amendment shall effect any amendments that would require the consent of each affected Lender or all Lenders pursuant to the proviso in the first paragraph of Section 10.01, unless each such Lender has, or all such Lenders have, as the case may be, given its or their consent to such amendment.
SECTION 2.15 Prepayment Premium.
In the event that, on or prior to the first anniversary of the Closing Date, the Borrower make any prepayment of Initial Term Loans pursuant to Section 2.03(a)(i) or 2.03(b)(iii), the Borrower shall pay to the Administrative Agent, for the ratable account of each applicable Lender, a prepayment premium of 1.00% of the aggregate principal amount of the Initial Term Loans being prepaid.
ARTICLE III
Taxes, Increased Costs Protection and Illegality
SECTION 3.01 Taxes.
(a) Except as required by applicable Law, any and all payments by any Loan Party to or for the account of any Agent or any Lender under any Loan Document shall be made free and clear of and without deduction for any Taxes.
(b) If any Loan Party or any other applicable withholding agent is required by applicable Law to make any deduction or withholding on account of any Taxes from any sum paid or payable by any Loan
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Party to any Lender or Agent under any of the Loan Documents: (i) the applicable Loan Party shall notify the Administrative Agent of any such requirement or any change in any such requirement as soon as such Loan Party becomes aware of it; (ii) the applicable Loan Party or other applicable withholding agent shall make such deduction or withholding and pay to the relevant Governmental Authority any such Tax before the date on which penalties attach thereto, such payment to be made (if the liability to pay is imposed on any Loan Party) for its own account or (if that liability is imposed on the Lender or Agent) on behalf of and in the name of the Lender or Agent (as applicable); (iii) if the Tax in question is a Non-Excluded Tax or Other Tax, the sum payable to such Lender or Agent (as applicable) shall be increased by such Loan Party to the extent necessary to ensure that, after the making of any required deduction or withholding for Non-Excluded Taxes or Other Taxes (including any deductions or withholdings for Non-Excluded Taxes or Other Taxes attributable to any payments required to be made under this Section 3.01), the Lender or the Agent (as applicable), receives on the due date a net sum equal to what it would have received had no such deduction or withholding been required or made; and (iv) within thirty days after paying any sum from which it is required by Law to make any deduction or withholding, and within thirty days after the due date of payment of any Tax which it is required by clause (ii) above to pay, the Borrower making such payments shall deliver to the Administrative Agent evidence reasonably satisfactory to the other affected parties of such deduction or withholding and of the remittance thereof to the relevant Governmental Authority.
(c) Status of Lender. Each Lender shall, at such times as are reasonably requested by the Borrower or the Administrative Agent, provide the Borrower and the Administrative Agent with any documentation prescribed by Laws or reasonably requested by the Borrower or the Administrative Agent certifying as to any entitlement of such Lender to an exemption from, or reduction in, withholding Tax with respect to any payments to be made to such Lender under any Loan Document. Each such Lender shall, whenever a lapse in time or change in circumstances renders such documentation (including any specific documentation required below in this Section 3.01(c)) obsolete, expired or inaccurate in any material respect, deliver promptly to the Borrower and the Administrative Agent updated or other appropriate documentation (including any new documentation reasonably requested by the Borrower or the Administrative Agent) or promptly notify the Borrower and Administrative Agent of its inability to do so.
Without limiting the foregoing:
(i) Each U.S. Lender shall deliver to the Borrower and the Administrative Agent on or before the date on which it becomes a party to this Agreement two properly completed and duly signed copies of Internal Revenue Service Form W-9 certifying that such Lender is exempt from U.S. federal backup withholding.
(ii) Each Foreign Lender shall deliver to the Borrower and the Administrative Agent on or before the date on which it becomes a party to this Agreement (and from time to time thereafter upon the request of the Borrower or the Administrative Agent) whichever of the following is applicable:
(A) two properly completed and duly signed copies of Internal Revenue Service Form W-8BEN (or any successor forms) claiming eligibility for the benefits of an income tax treaty to which the United States is a party, and such other documentation as required under the Code,
(B) two properly completed and duly signed copies of Internal Revenue Service Form W-8ECI (or any successor forms),
(C) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 871(h) or Section 881(c) of the Code, (A) two properly completed and duly signed certificates substantially in the form of Exhibit F (any such certificate, a United States Tax Compliance Certificate) and (B) two properly completed and duly signed copies of Internal Revenue Service Form W-8BEN (or any successor forms),
(D) to the extent a Foreign Lender is not the beneficial owner (for example, where the Foreign Lender is a partnership or a participating Lender), Internal Revenue Service Form W-8IMY (or any successor forms) of the Foreign Lender, accompanied by a Form W-8ECI,
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W-8BEN, United States Tax Compliance Certificate, Form W-9, Form W-8IMY or any other required information (or any successor forms) from each beneficial owner that would be required under this Section 3.01(c) if such beneficial owner were a Lender, as applicable (provided that, if one or more beneficial owners are claiming the portfolio interest exemption, the United States Tax Compliance Certificate may be provided by such Foreign Lender on behalf of such beneficial owner), or
(E) two properly completed and duly signed copies of any other form prescribed by applicable U.S. federal income tax laws (including the Treasury Regulations) as a basis for claiming a complete exemption from, or a reduction in, United States federal withholding tax on any payments to such Lender under the Loan Documents.
(iii) 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 Sections 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrower or the Administrative Agent such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may be necessary for the Borrower and the Administrative Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lenders obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this paragraph, the term FATCA shall include any amendments made to FATCA after the date of this Agreement.
Notwithstanding any other provision of this clause (c), a Lender shall not be required to deliver any form that such Lender is not legally eligible to deliver.
(d) In addition to the payments by a Loan Party required by Section 3.01(b), the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.
(e) The Loan Parties shall, jointly and severally, indemnify a Lender or Agent (each a Tax Indemnitee), within 10 days after written demand therefor, for the full amount of any Non-Excluded Taxes paid or payable by such Tax Indemnitee on or attributable to any payment under or with respect to any Loan Document, and any Other Taxes payable by such Tax Indemnitee (including Non-Excluded Taxes or Other Taxes imposed on or attributable to amounts payable under this Section 3.01), whether or not such Taxes were correctly or legally imposed or asserted by the Governmental Authority. A certificate as to the amount of such payment or liability prepared in good faith and delivered by the Tax Indemnitee or by the Administrative Agent on its own behalf or on behalf of another Tax Indemnitee, shall be conclusive absent manifest error.
(f) If and to the extent that a Tax Indemnitee, in its sole discretion (exercised in good faith), determines that it has received a refund of any Non-Excluded Taxes or Other Taxes in respect of which it has received additional payments under this Section 3.01, then such Tax Indemnitee shall pay to the relevant Loan Party the amount of such refund, net of all out-of-pocket expenses of the Tax Indemnitee (including any Taxes imposed with respect to such refund), and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund), provided that the Loan Party, upon the request of the Tax Indemnitee, agrees to repay the amount paid over to the Loan Party (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Tax Indemnitee if the Tax Indemnitee is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this paragraph (f), in no event will the Tax Indemnitee be required to pay any amount to a Loan Party pursuant to this paragraph (f) the payment of which would place the Tax Indemnitee in a less favorable net after-Tax position than the Tax Indemnitee 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 subsection shall not be construed to require a Tax Indemnitee to make available its Tax returns (or any other information relating to its Taxes that it deems confidential) to any Loan Party or any other Person.
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(g) The agreements in this Section 3.01 shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder.
SECTION 3.02 Illegality. If any Lender reasonably determines that any Change in Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for such Lender or its applicable Lending Office to make, maintain or fund Loans whose interest is determined by reference to the Eurodollar Rate, or to determine or charge interest rates based upon the Eurodollar Rate, or any Governmental Authority has imposed material restrictions on the authority of such Lender to purchase or sell, or to take deposits of, Dollars in the London interbank market, then, on written notice thereof by such Lender to the Borrower through the Administrative Agent, (i) any obligation of such Lender to make or continue Eurodollar Rate Loans or to convert Base Rate Loans to Eurodollar Rate Loans shall be suspended, and (ii) if such notice asserts the illegality of such Lender making or maintaining Base Rate Loans the interest rate on which is determined by reference to the Eurodollar Rate component of the Base Rate, the interest rate on which Base Rate Loans of such Lender shall, if necessary to avoid such illegality, be determined by the Administrative Agent without reference to the Eurodollar Rate component of the Base Rate, in each case until such Lender notifies the Administrative Agent and the Borrower that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, (x) the Borrower may revoke any pending request for a Borrowing of, conversion to or continuation of Eurodollar Rate Loans and shall, upon demand from such Lender (with a copy to the Administrative Agent), prepay or, if applicable, convert all Eurodollar Rate Loans of such Lender to Base Rate Loans (the interest rate on which Base Rate Loans of such Lender shall, if necessary to avoid such illegality, be determined by the Administrative Agent without reference to the Eurodollar Rate component of the Base Rate), either on the last day of the Interest Period therefor, if such Lender may lawfully continue to maintain such Eurodollar Rate Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such Eurodollar Rate Loans and (y) if such notice asserts the illegality of such Lender determining or charging interest rates based upon the Eurodollar Rate component of the Base Rate with respect to any Base Rate Loans, the Administrative Agent shall during the period of such suspension compute the Base Rate applicable to such Lender without reference to the Eurodollar Rate component thereof until the Administrative Agent is advised in writing by such Lender that it is no longer illegal for such Lender to determine or charge interest rates based upon the Eurodollar Rate. Upon any such prepayment or conversion, the Borrower shall also pay accrued interest on the amount so prepaid or converted.
SECTION 3.03 Inability to Determine Rates. If the Required Lenders reasonably determine that for any reason in connection with any request for a Eurodollar Rate Loan or a conversion to or continuation thereof that (a) Dollar deposits are not being offered to banks in the London interbank eurodollar market for the applicable amount and Interest Period of such Eurodollar Rate Loan, (b) adequate and reasonable means do not exist for determining the Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Loan or in connection with an existing or proposed Base Rate Loan, or (c) the Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Loan does not adequately and fairly reflect the cost to such Lenders of funding such Loan, the Administrative Agent will promptly so notify the Borrower and each Lender. Thereafter, (x) the obligation of the Lenders to make or maintain Eurodollar Rate Loans shall be suspended, and (y) in the event of a determination described in the preceding sentence with respect to the Eurodollar Rate component of the Base Rate, the utilization of the Eurodollar Rate component in determining the Base Rate shall be suspended, in each case until the Administrative Agent (upon the instruction of the Required Lenders) revokes such notice. Upon receipt of such notice, the Borrower may revoke any pending request for a Borrowing of, conversion to or continuation of Eurodollar Rate Loans or, failing that, will be deemed to have converted such request into a request for a Borrowing of Base Rate Loans in the amount specified therein.
SECTION 3.04 Increased Cost and Reduced Return; Capital Adequacy; Reserves on Eurodollar Rate Loans.
(a) Increased Costs Generally. If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender (except any reserve requirement contemplated by Section 3.04(d));
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(ii) subject any Lender to any Tax of any kind whatsoever with respect to this Agreement or any Eurodollar Rate Loan made by it, or change the basis of taxation of payments to such Lender in respect thereof (except for Non-Excluded Taxes or Other Taxes covered by Section 3.01 and any Excluded Taxes); or
(iii) impose on any Lender or the London interbank market any other condition, cost or expense affecting this Agreement or Eurodollar Rate Loans made by such Lender that is not otherwise accounted for in the definition of Eurodollar Rate or this clause (a);
and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Loan the interest on which is determined by reference to the Eurodollar Rate (or of maintaining its obligation to make any such Loan), or to increase the cost to such Lender, or to reduce the amount of any sum received or receivable by such Lender (whether of principal, interest or any other amount) then, from time to time within fifteen (15) days after demand by such Lender setting forth in reasonable detail such increased costs (with a copy of such demand to the Administrative Agent), the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered; provided that such amounts shall only be payable by the Borrower to the applicable Lender under this Section 3.04(a) so long as it is such Lenders general policy or practice to demand compensation in similar circumstances under comparable provisions of other financing agreements.
(b) Capital Requirements. If any Lender reasonably determines that any Change in Law affecting such Lender or any Lending Office of such Lender or such Lenders holding company, if any, regarding capital requirements has or would have the effect of reducing the rate of return on such Lenders capital or on the capital of such Lenders holding company, if any, as a consequence of this Agreement, the Commitments of such Lender or the Loans made by it to a level below that which such Lender or such Lenders holding company, as the case may be, could have achieved but for such Change in Law (taking into consideration such Lenders policies and the policies of such Lenders holding company with respect to capital adequacy), then from time to time upon demand of such Lender setting forth in reasonable detail the charge and the calculation of such reduced rate of return (with a copy of such demand to the Administrative Agent), the Borrower will pay to such Lender additional amount or amounts as will compensate such Lender or such Lenders holding company for any such reduction suffered; provided that such amounts shall only be payable by the Borrower to the applicable Lender under this Section 3.04(b) so long as it is such Lenders general policy or practice to demand compensation in similar circumstances under comparable provisions of other financing agreements.
(c) Certificates for Reimbursement. A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in subsection (a) or (b) of this Section 3.04 and delivered to the Borrower shall be conclusive absent manifest error. The Borrower shall pay such Lender, as the case may be, the amount shown as due on any such certificate within fifteen (15) days after receipt thereof.
(d) Reserves on Eurodollar Rate Loans. The Borrower shall pay to each Lender, as long as such Lender shall be required to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency funds or deposits (currently known as Eurocurrency liabilities), additional interest on the unpaid principal amount of each Eurodollar Rate Loan equal to the actual costs of such reserves allocated to such Loan by such Lender (as determined by such Lender in good faith, which determination shall be conclusive), which shall be due and payable on each date on which interest is payable on such Loan, provided the Borrower shall have received at least 10 days prior notice (with a copy to the Administrative Agent) of such additional interest from such Lender. If a Lender fails to give notice 10 days prior to the relevant Interest Payment Date, such additional interest shall be due and payable 10 days from receipt of such notice.
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SECTION 3.05 Funding Losses. Upon written demand of any Lender (with a copy to the Administrative Agent) from time to time, which demand shall set forth in reasonable detail the basis for requesting such amount, the Borrower shall promptly compensate such Lender for and hold such Lender harmless from any loss, cost or expense actually incurred by it as a result of:
(a) any continuation, conversion, payment or prepayment of any Eurodollar Rate Loan on a day prior to the last day of the Interest Period for such Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise);
(b) any failure by the Borrower (for a reason other than the failure of such Lender to make a Loan) to prepay, borrow, continue or convert any Eurodollar Rate Loan on the date or in the amount notified by the Borrower; or
(c) any assignment of a Eurodollar Rate Loan on a day prior to the last day of the Interest Period therefor as a result of a request by the Borrower pursuant to Section 3.07;
including any loss or expense (excluding loss of anticipated profits or margin) actually incurred by reason of the liquidation or reemployment of funds obtained by it to maintain such Eurodollar Rate Loan or from fees payable to terminate the deposits from which such funds were obtained.
SECTION 3.06 Matters Applicable to All Requests for Compensation.
(a) Designation of a Different Lending Office. If any Lender requests compensation under Section 3.04, or the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01, or if any Lender gives a notice pursuant to Section 3.02, then such Lender shall use reasonable efforts to designate a different Lending Office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the good faith judgment of such Lender such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 3.01 or 3.04, as the case may be, in the future, or eliminate the need for the notice pursuant to Section 3.02, as applicable, and (ii) in each case, would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender in any material economic, legal or regulatory respect.
(b) Suspension of Lender Obligations. If any Lender requests compensation by the Borrower under Section 3.04, the Borrower may, by notice to such Lender (with a copy to the Administrative Agent), suspend the obligation of such Lender to make or continue Eurodollar Rate Loans from one Interest Period to another Interest Period, or to convert Base Rate Loans into Eurodollar Rate Loans, until the event or condition giving rise to such request ceases to be in effect (in which case the provisions of Section 3.06(c) shall be applicable); provided that such suspension shall not affect the right of such Lender to receive the compensation so requested.
(c) Conversion of Eurodollar Rate Loans. If any Lender gives notice to the Borrower (with a copy to the Administrative Agent) that the circumstances specified in Section 3.02, 3.03 or 3.04 hereof that gave rise to the conversion of such Lenders Eurodollar Rate Loans no longer exist (which such Lender agrees to do promptly upon such circumstances ceasing to exist) at a time when Eurodollar Rate Loans made by other Lenders are outstanding, such Lenders Base Rate Loans shall be automatically converted, on the first day(s) of the next succeeding Interest Period(s) for such outstanding Eurodollar Rate Loans, to the extent necessary so that, after giving effect thereto, all Loans of a given Class held by the Lenders of such Class holding Eurodollar Rate Loans and by such Lender are held pro rata (as to principal amounts, interest rate basis, and Interest Periods) in accordance with their respective Pro Rata Shares.
(d) Delay in Requests. Failure or delay on the part of any Lender to demand compensation pursuant to the foregoing provisions of Sections 3.01 or 3.04 shall not constitute a waiver of such Lenders right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender pursuant to the foregoing provisions of Section 3.01 or 3.04 for any increased costs incurred or reductions suffered more than one hundred and eighty (180) days prior to the date that such Lender notifies the Borrower of the event giving rise to
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such claim and of such Lenders intention to claim compensation therefor (except that, if the circumstance giving rise to such increased costs or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof).
SECTION 3.07 Replacement of Lenders under Certain Circumstances. If (i) any Lender requests compensation under Section 3.04 or ceases to make Eurodollar Rate Loans as a result of any condition described in Section 3.02 or Section 3.04, (ii) the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01 or 3.04, (iii) any Lender is a Non-Consenting Lender or (iv) any other circumstance exists hereunder that gives the Borrower the right to replace a Lender as a party hereto, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, (x) require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 10.07), all of its interests, rights and obligations under this Agreement (or, with respect to clause (iii) above, all of its interests, rights and obligations with respect to the Class of Loans or Commitments that is the subject of the related consent, waiver, or amendment, as applicable) and the related Loan Documents to one or more Eligible Assignees that shall assume such obligations (any of which assignee may be another Lender, if a Lender accepts such assignment), provided that:
(a) the Borrower shall have paid to the Administrative Agent the assignment fee specified in Section 10.07(b)(iv);
(b) such Lender shall have received payment of an amount equal to the applicable outstanding principal of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (including any amounts under Section 3.05 and any prepayment premium pursuant to Section 2.15 that would otherwise be owed in connection therewith) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts);
(c) such Lender being replaced pursuant to this Section 3.07 shall (i) execute and deliver an Assignment and Assumption with respect to all, or a portion, as applicable, of such Lenders Commitment and outstanding Loans, and (ii) deliver any Term Notes evidencing such Loans to the Borrower or Administrative Agent (or a lost or destroyed note indemnity in lieu thereof); provided that the failure of any such Lender to execute an Assignment and Assumption or deliver such Term Notes shall not render such sale and purchase (and the corresponding assignment) invalid and such assignment shall be recorded in the Register and the Term Notes shall be deemed to be canceled upon such failure;
(d) the Eligible Assignee shall become a Lender hereunder and the assigning Lender shall cease to constitute a Lender hereunder with respect to such assigned Loans, Commitments and participations, except with respect to indemnification and confidentiality provisions under this Agreement, which shall survive as to such assigning Lender;
(e) in the case of any such assignment resulting from a claim for compensation under Section 3.04 or payments required to be made pursuant to Section 3.01, such assignment will result in a reduction in such compensation or payments thereafter;
(f) such assignment does not conflict with applicable Laws; and
(g) the Lender that acts as Administrative Agent cannot be replaced in its capacity as Administrative Agent other than in accordance with Section 9.06,
or (y) terminate the Commitment of such Lender and repay all Obligations of the Borrower owing to such Lender relating to the Loans and participations held by such Lender as of such termination date (including any prepayment premium pursuant to Section 2.15 that would otherwise be owed in connection therewith); provided that in the case of any such termination of the Commitment of a Non-Consenting Lender such termination shall be sufficient (together with all other consenting Lenders) to cause the adoption of the applicable consent, waiver or amendment of the Loan Documents and such termination shall, with respect to clause (iii) above, be in respect of all of its interests, rights and obligations with respect to the Class of Loans or Commitments that is the subject of the related consent, waiver and amendment.
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In the event that (i) any of the Borrower or the Administrative Agent has requested that the Lenders consent to a departure or waiver of any provisions of the Loan Documents or agree to any amendment thereto, (ii) the consent, waiver or amendment in question requires the agreement of each Lender, all affected Lenders or all the Lenders or all affected Lenders with respect to a certain Class or Classes of the Loans/Commitments and (iii) the Required Lenders or Required Facility Lenders, as applicable, have agreed to such consent, waiver or amendment, then any Lender who does not agree to such consent, waiver or amendment shall be deemed a Non-Consenting Lender.
A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.
SECTION 3.08 Survival. All of the Borrowers obligations under this Article III shall survive termination of the Aggregate Commitments, repayment of all other Obligations hereunder and resignation of the Administrative Agent.
ARTICLE IV
Conditions Precedent to Credit Extension
SECTION 4.01 Conditions to Borrowing. The obligation of each Lender to make a Borrowing available hereunder on the Closing Date is subject to satisfaction of the following conditions precedent:
(a) The Administrative Agents receipt of the following, each of which shall be originals, facsimiles or copies in .pdf format (followed promptly by originals) unless otherwise specified, each properly executed by a Responsible Officer of the signing Loan Party each in form and substance reasonably satisfactory to the Administrative Agent and its legal counsel:
(i) a Committed Loan Notice;
(ii) executed counterparts of this Agreement;
(iii) (A) an executed certificate from a Responsible Officer of the Borrower stating its intention to incur the Term Loans as Additional Secured Debt pursuant to Section 2.10(b)(i) of the Crossing Lien Intercreditor Agreement, together with any joinder required thereunder; and
(B) an executed certificate from a Responsible Officer of the Borrower stating its intention to incur the Term Loans as Additional Senior Secured Debt pursuant to Section 7.03(d) of the Equal Priority Intercreditor Agreement, together with any joinder required thereunder;
(iv) each Collateral Document set forth on Schedule 1.01A required to be executed on the Closing Date as indicated on such schedule, duly executed by each Loan Party thereto, together with:
(A) certificates, if any, representing the Collateral that is certificated equity of the Acquired Company (to the extent required pursuant to Section 6.11 and Article XII) accompanied by undated stock powers executed in blank; and
(B) evidence that all UCC-1 financing statements in the jurisdictions of organization of the Acquired Company and its Subsidiaries that the Administrative Agent and the
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Collateral Agent may deem reasonably necessary to satisfy the requirements set forth in Section 6.11 shall have been provided for, and arrangements for the filing thereof in a manner reasonably satisfactory to the Administrative Agent shall have been made;
(v) certificates of good standing from the secretary of state of the state of organization of each Loan Party (to the extent such concept exists in such jurisdiction), customary certificates of resolutions or other action, incumbency certificates and/or other certificates of Responsible Officers of each Loan Party evidencing the identity, authority and capacity of each Responsible Officer thereof authorized to act as a Responsible Officer in connection with this Agreement and the other Loan Documents to which such Loan Party is a party or is to be a party on the Closing Date;
(vi) a customary legal opinion from (x) Simpson Thacher & Bartlett LLP, New York counsel to the Loan Parties, and (y) each local counsel to the Loan Parties, if any, listed on Schedule 4.01(a)(vi) in the jurisdictions indicated on such schedule;
(vii) a solvency certificate from a Financial Officer of the Borrower (after giving effect to the Transactions) substantially in the form attached hereto as Exhibit G; and
(viii) evidence that all insurance required to be maintained pursuant to the Loan Documents has been obtained and is in effect and that the Administrative Agent has been named as loss payee and/or additional insured, as applicable, under each insurance policy with respect to such insurance as to which the Administrative Agent shall have reasonably requested to be so named.
(b) The Arranger shall have received (i) the Annual Financial Statements and (ii) the Quarterly Financial Statements.
(c) The Arranger shall have received the Pro Forma Financial Statements.
(d) The Administrative Agent shall have received at least three (3) days prior to the Closing Date all documentation and other information in respect of the Acquired Company and its Subsidiaries required under applicable know your customer and anti-money laundering rules and regulations, including the USA PATRIOT Act, that has been requested in writing by it at least ten (10) Business Days prior to the Closing Date.
(e) The Specified Representations and the Specified Acquisition Agreement Representations shall be true and correct in all material respects on and as of the Closing Date; provided that to the extent such representations and warranties specifically refer to an earlier date, they shall be true and correct in all material respects as of such earlier date; provided further that the condition precedent in this clause (e) with respect to Specified Acquisition Agreement Representations shall fail to be satisfied only to the extent a breach of such Specified Acquisition Agreement Representations provides the Borrower with the right to, pursuant to the Acquisition Agreement, terminate its obligations under the Acquisition Agreement or decline to consummate the Acquisition as a result of the breach of such Specified Acquisition Agreement Representations.
(f) All fees and expenses required to be paid hereunder and invoiced at least three (3) Business Days before the Closing Date shall have been paid in full in cash.
(g) Prior to or substantially concurrently with the Borrowing on the Closing Date, the Acquisition shall have been consummated and the Acquisition Agreement shall not have been amended or waived in any material respect by the Borrower, and the Borrower shall not have granted any consents under the Acquisition Agreement, in each case, in a manner materially adverse to the Lenders party hereto as of the Closing Date (in their capacities as such) without the consent of the Arranger (such consent not to be unreasonably withheld, delayed or conditioned (it being agreed by the Arranger that, with respect to any
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consent to any such amendment, consent or waiver, their consent shall be deemed to have been given if the Arranger does not object in writing to a written request for such consent within four (4) Business Days after such request for consent is delivered to the Arranger by the Borrower); provided, that any amendment of the definition of Material Adverse Effect in the Acquisition Agreement shall be deemed materially adverse to the Lenders and shall require the consent of the Arranger; provided, further, that any change in the amount of consideration required to consummate the Acquisition shall be deemed not to be materially adverse to the Lenders so long as any reduction shall be applied to reduce the Initial Term Loans funded on the Closing Date.
(h) Prior to or substantially concurrently with the Borrowing on the Closing Date, the Closing Date Release shall have occurred.
(i) Except as set forth in, or qualified by any matter set forth in, the Disclosure Schedule (as defined in the Acquisition Agreement) (it being understood that any disclosure set forth in any particular Section (as defined in the Acquisition Agreement) of the Disclosure Schedule will be deemed disclosed for the purpose of the corresponding Section or subsection of the Acquisition Agreement and for the purpose of any other Section or subsection of the Acquisition Agreement, where the application or relevance of such disclosure as an exception to (or a disclosure for purposes of) such other Section is reasonably apparent on the face of such disclosure), since December 31, 2013 through the date of the Acquisition Agreement, there has not been any event, circumstance, condition, occurrence, effect or change that has had or could reasonably be expected to have, either individually or in the aggregate (taking into account all other events, circumstances, conditions, occurrences, effects or changes), a Closing Date Material Adverse Effect. Since the date of the Acquisition Agreement through the Closing Date, there shall not have occurred any Closing Date Material Adverse Effect, nor shall any event or events have occurred that, individually or in the aggregate, with or without the lapse of time, that could reasonably be expected to result in a Closing Date Material Adverse Effect.
Without limiting the generality of the provisions of the last paragraph of Section 9.03, for purposes of determining compliance with the conditions specified in this Section 4.01, each Lender that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received notice from such Lender prior to the proposed Closing Date specifying its objection thereto.
ARTICLE V
Representations and Warranties
Each of Holdings and the Borrower represents and warrant to the Administrative Agent and the Lenders on the Closing Date:
SECTION 5.01 Existence, Qualification and Power; Compliance with Laws. (a) Each of the Loan Parties and each of its Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) each of the Loan Parties and each of its Subsidiaries has all requisite power and authority to (i) own its property and assets and to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required and (ii) in the case of the Loan Parties, execute, deliver and perform its obligations under the Loan Documents to which it is a party and (c) each Loan Party is in compliance with all Law applicable to it or its property, except where the failure to be so in compliance, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.
SECTION 5.02 Authorization; Enforceability.
The execution, delivery and performance by each of the Loan Parties of each of the Loan Documents to which it is a party, the borrowing of Term Loans and the use of the proceeds thereof are, to the extent
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applicable, within each applicable Loan Partys organizational powers and have been duly authorized by all necessary organizational and, if required, equityholder action of such Loan Party. Each Loan Document to which each Loan Party is a party has been duly executed and delivered by such Loan Party and is a legal, valid and binding obligation of such Loan Party, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency or similar laws affecting creditors rights generally and to general principles of equity.
SECTION 5.03 Governmental Authorization; No Conflict. The execution, delivery and performance by each of the Loan Parties of each of the Loan Documents to which it is a party, the borrowing of Loans and the use of the proceeds thereof (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except (i) such as have been obtained or made and are in full force and effect and (ii) for filings necessary to perfect Liens created pursuant to the Loan Documents, (b) will not violate any Law applicable to any Loan Party or any of its Subsidiaries, (c) will not contravene the terms of any of such Persons Organizational Documents, (d) will not violate or result in a default under any indenture, agreement or other instrument binding upon any Loan Party or any of its Subsidiaries or its assets, or give rise to a right thereunder to require any payment to be made by any Loan Party or any of its Subsidiaries, and (e) will not result in the creation or imposition of any Lien on any asset of any Loan Party or any of its Subsidiaries, except Liens created pursuant to the Loan Documents, the Senior Notes Documents and the ABL Credit Documents; except, in each case other than with respect to the creation of Liens, to the extent that any such violation, default or right, or any failure to obtain such consent or approval or to take any such action, would not reasonably be expected to result in a Material Adverse Effect.
SECTION 5.04 Insurance. All insurance required by Section 6.07 is in full force and effect and all premiums in respect of such insurance have been duly paid. The Borrower believes that the insurance maintained by or on behalf of the Borrower and the Subsidiaries is adequate and is in accordance with normal industry practice.
SECTION 5.05 Financial Statements; No Material Adverse Effect.
(a) (i) The Annual Financial Statements and the Quarterly Financial Statements fairly present in all material respects the financial position of the Acquired Company and its Subsidiaries as of the dates thereof and the results of operations of the Acquired Company and its Subsidiaries for the period covered thereby in accordance with GAAP consistently applied throughout the periods covered thereby, (A) except as otherwise expressly noted therein and (B) subject, in the case of the Quarterly Financial Statements, to changes resulting from normal year-end adjustments and the absence of footnotes.
(ii) The unaudited pro forma consolidated balance sheet of the Borrower (the Pro Forma Balance Sheet) and the related unaudited pro forma consolidated statement of income of the Borrower and its consolidated Subsidiaries as of and for the most recently completed four fiscal quarter period ending at least 45 days (or 90 days in the case that the last day of such four fiscal quarter period is the end of the Borrowers fiscal year) prior to the Closing Date (such date, the Pro Forma Balance Sheet Date), prepared after giving effect to the Transactions as if the Transactions had occurred at the beginning of such period (together with the Pro Forma Balance Sheet, the Pro Forma Financial Statements), copies of which have heretofore been furnished to the Administrative Agent, has been prepared giving effect (as if such events had occurred on such date) to the consummation of the Transactions. The Pro Forma Financial Statements have been prepared in good faith based upon assumptions believed to be reasonable as of the date thereof, and presents fairly on a pro forma basis the estimated financial position of the Borrower its consolidated Subsidiaries as at the Pro Forma Balance Sheet Date, assuming that the events specified in the preceding sentence had actually occurred at such date.
(b) Since December 31, 2013, there has been no event or circumstance, either individually or in the aggregate, that has had or would reasonably be expected to have a Material Adverse Effect.
SECTION 5.06 Litigation. There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of any Loan Party, threatened against or affecting the Loan Parties or any of their Subsidiaries (i) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, would reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect or (ii) that involve any Loan Documents.
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SECTION 5.07 Labor Matters. Except as, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect: (a) there are no strikes, lockouts or slowdowns against any Loan Party pending or, to the knowledge of the Borrower, threatened, (b) the hours worked by and payments made to employees of the Loan Parties and the Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable federal, state, provincial, local or foreign law dealing with such matters and (c) all payments due from any Loan Party or any Subsidiary, on account of wages and employee health and welfare insurance and other benefits, have been paid or accrued as a liability on the books of the Loan Party or such Subsidiary to the extent required by GAAP. Except as, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect the consummation of the Transactions will not give rise to a right of termination or right of renegotiation on the part of any union under any collective bargaining agreement to which any Loan Party or any of its Subsidiaries (or any predecessor) is a party or by which any Loan Party or any of its Subsidiaries (or any predecessor) is bound.
SECTION 5.08 Ownership of Property; Liens. Each Loan Party and each of its Restricted Subsidiaries has good and insurable fee simple title to, or valid leasehold interests in, or easements or other limited property interests in, all its real properties and has good and marketable title to its personal property and assets, in each case, except for defects in title that do not materially interfere with its ability to conduct its business as currently conducted or to utilize such properties and assets for their intended purposes and except where the failure to have such title would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. All such properties and assets are free and clear of Liens, other than Liens (i) permitted by Section 7.01 or (ii) arising by operation of law (which Liens, in the case of this clause (ii) do not materially interfere with the ability of any Loan Party or any of its Subsidiaries to carry on its business as now conducted or to utilize the affected properties or assets for their intended purposes).
SECTION 5.09 Environmental Matters. Except for matters that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect (i) no Loan Party nor any of its Subsidiaries has received written notice of any claim with respect to any Environmental Liability and (ii) no Loan Party nor any of its Subsidiaries (1) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law or (2) has become subject to any Environmental Liability.
SECTION 5.10 Taxes. Each Loan Party and its Subsidiaries has timely filed or caused to be filed all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which such Loan Party or such Subsidiary, as applicable, has set aside on its books adequate reserves in accordance with GAAP or (b) to the extent that the failure to do so, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.
SECTION 5.11 ERISA Compliance. No ERISA Event has occurred in the five year period prior to the date on which this representation is made or deemed made and is continuing or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, would reasonably be expected to result in a Material Adverse Effect. Except as would not reasonably be expected to have a Material Adverse Effect, the present value of all accumulated benefit obligations under all Plans (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed the fair market value of the assets of such Plans, in the aggregate.
SECTION 5.12 Subsidiaries. As of the Closing Date, Schedule 5.12 sets forth (a) a correct and complete list of the name and relationship to the Borrower of each and all of the Borrowers Subsidiaries, (b) a true and complete listing of each class of the Borrowers and each Subsidiarys authorized Equity Interests, of which all of such issued shares are validly issued, outstanding, fully paid and non-assessable, and owned beneficially and of record by the Persons identified on Schedule 5.12, and (c) the type of entity of the Borrower and each of its Subsidiaries. All of the issued and outstanding Equity Interests of the Subsidiaries owned by any Loan Party have
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been (to the extent such concepts are relevant with respect to such ownership interests) duly authorized and issued and are fully paid and non-assessable free and clear of all Liens (other than Liens permitted pursuant to Section 7.01). As of the Closing Date, there are no outstanding purchase options, warrants, subscription rights, agreements to issue or sell, convertible interests or powers of attorney granted by the Borrower or a Subsidiary of the Borrower relating to Equity Interests of the Borrower or any Subsidiary.
SECTION 5.13 Federal Reserve Regulations; Investment Company Act.
(a) On the Closing Date, none of the Collateral is 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 buying or carrying Margin Stock. No part of the proceeds of any Loan will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately for any purpose that entails a violation of, or that is inconsistent with, the provisions of Regulation T, U or X.
(b) No Loan Party is an investment company under the Investment Company Act of 1940.
SECTION 5.14 Disclosure.
(a) All written information (other than the Projections, the pro forma financial statements and estimates and information of a general economic or general industry nature) concerning the Borrower, the Transactions and any other transactions contemplated hereby prepared by or on behalf of the foregoing or their representatives and made available to any Lender or the Agent in connection with the Transactions on or before the date hereof (the Information), when taken as a whole, as of the date such Information was furnished to the Lenders and as of the Closing Date, did not contain any untrue statement of a material fact as of any such date or omit to state a material fact necessary in order to make the statements contained therein not misleading in light of the circumstances under which such statements were made (giving effect to all supplements and updates).
(b) The Projections, pro forma financial statements and estimates prepared by or on behalf of the Borrower or any of its representatives and that have been made available to any Lender or the Agent in connection with the Transactions on or before the date hereof (the Other Information) (i) have been prepared in good faith based upon assumptions believed to be reasonable as of the date thereof (it being recognized that such Other Information is as to future events and is not to be viewed as a fact, the Other Information is subject to significant uncertainties and contingencies, many of which are beyond the control of the Loan Parties and their Subsidiaries, that no assurance can be given that any particular projections will be realized and that actual results during the period or periods covered by any such Other Information may differ from the projected results and such differences may be material), and (ii) as of the Closing Date, have not been modified in any material respect by the Loan Parties.
SECTION 5.15 Intellectual Property; Licenses, Etc. Each Loan Party owns or has the lawful right to use all material intellectual property used in the conduct of its business (collectively, IP Rights), without conflict with any intellectual property rights of others, except as, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. Except as, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect, there is no pending or, to any Borrowers knowledge, threatened claim that any Loan Partys ownership, use, marketing, sale or distribution of any inventory or other product violates another Persons intellectual property rights.
SECTION 5.16 Solvency. As of the Closing Date, and immediately after giving effect to the Transactions: (i) the fair value of the assets of the Borrower and its Subsidiaries, on a consolidated basis, at a fair valuation, will exceed the debts and liabilities, direct, subordinated, contingent or otherwise, of the Borrower and its Subsidiaries, on a consolidated basis; (ii) the present fair saleable value of the property of the Borrower and its Subsidiaries, on a consolidated basis, will be greater than the amount that will be required to pay the probable liability of the Borrower and its Subsidiaries on a consolidated basis, on their debts and other liabilities, direct, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (iii) the Borrower and its Subsidiaries, on a consolidated basis, will be able to pay their debts and liabilities, direct, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (iv) the Borrower and its Subsidiaries, on a consolidated basis, will not have unreasonably small capital with which to conduct the businesses in which they are engaged as such businesses are now conducted and are proposed to be conducted following the Closing Date.
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SECTION 5.17 Subordination of Junior Financing. The Obligations for principal, interest (including, to the extent legally permitted, all interest accrued thereon after the commencement of any insolvency or liquidation proceeding at the rate, including any applicable post-default rate, specified in the applicable agreement), premium (if any), fees, indemnifications, reimbursements, expenses, damages and other liabilities payable under the Loan Documents constitute Senior Indebtedness under and as defined in the Senior Notes Documents.
SECTION 5.18 USA Patriot Act and OFAC. To the extent applicable, none of the Borrower or any other Loan Party will use the proceeds of the Term Loans or otherwise make available such proceeds to any person for use in any manner that will result in a violation of (i) the USA PATRIOT Act and (ii) the Trading with the Enemy Act, as amended, and each of the foreign assets control regulations of the United States Treasury Department (31 C.F.R. Subtitle B, Chapter V, as amended) and any other enabling legislation or executive order relating thereto. Neither the Borrower nor any Restricted Subsidiary nor, to the knowledge of the Borrower, any director, officer or employee of the Borrower or any Restricted Subsidiary, is subject as of the Closing Date to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (OFAC) or a person on the list of Specially Designated Nationals and Blocked Persons. The proceeds of the Term Loans will not, to the knowledge of the Borrower, be made available to any Person for the purpose of financing the activities of any Person currently subject to any U.S. sanctions administered by OFAC.
SECTION 5.19 Collateral Documents. The provisions of the Collateral Documents are effective to create legal and valid Liens on the applicable Collateral described therein in favor of the Collateral Agent, for the benefit of the Secured Parties, the Lenders and the other Secured Parties (in each case, to the extent such matter is governed by the laws of the United States or any jurisdiction therein) and upon the taking of all actions described in the Loan Documents (but subject to the limitations set forth therein), including, without limitation, the filing of UCC financing statements covering the appropriate Collateral in the jurisdiction of organization of each Loan Party and the filings of short form agreements or other applicable documents or notices in respect of registered and applied for United States federal intellectual property owned by each Loan Party, such Liens will constitute perfected Liens on the Collateral, securing the applicable Obligations, enforceable against the applicable Loan Party, and having priority over all other Liens on the Collateral except in the case of (a) Permitted Liens and other Liens permitted under Section 7.01, to the extent any such Permitted Liens or such Liens would have priority over the Liens in favor of the Agent pursuant to any applicable law or otherwise, (b) Liens perfected only by possession (including possession of any certificate of title) to the extent the Agent has not obtained or does not maintain possession of such Collateral and (c) subject to and as provided for under the terms of the Intercreditor Agreements, the Liens granted on the Collateral under the Senior Notes Documents and the ABL Credit Documents.
ARTICLE VI
Affirmative Covenants
So long as any Lender shall have any Commitment hereunder or any Loan or other Obligation hereunder (other than contingent indemnification obligations as to which no claim has been asserted) shall remain unpaid or unsatisfied, the Borrower shall, and shall (except in the case of the covenants set forth in Section 6.01, 6.02 and 6.03) cause each of the Restricted Subsidiaries to:
SECTION 6.01 Financial Statements. Deliver to the Administrative Agent for prompt further distribution to each Lender each of the following and shall take the following actions:
(a) within ninety (90) days after the end of each fiscal year of the Borrower, its audited consolidated balance sheet and related statements of earnings, shareholders equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by PricewaterhouseCoopers LLP or other independent public accountants of recognized national standing (whose opinion shall not be qualified as to scope of audit or as to the status of the Borrower and its consolidated Subsidiaries as a going concern) to the effect that such consolidated financial statements present fairly, in all material respects, the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP;
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(b) within forty-five (45) days after the end of each of the first three fiscal quarters of each fiscal year of the Borrower, its consolidated balance sheet and related statements of earnings, shareholders equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its Financial Officers as presenting fairly, in all material respects, the financial condition and results of operations and cash flows of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP, subject to normal year-end audit adjustments and the absence of footnotes;
(c) within ninety (90) days after the beginning of each fiscal year, a detailed consolidated budget of the Borrower and its Subsidiaries by month for such fiscal year (including a projected consolidated balance sheet and the related consolidated statements of projected cash flows and projected income of the Borrower and its consolidated Subsidiaries for each quarter of such fiscal year) (collectively, the Projections);
(d) simultaneously with the delivery of each set of consolidated financial statements referred to in Sections 6.01(a) and 6.01(b), the related unaudited consolidating financial statements reflecting the adjustments necessary to eliminate the accounts of Unrestricted Subsidiaries (if any) from such consolidated financial statements; and
(e) (i) quarterly, at a time mutually agreed with the Administrative Agent that is promptly after the delivery of the information referred to in Section 6.01(b), commencing with the delivery of information with respect to the fiscal quarter ending June 30, 2014, either (x) use commercially reasonable efforts to participate in a conference call for Lenders to discuss the financial position and results of operations of the Borrower and their respective Subsidiaries or (y) deliver a customary Managements Discussion and Analysis of Financial Condition and Results of Operations, in each case for the most recently-ended period for which financial statements have been delivered and (ii) commencing with the fiscal year ending December 31, 2015, promptly after the delivery of the information referred to in Section 6.01(a), deliver a customary Managements Discussion and Analysis of Financial Condition and Results of Operations with respect to the fiscal year most recently ended.
Notwithstanding the foregoing, the obligations referred to in Section 6.01(a) and 6.01(b) may be satisfied with respect to financial information of the Borrower and their respective Subsidiaries by furnishing (A) the applicable financial statements of any Parent Entity of the Borrower or (B) the Borrowers or such Parent Entitys Form 10-K or 10-Q, as applicable, filed with the SEC; provided that, with respect to each of clauses (A) and (B), (i) to the extent such information relates to a parent of the Borrower such information is accompanied by consolidating information that explains in reasonable detail the differences between the information relating to such Parent Entity, on the one hand, and the information relating to the Borrower and the consolidated Restricted Subsidiaries on a standalone basis, on the other hand and (ii) to the extent such information is in lieu of information required to be provided under Section 6.01(a), such materials are accompanied by a report and opinion of an independent registered public accounting firm of nationally recognized standing, which report and opinion shall not be subject to any going concern or like qualification or any qualification as to the scope of such audit.
Any financial statements required to be delivered pursuant to Sections 6.01(a) or 6.01(b) shall not be required to contain all purchase accounting adjustments relating to the Transactions or the Hercules Transactions to the extent it is not practicable to include any such adjustments in such financial statements.
SECTION 6.02 Certificates; Other Information. Deliver to the Administrative Agent for prompt further distribution to each Lender:
(a) no later than five (5) days after the delivery of the financial statements referred to in Sections 6.01(a) and (b) (commencing with such delivery for the fiscal quarter ending June 30, 2014), a duly completed Compliance Certificate signed by a Financial Officer of the Borrower;
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(b) promptly after the same are publicly available, copies of all annual, regular, periodic and special reports, proxy statements and registration statements which the Borrower or any Restricted Subsidiary files with the SEC or with any Governmental Authority that may be substituted therefor or with any national securities exchange, as the case may be (other than amendments to any registration statement (to the extent such registration statement, in the form it became effective, is delivered to the Administrative Agent), exhibits to any registration statement and, if applicable, any registration statement on Form S-8), and in any case not otherwise required to be delivered to the Administrative Agent pursuant to any other clause of this Section 6.02;
(c) promptly after the furnishing thereof, copies of any notices of default to any holder of any class or series of debt securities of any Loan Party having an aggregate outstanding principal amount greater than the Threshold Amount or pursuant to the terms of the ABL Credit Documents, the Senior Notes Documents or the Senior Subordinated Notes Documents so long as the aggregate outstanding principal amount thereunder is greater than the Threshold Amount (in each case, other than in connection with any board observer rights) and not otherwise required to be furnished to the Administrative Agent pursuant to any other clause of this Section 6.02;
(d) together with the delivery of the financial statements pursuant to Section 6.01(a) (commencing with such delivery for the fiscal year ending December 31, 2014), (i) a report setting forth the information required by Sections 1(a) and 2 of the Perfection Certificate (or confirming that there has been no change in such information since the Closing Date or the last date of disclosure of any such information to the Administrative Agent) and (ii) a list of each Subsidiary of the Borrower that identifies each Subsidiary as a Restricted Subsidiary or an Unrestricted Subsidiary as of the date of delivery of such list or a confirmation that there is no change in such information since the later of the Closing Date and the last date of disclosure of any such information to the Administrative Agent; and
(e) promptly, but subject to the limitations set forth in Section 6.10 and Section 10.08, such additional information regarding the business and financial affairs of any Loan Party or any Material Subsidiary, or compliance with the terms of the Loan Documents, as the Administrative Agent may from time to time on its own behalf or on behalf of any Lender reasonably request in writing from time to time.
Documents required to be delivered pursuant to Section 6.01(a) or (b) or Section 6.02(b) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which the Borrower posts such documents, or provides a link thereto on the Borrowers (or any Parent Entitys) website on the Internet at the website address listed on Schedule 10.02 hereto; or (ii) on which such documents are posted on the Borrowers behalf on SyndTrak or another relevant website, if any, to which each Lender and the Administrative Agent have access (whether a commercial, third-party website or whether sponsored by the Administrative Agent); provided that: (i) upon written request by the Administrative Agent, the Borrower shall deliver paper copies of such documents to the Administrative Agent for further distribution to each Lender until a written request to cease delivering paper copies is given by the Administrative Agent and (ii) the Borrower shall notify (which may be by facsimile or electronic mail) the Administrative Agent of the posting of any such documents and provide to the Administrative Agent by electronic mail electronic versions (i.e., soft copies) of such documents. Each Lender shall be solely responsible for timely accessing posted documents or requesting delivery of paper copies of such documents from the Administrative Agent and maintaining its copies of such documents.
The Borrower hereby acknowledges that (a) the Administrative Agent will make available to the Lenders materials and/or information provided by or on behalf of the Borrower hereunder (collectively, the Borrower Materials) by posting the Borrower Materials on SyndTrak or another similar electronic system (the Platform) and (b) certain of the Lenders may be public-side Lenders (i.e., Lenders that do not wish to receive information that is (i) of a type that would be publicly available (or could be derived from publicly available information) if the Borrower were public reporting companies and (ii) material with respect to the Borrower or any of their respective securities for purposes of foreign, United States Federal and state securities laws (all such information described in the foregoing, MNPI)) (each, a Public Lender). The Borrower hereby agree that (w) at the Administrative Agents request, all Borrower Materials that are to be made available to Public Lenders shall be clearly and conspicuously marked PUBLIC which, at a minimum, shall mean that the word PUBLIC shall appear prominently on the first page thereof; (x) by marking Borrower Materials PUBLIC, the Borrower shall be
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deemed to have authorized the Administrative Agent and the Lenders to treat such Borrower Materials as not containing any MNPI (provided, however, that to the extent such Borrower Materials constitute Information, they shall be treated as set forth in Section 10.08); (y) all Borrower Materials marked PUBLIC are permitted to be made available through a portion of the Platform designated as Public Side Information; and (z) the Administrative Agent and the Arranger shall treat the Borrower Materials that are not marked PUBLIC as being suitable only for posting on a portion of the Platform not marked as Public Side Information. Notwithstanding the foregoing, the Borrower shall be under no obligation to mark the Borrower Materials PUBLIC.
SECTION 6.03 Notices. Promptly after a Responsible Officer obtains actual knowledge thereof, notify the Administrative Agent:
(a) of the occurrence of any Event of Default or Default; and
(b) of (i) the filing or commencement of, or any written threat or notice of intention of any person to file or commence, any action, suit or proceeding, whether at law or in equity or by or before any Governmental Authority or in arbitration, against any Loan Party or any of its Subsidiaries as to which an adverse determination is reasonably probable and which, if adversely determined, would reasonably be expected to have a Material Adverse Effect or (ii) the occurrence of any ERISA Event that, together with all other ERISA Events that have occurred and are continuing, would reasonably be expected to result in a Material Adverse Effect.
Each notice pursuant to this Section 6.03 shall be accompanied by a written statement of a Responsible Officer of the Borrower (x) that such notice is being delivered pursuant to Section 6.03(a) or (b) (as applicable) and (y) setting forth details of the occurrence referred to therein and stating what action the Borrower has taken and propose to take with respect thereto.
SECTION 6.04 Payment of Obligations. Timely pay, discharge or otherwise satisfy, as the same shall become due and payable, all of its obligations and liabilities in respect of Taxes imposed upon it or upon its income or profits or in respect of its property, except, in each case, to the extent (i) any such Tax is being contested in good faith and by appropriate actions for which appropriate reserves have been established in accordance with GAAP or (ii) the failure to pay or discharge the same would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.
SECTION 6.05 Preservation of Existence, Etc.
(a) Preserve, renew and maintain in full force and effect its legal existence under the Laws of the jurisdiction of its organization; and
(b) take all reasonable action to obtain, preserve, renew and keep in full force and effect its rights, licenses, permits, privileges, franchises, and IP Rights material to the conduct of its business,
except in the case of clause (a) or (b) to the extent (other than with respect to the preservation of the existence of the Borrower) that failure to do so would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect or pursuant to any merger, consolidation, liquidation, dissolution or Disposition permitted by Article VII.
SECTION 6.06 Maintenance of Properties. Except if the failure to do so would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, maintain, preserve and protect all of its material properties and equipment used in the operation of its business in good working order, repair and condition, ordinary wear and tear excepted and casualty or condemnation excepted.
SECTION 6.07 Maintenance of Insurance. (a) Maintain with insurance companies that the Borrower believes (in the good faith judgment of its management) are financially sound and reputable at the time the relevant coverage is placed or renewed, insurance with respect to the Borrowers and the Restricted Subsidiaries properties and business against loss or damage of the kinds customarily insured against by Persons engaged in the
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same or similar business, of such types and in such amounts (after giving effect to any self-insurance reasonable and customary for similarly situated Persons engaged in the same or similar businesses as the Borrower and the Restricted Subsidiaries) as are customarily carried under similar circumstances by such other Persons, and will furnish to the Lenders, upon written request from the Administrative Agent, information presented in reasonable detail as to the insurance so carried; provided that, notwithstanding the foregoing, in no event shall the Borrower or any Restricted Subsidiary be required to obtain or maintain insurance that is more restrictive than its normal course of practice. Each such policy of insurance shall as appropriate, (i) name the Collateral Agent, on behalf of the Secured Parties, as an additional insured thereunder as its interests may appear and/or (ii) in the case of each casualty insurance policy, contain an additional loss payable clause or endorsement that names the Collateral Agent, on behalf of the Secured Parties, as the additional loss payee thereunder.
(b) If any portion of any Mortgaged Property is within a special flood hazard area, then the Borrower shall, or shall cause each Loan Party to, (i) maintain, or cause to be maintained, with a financially sound and reputable insurer, flood insurance in an amount and otherwise sufficient to comply with all applicable rules and regulations promulgated pursuant to the Flood Insurance Laws and (ii) deliver to the Collateral Agent evidence of such compliance in form and substance reasonably acceptable to the Collateral Agent.
SECTION 6.08 Compliance with Laws. Comply in all material respects with the requirements of all Laws and all orders, writs, injunctions and decrees of any Governmental Authority applicable to it or to its business or property, except if the failure to comply therewith would not reasonably be expected individually or in the aggregate to have a Material Adverse Effect.
SECTION 6.09 Books and Records. Maintain proper books of record and account, in which entries that are full, true and correct in all material respects and are in conformity with GAAP shall be made of all material financial transactions and matters involving the assets and business of the Borrower or such Restricted Subsidiary, as the case may be (it being understood and agreed that certain Foreign Subsidiaries maintain individual books and records in conformity with generally accepted accounting principles in their respective countries of organization and that such maintenance shall not constitute a breach of the representations, warranties or covenants hereunder).
SECTION 6.10 Inspection Rights. Permit representatives and independent contractors of the Administrative Agent and each Lender to visit and inspect any of its properties, to examine its corporate, financial and operating records, and make copies thereof or abstracts therefrom and to discuss its affairs, finances and accounts with its directors, officers, and independent public accountants (subject to such accountants customary policies and procedures), all at the reasonable expense of the Borrower and at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Borrower; provided that, only the Administrative Agent on behalf of the Lenders may exercise rights of the Administrative Agent and the Lenders under this Section 6.10 and the Administrative Agent shall not exercise such rights more often than two (2) times during any calendar year absent the existence of an Event of Default and only one (1) such time shall be at the Borrowers expense; provided, further, that when an Event of Default exists, the Administrative Agent (or any of its representatives or independent contractors) may do any of the foregoing at the expense of the Borrower at any time during normal business hours and upon reasonable advance notice. The Administrative Agent shall give the Borrower the opportunity to participate in any discussions with the Borrowers independent public accountants. Notwithstanding anything to the contrary in this Section 6.10, none of the Borrower or any of the Restricted Subsidiaries will be required to disclose, permit the inspection, examination or making copies or abstracts of, or discussion of, any document, information or other matter that (a) constitutes non-financial trade secrets or non-financial proprietary information, (b) in respect of which disclosure to the Administrative Agent or any Lender (or their respective representatives or contractors) is prohibited by Law or any binding agreement or (c) is subject to attorney-client or similar privilege or constitutes attorney work product.
SECTION 6.11 Covenant to Give Security. Promptly following the acquisition by the Borrower or any Subsidiary Guarantor of any After-Acquired Property (but subject to the limitations, if applicable, described in Article XII and the Collateral Documents), execute and deliver such mortgages, deeds of trust, security instruments, financing statements and, in the case of interests in real property, certificates and opinions of counsel, as shall be reasonably necessary to vest in the Collateral Agent a perfected security interest in such After-Acquired Property and to have such After-Acquired Property added to the Notes Collateral or the ABL Collateral, as
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applicable, and thereupon all provisions of this Agreement relating to the Notes Collateral or the ABL Collateral, as applicable, shall be deemed to relate to such After-Acquired Property to the same extent and with the same force and effect.
SECTION 6.12 Compliance with Environmental Laws. Except, in each case, to the extent that the failure to do so would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, (a) comply, and take all reasonable actions to cause any lessees and other Persons operating or occupying its properties to comply, with all applicable Environmental Laws and Environmental Permits; (b) obtain and renew all Environmental Permits necessary for its operations and properties; and (c) in each case to the extent required by applicable Environmental Laws, conduct any investigation, study, sampling and testing, and undertake any cleanup, removal, remedial or other action necessary to remove and clean up all Hazardous Materials from any of its properties, in accordance with the applicable requirements of Environmental Laws.
SECTION 6.13 Further Assurances and Post-Closing Covenant. Subject to the limitations set forth in the Collateral Documents, the Borrower and each of the Guarantors shall execute any and all further documents, financing statements, agreements and instruments, and take all further action that may be reasonably required under applicable law, or that the Collateral Agent may reasonably request, in order to grant, preserve, protect and perfect the validity and priority of the security interests and Liens created or intended to be created by the Collateral Documents in the Collateral.
SECTION 6.14 Use of Proceeds. The proceeds of the Initial Term Loans, together with the proceeds of the ABL Revolving Loans drawn on the Closing Date will be used (i) to pay for the Closing Date Release, (ii) to pay the Acquisition Consideration and (iii) to pay the Transaction Expenses.
SECTION 6.15 Maintenance of Ratings. Use commercially reasonable efforts to maintain (i) a public corporate credit rating (but not any specific rating) from S&P and a public corporate family rating (but not any specific rating) from Moodys, in each case in respect of the Borrower, and (ii) a public rating (but not any specific rating) in respect of each Facility as of the Closing Date from each of S&P and Moodys.
ARTICLE VII
Negative Covenants
So long as any Lender shall have any Commitment hereunder or any Loan or other Obligation hereunder (other than contingent indemnification obligations as to which no claim has been asserted) shall remain unpaid or unsatisfied, the Borrower shall not, nor shall the Borrower permit any Restricted Subsidiary to:
SECTION 7.01 Liens. Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, other than Permitted Liens.
SECTION 7.02 [Reserved].
SECTION 7.03 Indebtedness.
(a) Create, incur, issue, assume or suffer to exist any Indebtedness, other than Permitted Indebtedness.
(b) For purposes of determining compliance with this Section 7.03:
(i) in the event that an item of Indebtedness (or any portion thereof) meets the criteria of more than one of the categories of Permitted Indebtedness described in the definition of Permitted Indebtedness, the Borrower, in its sole discretion, will classify or reclassify such item of Indebtedness (or any portion thereof) and will only be required to include the amount and type of such Indebtedness in one of such clauses; and
(ii) the Borrower will be entitled to divide and classify an item of Indebtedness in more than one clause of the definition of Permitted Indebtedness.
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(c) Accrual of interest, the accretion of accreted value, the accretion or amortization of original issue discount and the payment of interest in the form of additional Indebtedness will not be deemed to be an incurrence or issuance of Indebtedness for purposes of this Section 7.03.
(d) For purposes of determining compliance with any U.S. dollar-denominated restriction on the incurrence of Indebtedness, the U.S. dollar-equivalent principal amount of Indebtedness denominated in a foreign currency shall be calculated based on the relevant currency exchange rate in effect on the date such Indebtedness was incurred, in the case of term debt, or first committed or first incurred (whichever yields the lower U.S. dollar-equivalent), in the case of revolving credit debt; provided that if such Indebtedness is incurred to Refinance other Indebtedness denominated in a foreign currency, and such Refinancing would cause the applicable U.S. dollar-denominated restriction to be exceeded if calculated at the relevant currency exchange rate in effect on the date of such Refinancing, such U.S. dollar-denominated restriction shall be deemed not to have been exceeded so long as the principal amount of such Refinancing Indebtedness does not exceed (i) the principal amount of such Indebtedness being Refinanced plus (ii) the aggregate amount of accrued interest, fees, underwriting discounts, premiums (including tender premiums) and penalties (if any) thereon and other costs and expenses (including OID, upfront fees or similar fees) incurred in connection with such Refinancing.
(e) Subject to the proviso to Section 7.03(d), the principal amount of any Indebtedness incurred to Refinance other Indebtedness, if incurred in a different currency from the Indebtedness being Refinanced, shall be calculated based on the currency exchange rate applicable to the currencies in which such respective Indebtedness is denominated that is in effect on the date of such Refinancing.
SECTION 7.04 Fundamental Changes. Merge, dissolve, liquidate, consolidate with or into another Person, or Dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to or in favor of any Person (other than as part of the Transactions), except that:
(a) any Restricted Subsidiary may merge or consolidate with the Borrower (including a merger, the purpose of which is to reorganize the Borrower into a new jurisdiction); provided that (x) the Borrower shall be the continuing or surviving Person and (y) such merger or consolidation does not result in the Borrower ceasing to be organized under the Laws of the United States, any state thereof or the District of Columbia or any territory thereof;
(b) (i) any Restricted Subsidiary of the Borrower that is not a Loan Party may merge or consolidate with or into any other Restricted Subsidiary of the Borrower that is not a Loan Party, (ii) any Restricted Subsidiary of the Borrower may merge or consolidate with or into any other Restricted Subsidiary of the Borrower that is a Loan Party, (iii) any merger the sole purpose of which is to reincorporate or reorganize a Loan Party in another jurisdiction in the United States shall be permitted and (iv) any Restricted Subsidiary of the Borrower may liquidate or dissolve or change its legal form if the Borrower determines in good faith that such action is in the best interests of the Borrower and the Restricted Subsidiaries and is not materially disadvantageous to the Lenders; provided that, in the case of clause (iv), the Person who receives the assets of any dissolving or liquidated Restricted Subsidiary that is a Guarantor shall be a Loan Party or such disposition shall otherwise be permitted under Section 7.06 or the definition of Permitted Investments;
(c) any Restricted Subsidiary may Dispose of all or substantially all of its assets (upon voluntary liquidation or otherwise) to the Borrower or another Restricted Subsidiary;
(d) so long as no Event of Default (or, to the extent relating to a Permitted Acquisition, no Event of Default under Section 8.01(a) or (f)) exists or would result therefrom (in each case, in the case of a Permitted Acquisition which is a Limited Condition Acquisition, such determination to be subject to Section 1.10), the Borrower may merge or consolidate with (or Dispose of all or substantially all of its assets to) any other Person; provided that (i) the Borrower shall be the continuing or surviving corporation
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or (ii) if the Person formed by or surviving any such merger or consolidation is not the Borrower (or, in connection with a Disposition of all or substantially all of the Borrowers assets, is the transferee of such assets) (any such Person, a Successor Borrower), (A) the Successor Borrower shall be an entity organized or existing under the laws of the United States, any state thereof, the District of Columbia or any territory thereof, (B) the Successor Borrower shall expressly assume all the obligations of the Borrower under this Agreement and the other Loan Documents to which the Borrower is a party pursuant to supplements hereto or thereto in form reasonably satisfactory to the Administrative Agent, (C) immediately after giving pro forma effect to any such transaction and any related financing transaction, as if such transactions had occurred at the beginning of the applicable four-quarter period, (1) the Successor Borrower would be permitted to incur at least $1.00 of Permitted Ratio Debt, or (2) the Fixed Charge Coverage Ratio for the Borrower would be greater than the Fixed Charge Coverage Ratio for the Borrower immediately prior to such transaction, (D) each Guarantor, unless it is the other party to such merger or consolidation, shall have by a supplement to the Guaranty (or in another form reasonably satisfactory to the Administrative Agent) confirmed that its Guaranty of the Obligations shall apply to the Successor Borrowers obligations under this Agreement, (E) each Loan Party, unless it is the other party to such merger or consolidation, shall have by a supplement to the Security Agreement (or in another form reasonably satisfactory to the Administrative Agent) confirmed that its obligations thereunder shall apply to the Successor Borrowers obligations under this Agreement, (F) if reasonably requested by the Administrative Agent, each mortgagor of a Mortgaged Property, unless it is the other party to such merger or consolidation, shall have by an amendment to or restatement of the applicable Mortgage (or other instrument reasonably satisfactory to the Collateral Agent) confirmed that its obligations thereunder shall apply to the Successor Borrowers obligations under this Agreement, and (G) the Successor Borrower shall have delivered to the Administrative Agent an officers certificate and an opinion of counsel, each stating that such merger or consolidation and such supplement to this Agreement or any Collateral Document comply with this Agreement; provided, further, that if the foregoing are satisfied, the Successor Borrower will succeed to, and be substituted for, the Borrower under this Agreement;
(e) so long as no Event of Default (or, to the extent relating to a Permitted Acquisition, no Event of Default under Section 8.01(a) or (f)) exists or would result therefrom, Holdings may merge or consolidate with (or Dispose of all or substantially all of its assets to) any other Person; provided that (A) a new Holdings shall be the continuing or surviving Person or (B) if (i) the Person formed by or surviving any such merger or consolidation is not a Holdings entity, (ii) a Holdings entity is not the Person into which the applicable previous Holdings has been liquidated or (iii) in connection with a Disposition of all or substantially all of a Holdings entitys assets, the Person that is the transferee of such assets is not a Holdings entity (any such Person, a Successor Holdings), (1) the Successor Holdings shall be an entity organized or existing under the laws of the United States, any state thereof, the District of Columbia or any territory thereof, (2) the Successor Holdings shall expressly assume all the obligations of Holdings under this Agreement and the other Loan Documents to which Holdings is a party pursuant to a supplement hereto or thereto in form reasonably satisfactory to the Administrative Agent and (3) if reasonably requested by the Administrative Agent, the Borrower shall have delivered to the Administrative Agent an officers certificate and an opinion of counsel, each stating that such merger or consolidation and such supplement to this Agreement or any Collateral Document comply with this Agreement; provided, further, that if the foregoing are satisfied, the Successor Holdings will succeed to, and be substituted for, the applicable Holdings under this Agreement;
(f) any Restricted Subsidiary may merge or consolidate with (or Dispose of all or substantially all of its assets to) any other Person in order to effect a Permitted Investment or other Investment permitted pursuant to Section 7.06; provided, that, solely in the case of a merger or consolidation involving a Loan Party, no Event of Default (or, to the extent relating to a Permitted Acquisition, no Event of Default under Section 8.01(a) or (f)) exists or would result therefrom; provided, further, that the continuing or surviving Person shall be the Borrower or a Restricted Subsidiary, which together with each of its Restricted Subsidiaries, shall have complied with the applicable requirements of Section 6.11 and Article XII;
(g) a merger, dissolution, liquidation, consolidation or Disposition, the purpose of which is to effect a Disposition permitted pursuant to Section 7.05 (other than Section 7.05(e)); and
(h) the Loan Parties and the Restricted Subsidiaries may consummate the Transactions.
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SECTION 7.05 Dispositions. Make any Disposition (other than as part of or in connection with the Transactions) except:
(a) Dispositions of obsolete, damaged, worn out, used or surplus property, whether now owned or hereafter acquired, in the ordinary course of business and Dispositions of property no longer used or useful in the conduct of the business of the Borrower and the Restricted Subsidiaries;
(b) Dispositions of inventory and goods held for sale in the ordinary course of business and immaterial assets (considered in the aggregate) in the ordinary course of business;
(c) Dispositions of property to the extent that (i) such property is exchanged for credit against the purchase price of similar replacement property or (ii) the proceeds of such Disposition are promptly applied to the purchase price of such replacement property;
(d) Dispositions of property to the Borrower or a Restricted Subsidiary;
(e) Dispositions constituting Permitted Investments (other than pursuant to clause (d) thereof) or otherwise permitted by Section 7.06, Dispositions permitted by Section 7.04 (other than clause (g) thereof) and Liens permitted by Section 7.01;
(f) Dispositions of property pursuant to Sale and Lease-Back Transactions;
(g) Dispositions of cash, Cash Equivalents and Investment Grade Securities;
(h) leases, subleases, service agreements, product sales, licenses or sublicenses (including agreements involving the provision of software in copy or as a service, and related data and services), in each case in the ordinary course of business and which do not materially interfere with the business of the Borrower and the Restricted Subsidiaries, taken as a whole;
(i) transfers of property subject to Casualty Events;
(j) Dispositions of property, whether tangible or intangible, for fair market value; provided that (i) at the time of such Disposition (other than any such Disposition made pursuant to a legally binding commitment entered into at a time when no Event of Default exists), no Event of Default shall exist or would result from such Disposition; (ii) with respect to any Disposition pursuant to this clause (j) for a purchase price in excess of $15,000,000, the Borrower or any Restricted Subsidiary shall receive not less than 75% of such consideration in the form of cash or Cash Equivalents; provided, however, that for the purposes of this clause (ii), all of the following shall be deemed to be cash: (A) any liabilities (as shown on the Borrowers or such Restricted Subsidiarys most recent balance sheet or in the footnotes thereto) of the Borrower or such Restricted Subsidiary that are (i) assumed by the transferee with respect to the applicable Disposition or (ii) that are otherwise cancelled or terminated in connection with the transaction with such transferee and, in each case, for which the Borrower and all of the Restricted Subsidiaries (to the extent previously liable thereunder) shall have been validly released by all applicable creditors in writing, (B) any securities, notes or other obligations or assets received by the Borrower or Restricted Subsidiary from such transferee that are converted by the Borrower or such Restricted Subsidiary into cash or Cash Equivalents (to the extent of the cash or Cash Equivalents received) within one hundred and eighty (180) days following the closing of the applicable Disposition, (C) Indebtedness of any Restricted Subsidiary that ceases to be a Restricted Subsidiary as a result of such Disposition (other than intercompany debt owed to the Borrower or its Restricted Subsidiaries), to the extent that the Borrower and all of the Restricted Subsidiaries (to the extent previously liable thereunder) are released from any guarantee of payment of the principal amount of such Indebtedness in connection with such Disposition and (D) any Designated Non-Cash Consideration received in respect of such Disposition having an aggregate fair market value, taken together with all other Designated Non-Cash Consideration received pursuant to this clause (D) that
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is at that time outstanding, not in excess (as of the date of the receipt of such Designated Non-Cash Consideration) of the greater of $50,000,000 and 2.50% of Total Assets, with the fair market value of each item of Designated Non-Cash Consideration being measured at the time received and without giving effect to subsequent changes in value; and (iii) the Net Cash Proceeds thereof are applied to prepay the Loans to the extent required by Section 2.03(b)(ii);
(k) Dispositions of Investments in joint ventures to the extent required by, or made pursuant to customary buy/sell arrangements between, the joint venture parties set forth in joint venture arrangements and similar binding arrangements;
(l) Dispositions or discounts of accounts receivable in connection with the collection or compromise thereof;
(m) any issuance or sale of Equity Interests in, or sale of Indebtedness or other securities of, an Unrestricted Subsidiary;
(n) to the extent allowable under Section 1031 of the Code (or comparable or successor provision), any exchange of like property (excluding any boot thereon permitted by such provision) for use in any business conducted by the Borrower or any of the Restricted Subsidiaries that is not in contravention of Section 7.07;
(o) the unwinding of any Hedging Obligations;
(p) any Disposition of Securitization Assets to a Securitization Subsidiary;
(q) abandon, or cease to maintain or cease to enforce intellectual property rights in each case in the ordinary course of business and where the loss of which does not materially interfere with the business of the Borrower and the Restricted Subsidiaries, taken as a whole;
(r) the licensing or sub-licensing of intellectual property or other general intangibles in the ordinary course of business;
(s) any surrender or waiver of contract rights or the settlement, release or surrender of contract rights or other litigation claims in the ordinary course of business; and
(t) the issuance of directors qualifying shares and shares issued to foreign nationals as required by applicable law.
To the extent any Collateral is Disposed of as expressly permitted by this Section 7.05 to any Person other than a Loan Party, such Collateral shall be sold free and clear of the Liens created by the Loan Documents, and, if requested by the Administrative Agent, upon the certification by the Borrower that such Disposition is permitted by this Agreement, the Administrative Agent shall be authorized to take any actions deemed appropriate in order to effect the foregoing.
SECTION 7.06 Restricted Payments.
(a) Declare or make, directly or indirectly, any Restricted Payment unless, at the time of and immediately after giving effect to such Restricted Payment, such Restricted Payment, together with the aggregate amount of all other Restricted Payments (including the fair market value of any non-cash amount) made by the Borrower and the Restricted Subsidiaries after the Closing Date (including Restricted Payments permitted by Sections 7.06(b)(i), (ii) (with respect to the payment of dividends on Refunding Capital Stock pursuant to clause (c) thereof), (vi)(C) and (ix), but excluding all other Restricted Payments permitted by Section 7.06(b) (and for the avoidance of doubt, all other Permitted Investments)), is less than the Available Amount at such time; provided to the extent such Restricted Payment is to be made out of amounts under clause (b) of the definition of Available Amount, (x) no Event of Default shall have occurred and be continuing or would occur as a consequence thereof and (y) at least $1.00 of Permitted Ratio Debt would be permitted to be incurred.
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(b) The provisions of Section 7.06(a) will not prohibit:
(i) the payment of any dividend or other distribution or the consummation of any irrevocable redemption within 60 days after the date of declaration of the dividend or other distribution or giving of the redemption notice, as the case may be, if at the date of declaration or notice, the dividend or other distribution or redemption payment would have complied with the provisions of this Section 7.06;
(ii) (a) the redemption, repurchase, retirement or other acquisition of any Equity Interest, including any accrued and unpaid dividends thereon (Treasury Capital Stock), or Subordinated Indebtedness, of any Loan Party or any Equity Interest of any Parent Entity of the Borrower, in exchange for, or out of the proceeds of, the substantially concurrent sale or issuance (other than to a Restricted Subsidiary) of, Equity Interests of the Borrower or any Parent Entity thereof to the extent contributed to the Borrower (in each case, other than any Disqualified Stock) (Refunding Capital Stock), (b) the declaration and payment of dividends on Treasury Capital Stock out of the proceeds of the substantially concurrent sale or issuance (other than to a Restricted Subsidiary of the Borrower or to an employee stock ownership plan or any trust established by the Borrower or any of its Restricted Subsidiaries) of Refunding Capital Stock, and (c) if immediately prior to the retirement of Treasury Capital Stock, the declaration and payment of dividends thereon was permitted under clause (vi) of this Section 7.06(b), the declaration and payment of dividends on the Refunding Capital Stock (other than Refunding Capital Stock the proceeds of which were used to redeem, repurchase, retire or otherwise acquire any Equity Interests of any Parent Entity of the Borrower) in an aggregate amount per year no greater than the aggregate amount of dividends per annum that were declarable and payable on such Treasury Capital Stock immediately prior to such retirement;
(iii) the defeasance, redemption, repurchase, exchange or other acquisition or retirement of (1) Junior Financing of the Borrower or a Subsidiary Guarantor made by exchange for, or out of the proceeds of a sale made within 90 days of, new Indebtedness of the Borrower or a Subsidiary Guarantor or (2) Disqualified Stock made by exchange for, or out of the proceeds of a sale made within 90 days of, Disqualified Stock of the Borrower or a Subsidiary Guarantor that, in each case, is incurred in compliance with Section 7.03;
(iv) a Restricted Payment to pay for the repurchase, retirement or other acquisition or retirement for value of Equity Interests (other than Disqualified Stock) of the Borrower or any Parent Entity thereof held by any future, present or former employee, director, officer, manager or consultant (or their respective Controlled Investment Affiliates or Immediate Family Members) of the Borrower, any of its Subsidiaries or any of its Parent Entities pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or agreement, or any equity subscription or equity holder agreement (including, for the avoidance of doubt, any principal and interest payable on any notes issued by the Borrower or any Parent Entity thereof in connection with such repurchase, retirement or other acquisition), including any Equity Interest rolled over by management of the Borrower or any Parent Entity thereof in connection with the Transactions; provided that the aggregate amount of Restricted Payments made under this Section 7.06(b)(iv) does not exceed $10,000,000 in any fiscal year (which amount shall be increased to $20,000,000 following the consummation of a Qualifying IPO) (with unused amounts in any fiscal year being carried over to the succeeding fiscal years); provided, further, that each of the amounts in any fiscal year under this clause may be increased by an amount not to exceed:
(A) the cash proceeds from the sale of Equity Interests (other than Disqualified Stock) of the Borrower and, to the extent contributed to the Borrower, the cash proceeds from the sale of Equity Interests of any Parent Entity of the Borrower, in each case to any future, present or former employees, directors, officers, managers, or consultants (or their respective Controlled Investment Affiliates or Immediate Family Members) of the Borrower, any of its Subsidiaries or any of its Parent Entities that occurs after the Closing Date, to the extent the cash proceeds from the sale of such Equity Interests are excluded from the calculation of the Available Amount; plus
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(B) the cash proceeds of life insurance policies received by the Borrower, the Restricted Subsidiaries or, to the extent such proceeds are contributed to a Loan Party, any Parent Entity of the Borrower, in each case, after the Closing Date; less
(C) the amount of any Restricted Payments previously made with the cash proceeds described in clauses (A) and (B) of this clause (iv);
and provided, further, that cancellation of Indebtedness owing to the Borrower or any Restricted Subsidiary from any future, present or former employees, directors, officers, managers, or consultants (or their respective Controlled Investment Affiliates or Immediate Family Members) of the Borrower, any Parent Entity of the Borrower or any Restricted Subsidiary in connection with a repurchase of Equity Interests of the Borrower or any Parent Entities thereof will not be deemed to constitute a Restricted Payment for purposes of this Section 7.06 or any other provision of this Agreement;
(v) the declaration and payment of dividends or distributions to holders of any class or series of Disqualified Stock of the Borrower or any Restricted Subsidiary issued in accordance with Section 7.03 or any class or series of Preferred Stock of any Restricted Subsidiary to the extent such dividends or distributions are included in the definition of Fixed Charges;
(vi) (A) the declaration and payment of dividends or distributions to holders of any class or series of Designated Preferred Stock (other than Disqualified Stock) issued by the Borrower after the Closing Date;
(B) the declaration and payment of dividends or distributions to any Parent Entity of the Borrower, the proceeds of which will be used to fund the payment of dividends or distributions to holders of any class or series of Designated Preferred Stock (other than Disqualified Stock) issued by such Parent Entity after the Closing Date, provided that the amount of dividends and distributions paid pursuant to this Section 7.06(b)(vi)(B) shall not exceed the aggregate amount of cash actually contributed to the Borrower from the sale of such Designated Preferred Stock; or
(C) the declaration and payment of dividends on Refunding Capital Stock that is Preferred Stock in excess of the dividends declarable and payable thereon pursuant to Section 7.06(b)(ii);
provided, in the case of each of Sections 7.06(b)(vi)(A), (B) and (C), that for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date of issuance of such Designated Preferred Stock or the declaration of such dividends on Refunding Capital Stock that is Preferred Stock, after giving effect to such issuance or declaration on a pro forma basis, at least $1.00 of Permitted Ratio Debt would be permitted to be incurred;
(vii) Investments in Unrestricted Subsidiaries taken together with all other Investments made pursuant to this clause (vii) that are at the time outstanding, without giving effect to the sale of an Unrestricted Subsidiary to the extent the proceeds of such sale do not consist of cash or marketable securities, not to exceed the greater of (a) $35,000,000 and (b) 1.50% of Total Assets;
(viii) payments made or expected to be made by the Borrower or any Restricted Subsidiary in respect of withholding or similar taxes payable upon exercise of Equity Interests by any future, present or former employee, director, officer, manager or consultant (or their respective Controlled Investment Affiliates or Immediate Family Members) of the Borrower, any of its Subsidiaries or any of its Parent Entities and any repurchases of Equity Interests deemed to occur upon exercise of stock options, warrants or similar rights if such Equity Interests represent a portion of the exercise price of such options, warrants or similar rights or required withholding or similar taxes;
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(ix) the declaration and payment of dividends on the Borrowers common stock (or the payment of dividends to any Parent Entity of the Borrower to fund a payment of dividends on such companys common stock), following the first public offering of the Borrowers common stock or the common stock of any Parent Entity of the Borrower after the Closing Date, of up to 6.0% per annum of the net cash proceeds received by or contributed to the Borrower in or from any such public offering, other than public offerings with respect to the Borrowers common stock registered on Form S-4 or Form S-8 and other than any public sale constituting an Excluded Contribution;
(x) Restricted Payments in an aggregate amount taken together with all other Restricted Payments made pursuant to this clause (x) not to exceed at any one time outstanding (as of the date any such Restricted Payment is made) the sum of (a) the greater of (1) $50,000,000 and (2) 2.50% of Total Assets and (b) an amount equal to the amount of Excluded Contributions previously received by the Borrower;
(xi) distributions or payments of Securitization Fees;
(xii) any Restricted Payment made in connection with the Transactions, the Hercules Transactions and the fees and expenses related thereto or owed to Affiliates, in each case, with respect to any Restricted Payment made to an Affiliate, to the extent permitted by Section 7.08;
(xiii) the declaration and payment of dividends or distributions by the Borrower or any Restricted Subsidiary to, or the making of loans or advances to, the Borrower or any Parent Entity thereof in amounts required for any Parent Entity of the Borrower to pay, in each case without duplication,
(A) franchise, excise and similar taxes and other fees and expenses required to maintain their corporate or other legal existence;
(B) (i) for any taxable period in which the Borrower is a member of a consolidated, combined or similar income tax group for U.S. federal and/or applicable foreign, state or local income tax purposes of which a Parent Entity of the Borrower is the common parent (a Tax Group), to pay the portion of any U.S. federal, foreign, state and local income taxes of such Tax Group for such taxable period that are attributable to the taxable income of the Borrower and/or its Subsidiaries; provided, that for each taxable period, (A) the amount of such payments made in respect of such taxable period in the aggregate shall not exceed the amount that the Borrower and/or its Subsidiaries, as applicable, would have been required to pay as stand-alone taxpayers or a stand-alone Tax Group and (B) the amount of such payments made in respect of an Unrestricted Subsidiary shall be permitted only to the extent that cash distributions were made by such Unrestricted Subsidiary to the Borrower or any Restricted Subsidiary for such purpose; and (ii) any Tax Distribution;
(C) customary salary, bonus, severance and other benefits payable to, and indemnities provided on behalf of, employees, directors, officers and managers of any Parent Entity of the Borrower, and any payroll, social security or similar taxes thereof, to the extent such salaries, bonuses and other benefits are attributable to the ownership or operation of the Borrower and the Restricted Subsidiaries, including, if applicable, the Borrowers proportionate share of such amounts relating to such Parent Entity being a public company;
(D) general corporate operating, administrative, compliance and overhead costs and expenses of any Parent Entity of the Borrower to the extent such costs and expenses are attributable to the ownership or operation of the Borrower and the Restricted Subsidiaries, including, if applicable, the Borrowers proportionate share of such amounts relating to such Parent Entity being a public company;
(E) fees and expenses of the Borrower related to any successful or unsuccessful equity or debt offering of such Parent Entity;
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(F) amounts payable pursuant to the Management Fee Agreement (including any amendments, modifications or waivers thereto so long as any such amendment is not materially disadvantageous in the good faith judgment of the Borrower, when taken as a whole, as compared to the Management Fee Agreement in effect on the Closing Date), solely to the extent such amounts are not paid directly by the Borrower or any of its Subsidiaries;
(G) cash payments in lieu of issuing fractional shares in connection with the exercise of warrants, options or other securities convertible into or exchangeable for Equity Interests of the Borrower or any Parent Entity thereof;
(H) interest and/or principal on Indebtedness the proceeds of which have been contributed to the Borrower or any Restricted Subsidiary and that has been guaranteed by, or is otherwise considered Indebtedness of, the Borrower or any Restricted Subsidiary incurred in accordance with Section 7.03;
(I) to finance Investments that would otherwise be permitted to be made pursuant to this Section 7.06 if made by the Borrower; provided that (A) such Restricted Payment shall be made substantially concurrently with the closing of such Investment, (B) such Parent Entity shall, immediately following the closing thereof, cause (1) all property acquired (whether assets or Equity Interests) to be contributed to the capital of the Borrower or a Restricted Subsidiary or (2) the merger, consolidation, amalgamation or sale of the Person formed or acquired into the Borrower or a Restricted Subsidiary (to the extent not prohibited by Section 7.04) in order to consummate such Investment, (C) such Parent Entity and its Affiliates (other than the Borrower or any Restricted Subsidiary) receives no consideration or other payment in connection with such transaction except to the extent the Borrower or a Restricted Subsidiary could have given such consideration or made such payment in compliance with this Section 7.06 and (D) any property received by the Borrower shall not increase the Available Amount; and
(J) amounts that would be permitted to be paid by the Borrower under clauses (d), (k), (l) and (m) of Section 7.08; provided that the amount of any dividend or distribution under this clause (xiii)(J) to permit such payment shall reduce Consolidated Net Income of the Borrower to the extent, if any, that such payment would have reduced Consolidated Net Income of the Borrower if such payment had been made directly by the Borrower and increase (or, without duplication of any reduction of Consolidated Net Income, decrease) EBITDA to the extent, if any, that Consolidated Net Income is reduced under this clause (xiii)(J) and such payment would have been added back to (or, to the extent excluded from Consolidated Net Income, would have been deducted from) EBITDA if such payment had been made directly by the Borrower, in each case, in the period such payment is made;
(xiv) the distribution, by dividend or otherwise, or other transfer or disposition of shares of Capital Stock of, or Indebtedness owed to the Borrower or a Restricted Subsidiary by, Unrestricted Subsidiaries (other than Unrestricted Subsidiaries, the primary assets of which are Cash Equivalents);
(xv) other Restricted Payments so long as immediately after giving effect to any Restricted Payment pursuant to this clause (xv), the Consolidated Net Leverage Ratio for the Test Period most recently ended on or prior to the date of any such Restricted Payment would be less than or equal to 4.50 to 1.00;
(xvi) (A) the refinancing of any Junior Financing with the Net Cash Proceeds of, or in exchange for, any Refinancing Indebtedness, (B) the conversion of any Junior Financing to Equity Interests (other than Disqualified Stock) of the Borrower or any Parent Entity thereof, (C) the prepayment of Indebtedness of the Borrower or any Restricted Subsidiary owed to the Borrower or a Restricted Subsidiary or the prepayment of Refinancing Indebtedness with the proceeds of any other Junior Financing otherwise permitted by Section 7.03, (D) prepayments, redemptions, purchases, defeasances and other payments in respect of Junior Financings prior to their scheduled maturity in an aggregate amount, not to exceed (as of
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the date any such prepayment, redemption, purchase, defeasance or other payment is made) the greater of $25,000,000 and 1.00% of Total Assets, and (E) prepayments, redemptions, purchases, defeasances and other payments in respect of Junior Financings from the Net Cash Proceeds of any Permitted Equity Issuance; and
(xvii) to the extent constituting Restricted Payments, the Borrower and the Restricted Subsidiaries may enter into and consummate transactions permitted by any provision of Section 7.01, 7.03, 7.04 or 7.08 (other than Section 7.08(b)).
provided that at the time of, and after giving effect to, any Restricted Payment permitted under clause (x)(a) of this Section 7.06(b), no Event of Default shall have occurred and be continuing or would occur as a consequence thereof.
For the avoidance of doubt, this Section 7.06 shall not restrict the making of any AHYDO catch-up payment with respect to, and required by the terms of, any Indebtedness of the Borrower or any Restricted Subsidiary permitted to be incurred under Section 7.03 hereof.
SECTION 7.07 Change in Nature of Business. Engage in any material line of business substantially different from those lines of business conducted by the Borrower and the Restricted Subsidiaries on the Closing Date or any business or any other activities that are reasonably similar, ancillary, incidental, complimentary or related to, or a reasonable extension, development or expansion of, the business conducted or proposed to be conducted by the Borrower and the Restricted Subsidiaries on the Closing Date.
SECTION 7.08 Transactions with Affiliates. Make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of the Borrower (each of the foregoing, an Affiliate Transaction) involving aggregate payments or consideration in excess of $20,000,000, unless such Affiliate Transaction is on terms that are not materially less favorable to the Borrower or its relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Borrower or such Restricted Subsidiary with an unrelated Person on an arms-length basis; provided that the foregoing restriction shall not apply to:
(a) transactions between or among Holdings, the Borrower or any Restricted Subsidiary or any entity that becomes a Restricted Subsidiary as a result of such transaction;
(b) Restricted Payments permitted by Section 7.06 (including, for the avoidance of doubt, any Permitted Investments);
(c) the payment of management, consulting, monitoring, advisory and other fees (including any transaction fee) and related expenses (including indemnification and other similar amounts) pursuant to the Management Fee Agreement (plus any unpaid management, consulting, monitoring, advisory and other fees and related expenses (including indemnification and similar amounts) accrued in any prior year) and any one-time payment under the Management Fee Agreement of a termination fee to the Sponsor in the event of either a Change of Control or the completion of a Qualifying IPO, in each case, without giving effect to amendments, modifications, or waivers of the Management Fee Agreement after the Closing Date that are, when taken as a whole, materially adverse to the Lenders compared to the Management Fee Agreement in effect on the Closing Date;
(d) the payment of reasonable and customary fees and compensation paid to, and indemnities and reimbursements and employment and severance arrangements provided on behalf of or for the benefit of, current or former employees, directors, officers, managers, distributors or consultants of the Borrower or any of its Parent Entities or any Restricted Subsidiary;
(e) any agreement as in effect as of the Closing Date and set forth on Schedule 7.08, or any amendment thereto (so long as any such amendment is not disadvantageous in any material respect in the good faith judgment of the Borrower to the Lenders when taken as a whole as compared to the applicable agreement as in effect on the Closing Date);
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(f) the existence of, or the performance by the Borrower or any Restricted Subsidiary of its obligations under the terms of, any stockholders agreement (including any registration rights agreement or purchase agreement related thereto) to which it is a party as of the Closing Date and any similar agreements which it may enter into thereafter; provided that the existence of, or the performance by the Borrower or any Restricted Subsidiary of obligations under any future amendment to any such existing agreement or under any similar agreement entered into after the Closing Date shall only be permitted by this clause (f) to the extent that the terms of any such amendment or new agreement are not disadvantageous in any material respect in the good faith judgment of the Borrower to the Lenders when taken as a whole;
(g) the Transactions and the Hercules Transactions and the payment of all fees and expenses related to the Transactions and the Hercules Transactions, including Transaction Expenses;
(h) transactions with customers, clients, suppliers, contractors, joint venture partners or purchasers or sellers of goods or services that are Affiliates, in each case in the ordinary course of business and which are fair to the Borrower and the Restricted Subsidiaries, in the reasonable determination of the Borrower, or are on terms at least as favorable as might reasonably have been obtained at such time from an unaffiliated party;
(i) the issuance of Equity Interests (other than Disqualified Stock) of the Borrower to any Parent Entity or to any Permitted Holder or to any employee, director, officer, manager, distributor or consultant (or their respective Controlled Investment Affiliates or Immediate Family Members) of the Borrower, any Parent Entity thereof or any Restricted Subsidiary;
(j) sales of accounts receivable, or participations therein, or Securitization Assets or related assets in connection with or any Qualified Securitization Facility;
(k) payments by the Borrower or any Restricted Subsidiary to the Sponsor made for any (x) financial advisory, financing, underwriting or placement services or in respect of other investment banking activities, including, without limitation, in connection with acquisitions or divestitures which payments are approved by a majority of the board of directors of the Borrower in good faith, (y) consulting services relating to product management, working capital management or operational improvements and (z) procurement, sourcing and back-office services;
(l) payments and Indebtedness (and cancellation of any thereof) of the Borrower and the Restricted Subsidiaries and Preferred Stock (and cancellation of any thereof) of any Restricted Subsidiary to any future, current or former employee, director, officer, manager or consultant (or their respective Controlled Investment Affiliates or Immediate Family Members) of the Borrower, any of its Subsidiaries or any of its Parent Entities pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or agreement or any stock subscription or shareholder agreement; and any employment agreements, stock option plans and other compensatory arrangements (and any successor plans thereto) and any supplemental executive retirement benefit plans or arrangements with any such employees, directors, officers, managers or consultants (or their respective Controlled Investment Affiliates or Immediate Family Members) that are, in each case, approved by the Borrower in good faith;
(m) investments by any Permitted Holder in securities of the Borrower or any Restricted Subsidiary (and payment of reasonable out-of-pocket expenses incurred by any such Permitted Holder in connection therewith) so long as (a) the investment is being offered generally to other investors on the same or more favorable terms and (b) the investment constitutes less than 5.0% of the proposed or outstanding issue amount of such class of securities;
(n) payments to or from, and transactions with, any joint venture in the ordinary course of business (including, without limitation, any cash management activities related thereto);
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(o) payments by the Borrower (and any Parent Entity thereof) and its Subsidiaries pursuant to tax sharing agreements among Holdings (and any Parent Entity) and its Subsidiaries; provided that in each case the amount of such payments in any fiscal year does not exceed the amount described in Section 7.06(b)(xiii)(B);
(p) any lease entered into between the Borrower or any Restricted Subsidiary, as lessee and any Affiliate of the Borrower, as lessor, which is approved by a majority of the disinterested members of the board of directors of the Borrower in good faith; and
(q) intellectual property licenses and sublicenses, product sales, and service agreements in the ordinary course of business.
SECTION 7.09 Burdensome Agreements.
Enter into or permit to exist any Contractual Obligation (other than this Agreement or any other Loan Document) that prohibits, restricts, imposes any condition on or limits the ability of (a) any Restricted Subsidiary that is not a Loan Party to make Restricted Payments to (directly or indirectly) or to make or repay loans or advances to any Loan Party or to Guarantee the Obligations of any Loan Party under the Loan Documents or (b) any Loan Party to create, incur, assume or suffer to exist Liens on property of such Person for the benefit of the Lenders with respect to the Obligations under the Loan Documents; provided that the foregoing clauses (a) and (b) shall not apply to Contractual Obligations that:
(i) (x) exist on the Closing Date and (to the extent not otherwise permitted by this Section 7.09) are listed on Schedule 7.09 and (y) to the extent Contractual Obligations permitted by clause (x) are set forth in an agreement evidencing Indebtedness, are set forth in any agreement evidencing any permitted modification, replacement, renewal, extension or refinancing of such Indebtedness so long as such modification, replacement, renewal, extension or refinancing does not expand the scope of the restrictions described in the foregoing clauses (a) and (b) in such Contractual Obligation,
(ii) are binding on a Restricted Subsidiary at the time such Restricted Subsidiary first becomes a Restricted Subsidiary, so long as such Contractual Obligations were not entered into solely in contemplation of such Person becoming a Restricted Subsidiary,
(iii) represent Indebtedness of a Restricted Subsidiary that is not a Loan Party that is permitted by Section 7.03,
(iv) are restrictions that arise in connection with (including Indebtedness and other agreements entered into in connection therewith) (x) any Lien permitted by Section 7.01 and relate to the property subject to such Lien or (y) any Disposition permitted by Section 7.05 applicable pending such Disposition solely to the assets subject to such Disposition,
(v) are customary provisions in joint venture agreements and other similar agreements applicable to joint ventures permitted under Section 7.06 or, for the avoidance of doubt, constituting Permitted Investments, and applicable solely to such joint venture,
(vi) are negative pledges and restrictions on Liens in favor of any holder of Indebtedness permitted under Section 7.03 but solely to the extent any negative pledge relates to the property financed by or the subject of such Indebtedness and the proceeds and products thereof and, in the case of the ABL Credit Agreement, Senior Notes, Senior Subordinated Notes and Credit Agreement Refinancing Indebtedness, permit the Liens securing the Obligations without restriction (subject to the Intercreditor Agreements),
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(vii) are customary restrictions on leases, subleases, service agreements, product sales, licenses or asset sale agreements otherwise permitted hereby so long as such restrictions relate to the assets subject thereto,
(viii) are customary provisions restricting subletting or assignment of any lease governing a leasehold interest of the Borrower or any Restricted Subsidiary,
(ix) are customary provisions restricting assignment of any agreement entered into in the ordinary course of business,
(x) are restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business,
(xi) are customary restrictions contained in the ABL Credit Documents, Senior Notes Documents, Senior Subordinated Notes Documents, any Permitted Incremental Equivalent Debt and any Refinancing Indebtedness of any of the foregoing (to the extent such restrictions do not prohibit the Liens securing the Obligations),
(xii) arise in connection with cash or other deposits permitted under Section 7.01 or the definition of Permitted Investments,
(xiii) comprise restrictions imposed by any agreement governing Indebtedness entered into after the Closing Date and permitted under Section 7.03 that are, taken as a whole, in the good faith judgment of the Borrower, no more restrictive with respect to the Borrower or any Restricted Subsidiary than customary market terms for Indebtedness of such type (and, in any event, are no more restrictive than the restrictions contained in this Agreement), so long as the Borrower shall have determined in good faith that such restrictions will not affect their obligation or ability to make any payments required hereunder,
(xiv) arise in connection with purchase money obligations for property acquired in the ordinary course of business or Capitalized Lease Obligations;
(xv) are imposed by applicable Law;
(xvi) arise in connection with any agreement or other instrument of a Person acquired by or merged or consolidated with or into the Borrower or any of its Restricted Subsidiaries in existence at the time of such acquisition or at the time it merges with or into the Borrower or any of its Restricted Subsidiaries or assumed in connection with the acquisition of assets from such Person (but, in any such case, not created in contemplation thereof), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person so acquired and its Subsidiaries, or the property or assets of the Person so acquired and its Subsidiaries or the property or assets so acquired;
(xvii) arise in connection with contracts for the sale of assets, including customary restrictions with respect to a Subsidiary of the Borrower pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Subsidiary;
(xviii) arise in connection with other Indebtedness permitted to be incurred subsequent to the Closing Date pursuant to the provisions of Section 7.03 hereof;
(xix) are restrictions created in connection with any Qualified Securitization Facility that, in the good faith determination of the Borrower are necessary or advisable to effect such Qualified Securitization Facility;
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(xx) are restrictions or conditions contained in any trading, netting, operating, construction, service, supply, purchase, sale or other agreement to which the Borrower or any of its Restricted Subsidiaries is a party entered into in the ordinary course of business; provided that such agreement prohibits the encumbrance of solely the property or assets of the Borrower or such Restricted Subsidiary that are the subject to such agreement, the payment rights arising thereunder or the proceeds thereof and does not extend to any other asset or property of the Borrower or such Restricted Subsidiary or the assets or property of another Restricted Subsidiary;
(xxi) are any encumbrances or restrictions of the type referred to in clauses (a) and (b) above imposed by any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of the contracts, instruments or obligations referred to in clauses (i) through (xx) of this Section 7.09; provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are, in the good faith judgment of the Borrower, no more restrictive in any material respect with respect to such encumbrance and other restrictions taken as a whole than those prior to such amendment, modification, restatement, renewal, increase, supplement, refunding, replacement or refinancing.
SECTION 7.10 Accounting Changes. Make any change in fiscal year; provided, however, that the Borrower may, upon written notice from the Borrower to the Administrative Agent, change their fiscal year to any other fiscal year reasonably acceptable to the Administrative Agent, in which case, the Borrower and the Administrative Agent will, and are hereby authorized by the Lenders to, make any adjustments to this Agreement that are necessary to reflect such change in fiscal year.
SECTION 7.11 Modification of Terms of Junior Financing.
Amend, modify or change in any manner materially adverse to the interests of the Lenders, as determined in good faith by the Borrower, any term or condition of any Junior Financing Documentation in respect of any Junior Financing having an aggregate outstanding principal amount greater than the Threshold Amount (other than as a result of any Refinancing Indebtedness in respect thereof) without the consent of the Administrative Agent (which consent shall not be unreasonably withheld or delayed); provided, however, that no amendment, modification or change of any term or condition of any Junior Financing Documentation permitted by any Intercreditor Agreement in respect thereof shall be deemed to be materially adverse to the interests of the Lenders.
SECTION 7.12 Limitation on Guarantees of Indebtedness by Restricted Subsidiaries. The Borrower shall not permit any of its wholly-owned Subsidiaries that are Restricted Subsidiaries (and non-wholly-owned Subsidiaries if such non-wholly-owned Subsidiaries guarantee capital markets debt securities of the Borrower or any Subsidiary Guarantor), other than a Subsidiary Guarantor, a Foreign Subsidiary (except any Foreign Subsidiary that guarantees any Indebtedness of the Borrower under the ABL Facility or capital markets debt securities of the Borrower or any Subsidiary Guarantor) or a Securitization Subsidiary, to guarantee the payment of any Indebtedness of the Borrower or any other Guarantor unless:
(i) such Restricted Subsidiary, within 30 days after the guarantee of such Indebtedness, executes and delivers a Guarantor Joinder Agreement, providing for a Guaranty by such Restricted Subsidiary, except that with respect to a guarantee of Indebtedness of the Borrower or any Subsidiary Guarantor, if such Indebtedness is by its express terms subordinated in right of payment to the Obligations or such Subsidiary Guarantors Guaranty, any such guarantee by such Restricted Subsidiary with respect to such Indebtedness shall be subordinated in right of payment to such Guaranty substantially to the same extent as such Indebtedness is subordinated to the Obligations; and
(ii) such Restricted Subsidiary waives and shall not in any manner whatsoever claim or take the benefit or advantage of, any rights of reimbursement, indemnity or subrogation or any other rights against the Borrower or any other Restricted Subsidiary as a result of any payment by such Restricted Subsidiary under its Guaranty;
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provided that this Section 7.12 shall not be applicable to (i) any guarantee of any Restricted Subsidiary that existed at the time such Person became a Restricted Subsidiary and was not incurred in connection with, or in contemplation of, such Person becoming a Restricted Subsidiary and (ii) guarantees of any Qualified Securitization Facility by any Restricted Subsidiary. The Borrower may elect, in its sole discretion, to cause any Subsidiary that is not otherwise required to be a Guarantor to become a Guarantor, in which case such Subsidiary shall not be required to comply with the 30 day period described in clause (i) above.
SECTION 7.13 Impairment of Security Interests. Subject to the rights of the holders of Permitted Liens, neither the Borrower nor any of the Guarantors shall take any action, or knowingly or negligently omit to take any action, which action or omission might or would or could be reasonably expected to have the result of materially impairing the security interest with respect to the Collateral for the benefit of the Collateral Agent and the Lenders in contravention of the provisions of this Agreement. Notwithstanding the foregoing, the Collateral Agent and the Lenders acknowledge and agree that any release of the Liens pursuant to this Agreement and the Collateral Documents shall not be deemed to impair the security under this Agreement and that any Person may rely on such provision in delivering a certificate requesting release so long as all other provisions of this Agreement with respect to such release have been complied with.
ARTICLE VIII
Events of Default and Remedies
SECTION 8.01 Events of Default. Each of the events referred to in clauses (a) through (k) of this Section 8.01 shall constitute an Event of Default:
(a) Non-Payment. The Borrower fails to pay (i) when and as required to be paid herein, any amount of principal of any Loan, or (ii) within five (5) Business Days after the same becomes due, any interest on any Loan or any other amount payable hereunder or with respect to any other Loan Document; or
(b) Specific Covenants. The Borrower or any Restricted Subsidiary fails to perform or observe any term, covenant or agreement contained in any of Section 6.03(a) or 6.05(a) (solely with respect to the Borrower) or Article VII; or
(c) Other Defaults. Any Loan Party fails to perform or observe any other covenant or agreement (not specified in Section 8.01(a) or (b) above) contained in any Loan Document on its part to be performed or observed and such failure continues for thirty (30) days after receipt by the Borrower of written notice thereof from the Administrative Agent; or
(d) Representations and Warranties. Any representation, warranty, certification or statement of fact made or deemed made by any Loan Party herein, in any other Loan Document, or in any document required to be delivered in connection herewith or therewith shall be untrue in any material respect when made or deemed made; or
(e) Cross-Default. Any Loan Party or any Restricted Subsidiary (A) fails to make any payment beyond the applicable grace period, if any, whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise, in respect of any Indebtedness (other than Indebtedness hereunder) having an aggregate outstanding principal amount (individually or in the aggregate with all other Indebtedness as to which such a failure shall exist) of not less than the Threshold Amount, or (B) fails to observe or perform any other agreement or condition relating to any such Indebtedness, or any other event occurs (other than, with respect to Indebtedness consisting of Hedging Obligations, termination events or equivalent events pursuant to the terms of such Hedging Obligations and not as a result of any default thereunder by any Loan Party), the effect of which default or other event is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to become due or to be repurchased, prepaid, defeased or redeemed (automatically or otherwise), or an offer to repurchase, prepay, defease or redeem such Indebtedness to be made, prior to its stated maturity; provided that such failure is
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unremedied and is not waived by the holders of such Indebtedness prior to any termination of the Commitments or acceleration of the Loans pursuant to Section 8.02; provided, further, that this clause (e)(B) shall not apply to (x) secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness, if such sale or transfer is permitted hereunder and under the documents providing for such Indebtedness and (y) any Indebtedness permitted to exist or be incurred under the terms of this Agreement that is required to be repurchased, prepaid, defeased or redeemed (or as to which an offer to repurchase, prepay, defease or redeem is required to be made) in connection with any asset sale event, casualty or condemnation event, change of control (without limiting the rights of the Agents and the Lenders under Section 8.02 below), excess cash flow or other customary provision in such Indebtedness giving rise to such requirement to offer or prepay in the absence of any default thereunder; provided, further, that such failure is unremedied and is not waived by the holders of such Indebtedness; or
(f) Insolvency Proceedings, Etc. The Borrower, Holdings or Restricted Subsidiary that is a Material Subsidiary institutes or consents to the institution of any proceeding under any Debtor Relief Law, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator, administrator, administrative receiver or similar officer for it or for all or any material part of its property; or any receiver, trustee, custodian, conservator, liquidator, rehabilitator, administrator, administrative receiver or similar officer is appointed without the application or consent of such Person and the appointment continues undischarged or unstayed for sixty (60) calendar days; or any proceeding under any Debtor Relief Law relating to any such Person or to all or any material part of its property is instituted without the consent of such Person and continues undismissed or unstayed for sixty (60) calendar days, or an order for relief is entered in any such proceeding; or
(g) Judgments. There is entered against any Loan Party or any Material Subsidiary (or any group of Restricted Subsidiaries that together would constitute a Material Subsidiary) a final judgment and order for the payment of money in an aggregate amount exceeding the Threshold Amount (to the extent not covered by independent third-party insurance as to which the insurer has been notified of such judgment or order and has not denied coverage thereof) and such judgment or order shall not have been satisfied, vacated, discharged or stayed or bonded pending an appeal for a period of sixty (60) consecutive days; or
(h) ERISA. (i) An ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan which has resulted or would reasonably be expected to result in liability of any Loan Party or their respective ERISA Affiliates in an aggregate amount which would reasonably be expected to result in a Material Adverse Effect, (ii) any Loan Party or any of their respective ERISA Affiliates fails to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its Withdrawal Liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount which would reasonably be expected to result in a Material Adverse Effect, (iii) any Loan Party or an ERISA Affiliate is notified in writing by the sponsor of a Multiemployer Plan that such Multiemployer Plan is or is expected to be, in reorganization (within the meaning of Section 4242 of ERISA), insolvent (within the meaning of Section 4245 of ERISA) or in endangered or critical status (within the meaning of Section 432 of the Code or Section 305 of ERISA) except as would not reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect or (iv) with respect to a Foreign Plan a termination, withdrawal or noncompliance with applicable Law or plan terms that would reasonably be expected to result in a Material Adverse Effect; or
(i) Invalidity of Loan Documents. Any material provision of any Loan Document, at any time after its execution and delivery and for any reason other than as expressly permitted hereunder or thereunder (including as a result of a transaction permitted under Section 7.04 or 7.05 or as a result of acts or omissions by an Agent or any Lender hereunder) or prior to the satisfaction in full of all the Obligations (other than any contingent obligations not then due), ceases to be in full force and effect; or any Loan Party contests in writing the validity or enforceability of any provision of any Loan Document; or any Loan Party denies in writing that it has any or further liability or obligation under any Loan Document (other than as a result of repayment in full of the Obligations (other than any contingent obligations not then due)), or purports in writing to revoke or rescind any Loan Document; or
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(j) Collateral Documents. (i) Any Collateral Document after delivery thereof pursuant to Section 4.01, 6.11, 6.13 or Article XII shall for any reason (other than pursuant to the terms hereof or thereof including as a result of a transaction not prohibited under this Agreement) cease to create, or any Lien purported to be created by any Collateral Document shall be asserted in writing by any Loan Party not to be, a valid and perfected lien with the priority required by the Collateral Document (or other security purported to be created on the applicable Collateral) on and security interest in any material portion of the Collateral purported to be covered thereby, subject to Liens permitted under Section 7.01, except to the extent that any such perfection or priority is not required pursuant to Section 6.11 or 6.13 or Article XII or results from the failure of the Collateral Agent or the trustee under the Senior Notes Indenture to maintain possession of Collateral actually delivered to it and pledged under the Collateral Documents or to file Uniform Commercial Code amendments relating to a Loan Partys change of name or jurisdiction of formation (solely to the extent that the Borrower provides the Collateral Agent written notice thereof in accordance with the Loan Documents, and the Collateral Agent and the Borrower have agreed that the Collateral Agent will be responsible for filing such amendments) and continuation statements and except as to Collateral consisting of real property to the extent that such losses are covered by a lenders title insurance policy and such insurer has not denied coverage, or (ii) any of the Equity Interests of the Borrower ceasing to be pledged pursuant to the Security Agreement free of Liens other than Liens subject to the Equal Priority Intercreditor Agreement, the Crossing Lien Intercreditor Agreement, any other Customary Intercreditor Agreement or any nonconsensual Liens arising solely by operation of Law; or
(k) Change of Control. There occurs any Change of Control.
SECTION 8.02 Remedies upon Event of Default. If any Event of Default occurs and is continuing, the Administrative Agent may with the consent of the Required Lenders and shall, at the request of the Required Lenders, take any or all of the following actions:
(a) declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower; and
(b) exercise on behalf of itself and the Lenders all rights and remedies available to it and the Lenders under the Loan Documents or applicable Law;
provided that upon the occurrence of an actual or deemed entry of an order for relief with respect to the Borrower under Title 11 of the United States Code entitled Bankruptcy, as now or hereafter in effect, or any successor thereto (the Bankruptcy Code), the Commitments of each Lender shall automatically terminate and the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable, in each case without further act of the Administrative Agent or any Lender.
SECTION 8.03 Application of Funds. After the exercise of remedies provided for in Section 8.02 (or after the Loans have automatically become immediately due and payable as set forth in the proviso to Section 8.02), subject to the Intercreditor Agreements any amounts received on account of the Obligations shall be applied by the Administrative Agent in the following order:
First, to payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts (other than principal and interest, but including Attorney Costs payable under Section 10.04 and amounts payable under Article III) payable to the Administrative Agent in its capacity as such;
Second, to payment of that portion of the Obligations constituting fees, indemnities and other amounts (other than principal and interest, but including Attorney Costs payable under Section 10.04 and amounts payable under Article III) payable to the Lenders, ratably among them in proportion to the amounts described in this clause Second payable to them;
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Third, to payment of that portion of the Obligations constituting accrued and unpaid interest on the Loans, ratably among the Lenders in proportion to the respective amounts described in this clause Third payable to them;
Fourth, to payment of that portion of the Obligations constituting unpaid principal of the Loans, ratably among the Secured Parties in proportion to the respective amounts described in this clause Fourth held by them;
Fifth, to the payment of all other Obligations of the Loan Parties that are due and payable to the Administrative Agent and the other Secured Parties on such date, ratably based upon the respective aggregate amounts of all such Obligations owing to the Administrative Agent and the other Secured Parties on such date; and
Last, the balance, if any, after all of the Obligations have been paid in full, to the Borrower or as otherwise required by Law.
ARTICLE IX
Administrative Agent and Other Agents
SECTION 9.01 Appointment and Authorization of the Administrative Agent. Each Lender hereby irrevocably appoints Bank of America, N.A., to act on its behalf as the Administrative Agent hereunder and under the other Loan Documents and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto. The provisions of this Article IX (other than Sections 9.09, 9.10, 9.11, 9.12 and 9.16) are solely for the benefit of the Administrative Agent and the Lenders, and the Borrower shall not have rights as a third party beneficiary of any such provision.
SECTION 9.02 Rights as a Lender. Any Person serving as an Agent (including as Administrative Agent) hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not an Agent and the term Lender or Lenders shall, unless otherwise expressly indicated or unless the context otherwise requires, include each Person serving as an Agent hereunder in its individual capacity. Such Person and its Affiliates may accept deposits from, lend money to, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if such Person were not an Agent hereunder and without any duty to account therefor to the Lenders. The Lenders acknowledge that, pursuant to such activities, any Agent or its Affiliates may receive information regarding any Loan Party or any of its Affiliates (including information that may be subject to confidentiality obligations in favor of such Loan Party or such Affiliate) and acknowledge that no Agent shall be under any obligation to provide such information to them.
SECTION 9.03 Exculpatory Provisions. The Administrative Agent and the Arranger shall not have any duties or obligations except those expressly set forth in this Agreement and in the other Loan Documents, and such duties hereunder shall be administrative in nature. Without limiting the generality of the foregoing, an Agent (including the Administrative Agent) and an Arranger:
(a) shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing and without limiting the generality of the foregoing, the use of the term agent herein and in the other Loan Documents with reference to any Agent or Arranger is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable Law and instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties;
(b) shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that such Agent or Arranger is required to exercise as directed in writing by the Required
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Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents), provided that no Agent shall be required to take any action that, in its opinion or the opinion of its counsel, may expose such Agent or Arranger to liability or that is contrary to any Loan Document or applicable law, including for the avoidance of doubt any action that may be in violation of the automatic stay under any Debtor Relief Law; and
(c) shall not, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of their Affiliates that is communicated to or obtained by any Person serving as an Agent, Arranger or any of their Affiliates in any capacity.
Neither the Administrative Agent nor any of its Related Persons shall be liable for any action taken or not taken by it (i) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall be necessary, under the circumstances as provided in Sections 10.01 and 8.02) or (ii) in the absence of its own gross negligence or willful misconduct as determined by the final and non-appealable judgment of a court of competent jurisdiction, in connection with its duties expressly set forth herein. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until notice describing such Default is given to the Administrative Agent by the Borrower or a Lender.
No Agent-Related Person shall be responsible for or have any duty to ascertain or inquire into (i) any recital, statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document, or the creation, perfection or priority of any Lien purported to be created by the Collateral Documents, (v) the value or the sufficiency of any Collateral, or (vi) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent, or to inspect the properties, books or records of any Loan Party or any Affiliate thereof. The duties of the Administrative Agent shall be mechanical and administrative in nature; the Administrative Agent shall not have by reason of this Agreement or any other Loan Document a fiduciary relationship in respect of any Lender or the holder of any Term Note; and nothing in this Agreement or in any other Loan Document, expressed or implied, is intended to or shall be so construed as to impose upon the Administrative Agent any obligations in respect of this Agreement or any other Loan Document except as expressly set forth herein or therein.
Notwithstanding any other provision of this Agreement or any provision of any other Loan Document, each Arranger is named as such for recognition purposes only, and in its capacity as such shall have no powers, duties, responsibilities or liabilities with respect to this Agreement or the other Loan Documents or the transactions contemplated hereby and thereby; it being understood and agreed that each Arranger shall be entitled to all indemnification and reimbursement rights in favor of the Administrative Agent as, and to the extent, provided for under Section 10.05. Without limitation of the foregoing, each Arranger shall not, solely by reason of this Agreement or any other Loan Documents, have any fiduciary relationship in respect of any Lender or any other Person.
SECTION 9.04 Lack of Reliance on the Administrative Agent. Independently and without reliance upon the Administrative Agent, each Lender and the holder of each Term Note, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of Holdings, the Borrower and the Restricted Subsidiaries in connection with the making and the continuance of the Loans and the taking or not taking of any action in connection herewith and (ii) its own appraisal of the creditworthiness of Holdings, the Borrower and the Restricted Subsidiaries and, except as expressly provided in this Agreement, the Administrative Agent shall not have any duty or responsibility, either initially or on a continuing basis, to provide any Lender or the holder of any Term Note with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter. The Administrative Agent shall not be responsible to any Lender or the holder of any Term Note for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing
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delivered in connection herewith or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectability, priority or sufficiency of this Agreement or any other Loan Document or the financial condition of Holdings, the Borrower or any of the Restricted Subsidiaries or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or any other Loan Document, or the financial condition of Holdings, the Borrower or any of the Restricted Subsidiaries or the existence or possible existence of any Default or Event of Default.
SECTION 9.05 Certain Rights of the Administrative Agent. If the Administrative Agent requests instructions from the Required Lenders with respect to any act or action (including failure to act) in connection with this Agreement or any other Loan Document, the Administrative Agent shall be entitled to refrain from such act or taking such action unless and until the Administrative Agent shall have received instructions from the Required Lenders; and the Administrative Agent shall not incur liability to any Lender by reason of so refraining. Without limiting the foregoing, neither any Lender nor the holder of any Term Note shall have any right of action whatsoever against the Administrative Agent as a result of the Administrative Agent acting or refraining from acting hereunder or under any other Loan Document in accordance with the instructions of the Required Lenders.
SECTION 9.06 Reliance by the Administrative Agent. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon. With respect to all legal matters pertaining to this Agreement and any other Loan Document and its duties hereunder and thereunder, upon advice of counsel selected by the Administrative Agent. In determining compliance with any condition hereunder to the making of a Loan, that by its terms must be fulfilled to the satisfaction of a Lender, the Administrative Agent may presume that such condition is satisfactory to such Lender unless the Administrative Agent shall have received notice to the contrary from such Lender prior to the making of such Loan. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.
SECTION 9.07 Delegation of Duties. The Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Documents by or through any one or more sub agents appointed by the Administrative Agent. The Administrative Agent and any such sub agent may perform any and all of its duties and exercise its rights and powers by or through their respective Agent-Related Persons. The exculpatory provisions of this Article IX shall apply to any such sub agent and to the Agent-Related Persons of the Administrative Agent and any such sub agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent.
SECTION 9.08 Indemnification. Whether or not the transactions contemplated hereby are consummated, to the extent the Administrative Agent or any other Agent-Related Person (solely to the extent any such Agent-Related Person was performing services on behalf of the Administrative Agent) is not reimbursed and indemnified by the Borrower, the Lenders will reimburse and indemnify the Administrative Agent or any other Agent-Related Person (solely to the extent any such Agent-Related Person was performing services on behalf of the Administrative Agent) in proportion to their respective percentage as used in determining the Required Lenders from and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, costs, expenses or disbursements of whatsoever kind or nature which may be imposed on, asserted against or incurred by the Administrative Agent or any other Agent-Related Person (solely to the extent any such Agent-Related Person was performing services on behalf of the Administrative Agent) in performing its duties hereunder or under any other Loan Document or in any way relating to or arising out of this Agreement or any other Loan Document; provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, claims, actions, judgments, suits, costs, expenses or disbursements resulting from the Administrative Agents or any other Agent-Related Persons gross negligence or willful misconduct (as determined by a court of competent jurisdiction in a final and non-appealable decision). In the case of any investigation, litigation or proceeding giving
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rise to any Indemnified Liabilities, this Section 9.08 applies whether any such investigation, litigation or proceeding is brought by any Lender or any other Person. Without limitation of the foregoing, each Lender shall reimburse the Administrative Agent upon demand for its ratable share of any costs or out-of-pocket expenses (including Attorney Costs) incurred by the Administrative 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, any other Loan Document, or any document contemplated by or referred to herein, to the extent that the Administrative Agent is not reimbursed for such expenses by or on behalf of the Borrower, provided that such reimbursement by the Lenders shall not affect the Borrowers continuing reimbursement obligations with respect thereto, provided, further, that the failure of any Lender to indemnify or reimburse the Administrative Agent shall not relieve any other Lender of its obligation in respect thereof. The undertaking in this Section 9.08 shall survive termination of the Aggregate Commitments, the payment of all other Obligations and the resignation of the Administrative Agent.
SECTION 9.09 The Administrative Agent in Its Individual Capacity. With respect to its obligation to make Loans under this Agreement, the Administrative Agent shall have the rights and powers specified herein for a Lender and may exercise the same rights and powers as though it were not performing the duties specified herein; and the term Lender, Required Lenders or any similar terms shall, unless the context clearly indicates otherwise, include the Administrative Agent in its respective individual capacities. The Administrative Agent and its affiliates may accept deposits from, lend money to, and generally engage in any kind of banking, investment banking, trust or other business with, or provide debt financing, equity capital or other services (including financial advisory services) to any Loan Party or any Affiliate of any Loan Party (or any Person engaged in a similar business with any Loan Party or any Affiliate thereof) as if they were not performing the duties specified herein, and may accept fees and other consideration from any Loan Party or any Affiliate of any Loan Party for services in connection with this Agreement and otherwise without having to account for the same to the Lenders. The Lenders acknowledge that, pursuant to such activities, any Agent or its Affiliates may receive information regarding any Loan Party or any of its Affiliates (including information that may be subject to confidentiality obligations in favor of such Loan Party or such Affiliate) and acknowledge that no Agent shall be under any obligation to provide such information to them.
SECTION 9.10 Holders. The Administrative Agent may deem and treat the payee of any Term Note as the owner thereof for all purposes hereof unless and until a written notice of the assignment, transfer or endorsement thereof, as the case may be, shall have been filed with the Administrative Agent. Any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is the holder of any Term Note shall be conclusive and binding on any subsequent holder, transferee, assignee or endorsee, as the case may be, of such Term Note or of any Term Note or Term Notes issued in exchange therefor.
SECTION 9.11 Resignation by the Administrative Agent. The Administrative Agent may resign from the performance of all its respective functions and duties hereunder and/or under the other Loan Documents at any time by giving 30 Business Days prior written notice to the Lenders and the Borrower. If the Administrative Agent is in material breach of its obligations hereunder as Administrative Agent, then the Administrative Agent may be removed as the Administrative Agent at the reasonable request of the Required Lenders. Such resignation or removal shall take effect upon the appointment of a successor Administrative Agent as provided below.
Upon any such notice of resignation by, or notice of removal of, the Administrative Agent, the Required Lenders shall appoint a successor Administrative Agent hereunder or thereunder who shall be a commercial bank or trust company reasonably acceptable to the Borrower, which acceptance shall not be unreasonably withheld or delayed (provided that the Borrowers approval shall not be required if an Event of Default under Section 8.01(a) or, solely with respect to the Borrower, Section 8.01(f) has occurred and is continuing).
If a successor Administrative Agent shall not have been so appointed within such 30 Business Day period, the Administrative Agent, with the consent of the Borrower (which consent shall not be unreasonably withheld or delayed, provided that the Borrowers consent shall not be required if an Event of Default under Section 8.01(a) or, solely with respect to the Borrower, Section 8.01(f) has occurred and is continuing), shall then appoint a successor Administrative Agent who shall serve as Administrative Agent hereunder or thereunder until such time, if any, as the Required Lenders appoint a successor Administrative Agent as provided above.
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If no successor Administrative Agent has been appointed pursuant to the foregoing by the 35th Business Day after the date such notice of resignation was given by the Administrative Agent or such notice of removal was given by the Required Lenders or the Borrower, as applicable, the Administrative Agents resignation shall nonetheless become effective and the Required Lenders shall thereafter perform all the duties of the Administrative Agent hereunder and/or under any other Loan Document until such time, if any, as the Required Lenders appoint a successor Administrative Agent as provided above. The retiring Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents (except that in the case of any collateral security held by the Administrative Agent on behalf of the Lenders under any of the Loan Documents, the retiring Administrative Agent shall continue to hold such collateral security until such time as a successor Administrative Agent is appointed) and all payments, communications and determinations provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender directly, until such time as the Required Lenders appoint a successor Administrative Agent as provided for above in this Section 9.11.
Upon the acceptance of a successors appointment as Administrative Agent hereunder and upon the execution and filing or recording of such financing statements, or amendments thereto, and such amendments or supplements to the Mortgages, and such other instruments or notices, as may be necessary or desirable, or as the Required Lenders may request, in order to (i) continue the perfection of the Liens granted or purported to be granted by the Collateral Documents or (ii) otherwise ensure that requirements of Section 6.11, 6.13 and Article XII are satisfied, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring (or retired) Administrative Agent, and the retiring Administrative Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents (if not already discharged therefrom as provided above in this Section 9.11).
The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the retiring Administrative Agents resignation hereunder and under the other Loan Documents, the provisions of this Article IX and Sections 10.04 and 10.05 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Agent-Related Persons in respect of any actions taken or omitted to be taken by any of them while the retiring Administrative Agent was acting as Administrative Agent.
Upon a resignation of the Administrative Agent pursuant to this Section 9.11, the Administrative Agent (i) shall continue to be subject to Section 10.08 and (ii) shall remain indemnified to the extent provided in this Agreement and the other Loan Documents and the provisions of this Article IX (and the analogous provisions of the other Loan Documents) shall continue in effect for the benefit of the Administrative Agent for all of its actions and inactions while serving as the Administrative Agent.
SECTION 9.12 Collateral Matters. Each Lender irrevocably authorizes and directs the Collateral Agent to take the actions to be taken by them as set forth in Article XII, in cash case subject to the terms of the Intercreditor Agreements, as applicable.
SECTION 9.13 Delegation of Duties. The Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Documents by or through any one or more sub agents appointed by the Administrative Agent. The Administrative Agent and any such sub agent may perform any and all of its duties and exercise its rights and powers by or through their respective Agent-Related Persons. The exculpatory provisions of this Article IX shall apply to any such sub agent and to the Agent-Related Persons of the Administrative Agent and any such sub agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent.
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SECTION 9.14 Administrative Agent May File Proofs of Claim. In case of the pendency of any proceeding under any Debtor Relief Law or any other judicial proceeding relative to any Loan Party, the Administrative Agent (irrespective of whether the principal of any Loan shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered, by intervention in such proceeding or otherwise:
(a) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans 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 the Lenders and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders and the Administrative Agent under Sections 2.07 and 10.04) allowed in such judicial proceeding; and
(b) 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, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Agents and their respective agents and counsel, and any other amounts due the Administrative Agent under Sections 2.07 and 10.04.
Nothing contained herein shall be deemed to authorize the Administrative 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 the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding.
The Secured Parties hereby irrevocably authorize the Administrative Agent, at the direction of the Required Lenders, to credit bid all or any portion of the Obligations (including accepting some or all of the Collateral in satisfaction of some or all of the Obligations pursuant to a deed in lieu of foreclosure or otherwise) and in such manner purchase (either directly or through one or more acquisition vehicles) all or any portion of the Collateral (a) at any sale thereof conducted under the provisions of the Bankruptcy Code of the United States, including under Sections 363, 1123 or 1129 of the Bankruptcy Code of the United States, or any similar Laws in any other jurisdictions to which a Loan Party is subject, (b) at any other sale or foreclosure or acceptance of collateral in lieu of debt conducted by (or with the consent or at the direction of) the Administrative Agent (whether by judicial action or otherwise) in accordance with any applicable Law. In connection with any such credit bid and purchase, the Obligations owed to the Secured Parties shall be entitled to be, and shall be, credit bid on a ratable basis (with Obligations with respect to contingent or unliquidated claims receiving contingent interests in the acquired assets on a ratable basis that would vest upon the liquidation of such claims in an amount proportional to the liquidated portion of the contingent claim amount used in allocating the contingent interests) in the asset or assets so purchased (or in the Equity Interests or debt instruments of the acquisition vehicle or vehicles that are used to consummate such purchase). In connection with any such bid (i) the Administrative Agent shall be authorized to form one or more acquisition vehicles to make a bid, (ii) to adopt documents providing for the governance of the acquisition vehicle or vehicles (provided that any actions by the Administrative Agent with respect to such acquisition vehicle or vehicles, including any disposition of the assets or Equity Interests thereof shall be governed, directly or indirectly, by the vote of the Required Lenders, irrespective of the termination of this Agreement and without giving effect to the limitations on actions by the Required Lenders contained in clauses (a) through (g) of Section 10.01 of this Agreement, (iii) the Administrative Agent shall be authorized to assign the relevant Obligations to any such acquisition vehicle pro rata by the Lenders, as a result of which each of the Lenders shall be deemed to have received a pro rata portion of any Equity Interests and/or debt instruments issued by such an acquisition vehicle on account of the assignment of the Obligations to be credit bid, all without the need for any Secured Party or acquisition vehicle to take any further action, and (iv) to the extent that Obligations that are assigned to an acquisition vehicle are not used to acquire Collateral for any reason (as a result of another bid being higher or better, because the amount of Obligations assigned to the acquisition vehicle exceeds the amount of debt credit bid by the acquisition vehicle or otherwise), such Obligations shall automatically be reassigned to the Lenders pro rata and the Equity Interests and/or debt instruments issued by any acquisition vehicle on account of the Obligations that had been assigned to the acquisition vehicle shall automatically be cancelled, without the need for any Secured Party or any acquisition vehicle to take any further action.
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SECTION 9.15 Appointment of Supplemental Administrative Agents.
(a) It is the purpose of this Agreement and the other Loan Documents that there shall be no violation of any Law of any jurisdiction denying or restricting the right of banking corporations or associations to transact business as agent or trustee in such jurisdiction. It is recognized that in case of litigation under this Agreement or any of the other Loan Documents, and in particular in case of the enforcement of any of the Loan Documents, or in case the Administrative Agent deems that by reason of any present or future Law of any jurisdiction it may not exercise any of the rights, powers or remedies granted herein or in any of the other Loan Documents or take any other action which may be desirable or necessary in connection therewith, the Administrative Agent is hereby authorized to appoint an additional individual or institution selected by the Administrative Agent in its sole discretion as a separate trustee, co-trustee, administrative agent, collateral agent, administrative sub-agent or administrative co-agent (any such additional individual or institution being referred to herein individually as a Supplemental Administrative Agent and collectively as Supplemental Administrative Agents).
(b) In the event that the Administrative Agent appoints a Supplemental Administrative Agent with respect to any Collateral, (i) each and every right, power, privilege or duty expressed or intended by this Agreement or any of the other Loan Documents to be exercised by or vested in or conveyed to the Administrative Agent with respect to such Collateral shall be exercisable by and vest in such Supplemental Administrative Agent to the extent, and only to the extent, necessary to enable such Supplemental Administrative Agent to exercise such rights, powers and privileges with respect to such Collateral and to perform such duties with respect to such Collateral, and every covenant and obligation contained in the Loan Documents and necessary to the exercise or performance thereof by such Supplemental Administrative Agent shall run to and be enforceable by either the Administrative Agent or such Supplemental Administrative Agent, and (ii) the provisions of this Article IX and of Sections 10.04 and 10.05 that refer to the Administrative Agent shall inure to the benefit of such Supplemental Administrative Agent and all references therein to the Administrative Agent shall be deemed to be references to the Administrative Agent and/or such Supplemental Administrative Agent, as the context may require.
(c) Should any instrument in writing from any Loan Party be reasonably required by any Supplemental Administrative Agent so appointed by the Administrative Agent for more fully and certainly vesting in and confirming to him or it such rights, powers, privileges and duties, the Borrower shall, or shall cause such Loan Party to, execute, acknowledge and deliver any and all such instruments reasonably acceptable to it promptly upon request by the Administrative Agent. In case any Supplemental Administrative Agent, or a successor thereto, shall die, become incapable of acting, resign or be removed, all the rights, powers, privileges and duties of such Supplemental Administrative Agent, to the extent permitted by Law, shall vest in and be exercised by the Administrative Agent until the appointment of a new Supplemental Administrative Agent.
SECTION 9.16 Intercreditor Agreements. The Administrative Agent is hereby authorized to enter into any Intercreditor Agreement to the extent contemplated by the terms hereof, and the parties hereto acknowledge that such Intercreditor Agreement is binding upon them. Each Lender (a) hereby agrees that it will be bound by and will take no actions contrary to the provisions of the Intercreditor Agreements, (b) hereby authorizes and instructs the Administrative Agent to enter into the Intercreditor Agreements and to subject the Liens on the Collateral securing the Obligations to the provisions thereof and (c) without any further consent of the Lenders, hereby authorizes and instructs the Administrative Agent to negotiate, execute and deliver on behalf of the Secured Parties any intercreditor agreement or any amendment (or amendment and restatement) to the Collateral Documents or a Customary Intercreditor Agreement to effect the provisions contemplated by clause (ii) of the definition of Permitted Liens. In addition, each Lender hereby authorizes the Administrative Agent to enter into (i) any amendments to any Intercreditor Agreements, and (ii) any other intercreditor arrangements, in the case of clauses (i), and (ii) to the extent required to give effect to the establishment of intercreditor rights and privileges as contemplated and required or permitted by Section 7.01 of this Agreement. Each Lender acknowledges and agrees that any of the Administrative Agent (or one or more of their respective Affiliates) may (but are not obligated to) act as the Senior Representative or like term for the holders of Credit Agreement Refinancing Indebtedness under the security agreements with respect thereto and/or under the Crossing Lien Intercreditor Agreement, the Equal Priority
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Intercreditor Agreement or other Customary Intercreditor Agreement. Each Lender waives any conflict of interest, now contemplated or arising hereafter, in connection therewith and agrees not to assert against any Agent or any of its affiliates any claims, causes of action, damages or liabilities of whatever kind or nature relating thereto.
SECTION 9.17 Withholding Tax. To the extent required by any applicable Laws, the Administrative Agent may withhold from any payment to any Lender an amount equivalent to any applicable withholding Tax. Without limiting or expanding the provisions of Section 3.01, each Lender shall indemnify and hold harmless the Administrative Agent against, and shall make payable in respect thereof within 10 days after demand therefor, any and all Taxes and any and all related losses, claims, liabilities and expenses (including fees, charges and disbursements of any counsel for the Administrative Agent) incurred by or asserted against the Administrative Agent by the IRS or any other Governmental Authority as a result of the failure of the Administrative Agent to properly withhold Tax from amounts paid to or for the account of such Lender for any reason (including, without limitation, because the appropriate form was not delivered or not properly executed, or because such Lender failed to notify the Administrative Agent of a change in circumstance that rendered the exemption from, or reduction of withholding Tax ineffective). A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error. Each Lender hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender under this Agreement or any other Loan Document against any amount due the Administrative Agent under this Section 9.17. The agreements in this Section 9.17 shall survive the resignation and/or replacement of the Administrative Agent, any assignment of rights by, or the replacement of, a Lender, the termination of the Commitments and the repayment, satisfaction or discharge of all other Obligations.
ARTICLE X
Miscellaneous
SECTION 10.01 Amendments, Etc. Except as otherwise set forth in this Agreement, no amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent to any departure by the Borrower or any other Loan Party therefrom, shall be effective unless in writing signed by the Required Lenders (other than with respect to any amendment or waiver contemplated in clause (g) below (in the case of clause (g), to the extent permitted by Section 2.12), which shall only require the consent of the Required Facility Lenders under the applicable Facility or Facilities, as applicable) (or by the Administrative Agent with the consent of the Required Lenders) and the Borrower or the applicable Loan Party, as the case may be, and acknowledged by the Administrative Agent, and the Administrative Agent hereby agrees to acknowledge any such waiver, consent or amendment that otherwise satisfies the requirements of this Section 10.01 as promptly as possible, however, to the extent the final form of such waiver, consent or amendment has been delivered to the Administrative Agent at least one Business Day prior to the proposed effectiveness of the consents by the Lenders party thereto, the Administrative Agent shall acknowledge such waiver, consent or amendment (i) immediately, in the case of any amendment which does not require the consent of any existing Lender under this Agreement or (ii) otherwise, within two hours of the time copies of the Required Lender consents or other applicable Lender consents required by this Section 10.01 have been provided to the Administrative Agent; and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, that no such amendment, waiver or consent shall:
(a) extend or increase the Commitment of any Lender without the written consent of such Lender (it being understood that a waiver of any condition precedent set forth in Section 4.01 or the waiver of any Default, mandatory prepayment or mandatory reduction of the Commitments shall not constitute extension or increase of any Commitment of any Lender);
(b) postpone any date scheduled for, or reduce the amount of, any payment of principal or interest under Section 2.05 or 2.06 (other than pursuant to Section 2.06(b)) or any payment of fees or premiums hereunder or under any Loan Document with respect to payments to any Lender without the written consent of such Lender, it being understood that the waiver of (or amendment to the terms of) any mandatory prepayment of the Loans shall not constitute a postponement of any date scheduled for the payment of principal or interest and it being further understood that any change to the definition of Senior Net Leverage Ratio, Secured Net Leverage Ratio, Consolidated Net Leverage Ratio or Fixed Charge Coverage Ratio or, in each case, in the component definitions thereof shall not constitute a reduction in any amount of interest;
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(c) reduce the principal of, or the rate of interest specified herein on, any Loan, or (subject to clause (iii) of the proviso immediately succeeding clause (g) of this Section 10.01) any fees or other amounts payable hereunder or under any other Loan Document to any Lender without the written consent of such Lender, it being understood that any change to the definition of Senior Net Leverage Ratio, Secured Net Leverage Ratio, Consolidated Net Leverage Ratio or Fixed Charge Coverage Ratio or, in each case, in the component definitions thereof shall not constitute a reduction in any rate of interest; provided that only the consent of the Required Lenders shall be necessary to amend the definition of Default Rate or to waive any obligation of the Borrower to pay interest at the Default Rate;
(d) except as contemplated by clause (c) in the sentence immediately after the proviso immediately succeeding clause (g) of this Section 10.01, change any provision of this Section 10.01 or the definition of Required Lenders, Required Facility Lenders or any other provision specifying the number of Lenders or portion of the Loans or Commitments required to take any action under the Loan Documents, without the written consent of each Lender directly and adversely affected thereby;
(e) other than in a transaction permitted under Section 7.04 or Section 7.05, release all or substantially all of the Collateral in any transaction or series of related transactions, without the written consent of each Lender;
(f) other than in a transaction permitted under Section 7.04 or Section 7.05, release all or substantially all of the aggregate value of the Guaranty, without the written consent of each Lender;
(g) amend, waive or otherwise modify any term or provision (including the availability and conditions to funding under Section 2.12 with respect to Incremental Term Loans and the rate of interest applicable thereto) which directly affects Lenders of one or more Incremental Term Loans and does not directly affect Lenders under any other Facility, in each case, without the written consent of the Required Facility Lenders under such applicable Incremental Term Loans (and in the case of multiple Facilities which are affected, such Required Facility Lenders shall consent together as one Facility); provided, however, that, to the extent permitted under Section 2.12, the waivers described in this clause (g) shall only require the consent of the Required Facility Lenders under such applicable Incremental Term Loans;
and provided, further, that (i) no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above, affect the rights or duties of, or any fees or other amounts payable to, the Administrative Agent under this Agreement or any other Loan Document; (ii) Section 10.07(g) may not be amended, waived or otherwise modified without the consent of each Granting Lender all or any part of whose Loans are being funded by an SPC at the time of such amendment, waiver or other modification; and (iii) the consent of the applicable Required Facility Lenders shall be required with respect to any amendment that by its terms adversely affects the rights of Lenders under one or more Term Facilities (and in the case of multiple Term Facilities which are so adversely affected, such Required Facility Lenders shall consent together as one Term Facility) in respect of payments hereunder in a manner different than such amendment affects other Term Facilities.
Notwithstanding the foregoing,
(a) no Lender consent is required to effect any amendment or supplement to the Crossing Lien Intercreditor Agreement, the Equal Priority Intercreditor Agreement or any other Customary Intercreditor Agreement (i) that is for the purpose of adding the holders of Permitted Incremental Equivalent Debt, Credit Agreement Refinancing Indebtedness, Permitted Ratio Debt or any other Permitted Indebtedness that is Secured Indebtedness (or a Senior Representative with respect thereto) as parties thereto, as expressly contemplated by the terms of such Crossing Lien Intercreditor Agreement, such Equal Priority Intercreditor Agreement or such other Customary Intercreditor Agreement, as applicable (it being understood that any such amendment, modification or supplement may make such other changes to the applicable Intercreditor Agreement as, in the good faith determination of the Administrative Agent, are
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required to effectuate the foregoing and provided, that such other changes are not adverse, in any material respect, to the interests of the Lenders) or (ii) that is expressly contemplated by the Crossing Lien Intercreditor Agreement (or the comparable provisions, if any, of the Equal Priority Intercreditor Agreement or other Customary Intercreditor Agreement); provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent or the Collateral Agent hereunder or under any other Loan Document without the prior written consent of the Administrative Agent or the Collateral Agent, as applicable;
(b) this Agreement may be amended (or amended and restated) with the written consent of the Required Lenders, the Administrative Agent and the Borrower (i) to add one or more additional credit facilities to this Agreement and to permit the extensions of credit from time to time outstanding thereunder and the accrued interest and fees in respect thereof to share ratably in the benefits of this Agreement and the other Loan Documents with the Term Loans and the accrued interest and fees in respect thereof and (ii) to include appropriately the Lenders holding such credit facilities in any determination of the Required Lenders;
(c) (i) any waiver, amendment or modification of this Agreement that by its terms affects the rights or duties under this Agreement of Lenders holding Loans or Commitments of a particular Class (but not the Lenders holding Loans or Commitments of any other Class) may be effected by an agreement or agreements in writing entered into by the Borrower and the requisite percentage in interest of the affected Class of Lenders that would be required to consent thereto under this Section 10.01 if such Class of Lenders were the only Class of Lenders hereunder at the time, (ii) any provision of this Agreement or any other Loan Document may be amended by an agreement in writing entered into by the Borrower and the Administrative Agent to cure any ambiguity, omission, defect or inconsistency (including, without limitation, amendments, supplements or waivers to any of the Collateral Documents, guarantees, intercreditor agreements or related documents executed by any Loan Party or any other Subsidiary in connection with this Agreement if such amendment, supplement or waiver is delivered in order to cause such Collateral Documents, guarantees, intercreditor agreements or related documents to be consistent with this Agreement and the other Loan Documents) so long as, in each case, the Lenders shall have received at least five Business Days prior written notice thereof and the Administrative Agent shall not have received, within five Business Days of the date of such notice to the Lenders, a written notice from the Required Lenders stating that the Required Lenders object to such amendment; provided that the consent of the Lenders or the Required Lenders, as the case may be, shall not be required to make any such changes necessary to be made in connection with any borrowing of Incremental Term Loans, any borrowing of Other Term Loans, any Extension or any borrowing of Replacement Loans and otherwise to effect the provisions of Section 2.12, 2.13 or 2.14 or the immediately succeeding paragraph of this Section 10.01, respectively, and (C) the Borrower and the Administrative Agent may, without the input or consent of the other Lenders, (i) effect changes to any Mortgage as may be necessary or appropriate in the opinion of the Collateral Agent and (ii) effect changes to this Agreement that are necessary and appropriate to provide for the mechanics contemplated by the offering process set forth in Section 2.03(a)(iv).
In addition, notwithstanding the foregoing, this Agreement may be amended with the written consent of the Administrative Agent, the Borrower and the Lenders providing the Replacement Loans (as defined below) to permit the refinancing of all outstanding Term Loans of any Class (Refinanced Loans) with replacement term loans (Replacement Loans) hereunder; provided that (a) the aggregate principal amount of such Replacement Loans shall not exceed the aggregate principal amount of such Refinanced Loans, plus accrued interest, fees, premiums (if any) and penalties thereon and reasonable fees and expenses incurred in connection with such refinancing of Refinanced Loans with such Replacement Loans, (b) the All-In Yield with respect to such Replacement Loans (or similar interest rate spread applicable to such Replacement Loans) shall not be higher than the All-In Yield for such Refinanced Loans (or similar interest rate spread applicable to such Refinanced Loans) immediately prior to such refinancing, (c) the Weighted Average Life to Maturity of such Replacement Loans shall not be shorter than the Weighted Average Life to Maturity of such Refinanced Loans at the time of such refinancing (except by virtue of amortization or prepayment of the Refinanced Loans prior to the time of such incurrence) and (d) all other terms applicable to such Replacement Loans shall be substantially identical to, or less favorable to the Lenders providing such Replacement Loans than, those applicable to such Refinanced Loans, except to the extent necessary to provide for covenants and other terms applicable to any period after the Latest Maturity Date of the
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Loans in effect immediately prior to such refinancing. Each amendment to this Agreement providing for Replacement Loans may, without the consent of any other Lenders, effect such amendments to this Agreement and the other Loan Documents as may be necessary or appropriate, in the reasonable opinion of the Administrative Agent and the Borrower to effect the provisions of this paragraph, and for the avoidance of doubt, this paragraph shall supersede any other provisions in this Section 10.01 to the contrary.
Notwithstanding anything to the contrary contained in this Section 10.01, the Guaranty, the Collateral Documents and related documents executed by Subsidiaries in connection with this Agreement and the other Loan Documents may be in a form reasonably determined by the Administrative Agent and may be, together with this Agreement, amended and waived with the consent of the Administrative Agent at the request of the Borrower without the need to obtain the consent of any other Lender if such amendment or waiver is delivered in order (i) to comply with local Law or advice of local counsel, (ii) to cure ambiguities or defects or (iii) to cause the Guaranty, Collateral Documents or other document to be consistent with this Agreement and the other Loan Documents (including by adding additional parties as contemplated herein).
If the Administrative Agent and the Borrower shall have jointly identified an obvious error (including, but not limited to, an incorrect cross-reference) or any error or omission of a technical or immaterial nature, in each case, in any provision of this Agreement or any other Loan Document (including, for the avoidance of doubt, any exhibit, schedule or other attachment to any Loan Document), then the Administrative Agent (acting in its sole discretion) and the Borrower or any other relevant Loan Party shall be permitted to amend such provision and such amendment shall become effective without any further action or consent of any other party to any Loan Document.
SECTION 10.02 Notices and Other Communications; Facsimile Copies.
(a) General. Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in subsection (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by facsimile as follows, and all notices and other communications expressly permitted hereunder to be given by telephone shall be made to the applicable telephone number, as follows:
(i) if to Holdings, the Borrower or the Administrative Agent, to the address, facsimile number, electronic mail address or telephone number specified for such Person on Schedule 10.02; and
(ii) if to any other Lender, to the address, facsimile number, electronic mail address or telephone number specified in its Administrative Questionnaire.
Notices and other communications sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices and other communications sent 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). Notices and other communications delivered through electronic communications to the extent provided in subsection (b) below shall be effective as provided in such subsection (b).
(b) Electronic Communication. Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent, provided that the foregoing shall not apply to notices to any Lender pursuant to Article II if such Lender, as applicable, has notified the Administrative Agent that it is incapable of receiving notices under such Article II by electronic communication. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it, provided that approval of such procedures may be limited to particular notices or communications.
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(c) Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the senders receipt of an acknowledgement from the intended recipient (such as by the return receipt requested function, as available, return e-mail or other written acknowledgement), provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next Business Day for the recipient, and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor.
(d) The Platform. THE PLATFORM IS PROVIDED AS IS AND AS AVAILABLE. THE AGENT PARTIES (AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE BORROWER MATERIALS OR THE ADEQUACY OF THE PLATFORM, AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS IN OR OMISSIONS FROM THE BORROWER MATERIALS. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY ANY AGENT PARTY IN CONNECTION WITH THE BORROWER MATERIALS OR THE PLATFORM. In no event shall the Administrative Agent or any of its Agent-Related Persons or any Arranger (collectively, the Agent Parties) have any liability to Holdings, the Borrower, any Lender, or any other Person for losses, claims, damages, liabilities or expenses of any kind (whether in tort, contract or otherwise) arising out of the Borrower or the Administrative Agents transmission of Borrower Materials through the Internet, except to the extent that such losses, claims, damages, liabilities or expenses are determined by a court of competent jurisdiction by a final and non-appealable judgment to have resulted from the gross negligence, bad faith or willful misconduct of such Agent Party; provided, however, that in no event shall any Agent Party have any liability to Holdings, the Borrower, any Lender or any other Person for indirect, special, incidental, consequential or punitive damages (as opposed to direct or actual damages).
(e) Change of Address. Holdings, the Borrower and the Administrative Agent may change its address, facsimile or telephone number for notices and other communications hereunder by written notice to the other parties hereto. Each other Lender may change its address, facsimile or telephone number for notices and other communications hereunder by written notice to the Borrower and the Administrative Agent. In addition, each Lender agrees to notify the Administrative Agent from time to time to ensure that the Administrative Agent has on record (i) an effective address, contact name, telephone number, facsimile number and electronic mail address to which notices and other communications may be sent and (ii) accurate wire instructions for such Lender. Furthermore, each Public Lender agrees to cause at least one individual at or on behalf of such Public Lender to at all times have selected the Private Side Information or similar designation on the content declaration screen of the Platform in order to enable such Public Lender or its delegate, in accordance with such Public Lenders compliance procedures and applicable Law, including United States Federal and state securities Laws, to make reference to Borrower Materials that are not made available through the Public Side Information portion of the Platform and that may contain material non-public information with respect to the Borrower or its securities for purposes of United States Federal or state securities laws.
(f) Reliance by the Administrative Agent. The Administrative Agent and the Lenders shall be entitled to rely and act upon any notices (including telephonic Committed Loan Notices) purportedly given by or on behalf of the Borrower even if (i) such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof. The Borrower shall indemnify the Administrative Agent, each Lender and the Agent-Related Persons of each of them from all losses, costs, expenses and liabilities resulting from the reliance by such Person on each notice purportedly given by or on behalf of the Borrower. All telephonic notices to and other telephonic communications with the Administrative Agent may be recorded by the Administrative Agent, and each of the parties hereto hereby consents to such recording.
SECTION 10.03 No Waiver; Cumulative Remedies. No failure by any Lender or the Administrative Agent to exercise, and no delay by any such Person in exercising, any right, remedy, power or privilege hereunder or under any other Loan Document shall operate as a waiver thereof; nor shall any single or
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partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided, and provided under each other Loan Document, are cumulative and not exclusive of any rights, remedies, powers and privileges provided by Law.
Notwithstanding anything to the contrary contained herein or in any other Loan Document, the authority to enforce rights and remedies hereunder and under the other Loan Documents against the Loan Parties or any of them shall be vested exclusively in, and all actions and proceedings at law in connection with such enforcement shall be instituted and maintained exclusively by, the Administrative Agent in accordance with Section 8.02 for the benefit of all the Lenders; provided, however, that the foregoing shall not prohibit (a) the Administrative Agent from exercising on its own behalf the rights and remedies that inure to its benefit (solely in its capacity as Administrative Agent) hereunder and under the other Loan Documents, (b) any Lender from exercising setoff rights in accordance with Section 10.09 (subject to the terms of Section 2.11), or (c) any Lender from filing proofs of claim or appearing and filing pleadings on its own behalf during the pendency of a proceeding relative to any Loan Party under any Debtor Relief Law; and provided, further, that if at any time there is no Person acting as Administrative Agent hereunder and under the other Loan Documents, then (i) the Required Lenders shall have the rights otherwise ascribed to the Administrative Agent pursuant to Section 8.02 and (ii) in addition to the matters set forth in clauses (b) and (c) of the preceding proviso and subject to Section 2.11, any Lender may, with the consent of the Required Lenders, enforce any rights and remedies available to it and as authorized by the Required Lenders.
SECTION 10.04 Costs and Expenses. The Borrower agrees (a) if the Closing Date occurs, to pay or reimburse the Administrative Agent and the Arranger for all reasonable and documented out-of-pocket costs and expenses of the Administrative Agent and the Arranger (promptly following a written demand therefor, together with backup documentation supporting such reimbursement request) incurred in connection with the preparation, negotiation, syndication, execution, delivery and administration of this Agreement and the other Loan Documents and any amendment, waiver, consent or other modification of the provisions hereof and thereof (whether or not the transactions contemplated thereby are consummated), and the consummation and administration of the transactions contemplated hereby and thereby, including all Attorney Costs of Fried, Frank, Harris, Shriver & Jacobson LLP and, if necessary, a single local counsel in each relevant material jurisdiction, and (b) upon presentation of a summary statement, together with any supporting documentation reasonably requested by the Borrower, to pay or reimburse the Administrative Agent and the Lenders, taken as a whole, promptly following a written demand therefor for all reasonable and documented out-of-pocket costs and expenses incurred in connection with the enforcement of any rights or remedies under this Agreement or the other Loan Documents (including all such costs and expenses incurred during any legal proceeding, including any proceeding under any Debtor Relief Law, and including all Attorney Costs of one counsel to the Administrative Agent and the Lenders taken as a whole (and, if necessary, one local counsel in any relevant material jurisdiction and solely in the case of a conflict of interest, one additional counsel in each relevant jurisdiction to each group of affected Lenders similarly situated taken as a whole)). The agreements in this Section 10.04 shall survive the termination of the Aggregate Commitments and repayment of all other Obligations. All amounts due under this Section 10.04 shall be paid promptly following receipt by the Borrower of an invoice relating thereto setting forth such expenses in reasonable detail. If any Loan Party fails to pay when due any costs, expenses or other amounts payable by it hereunder or under any Loan Document, such amount may be paid on behalf of such Loan Party by the Administrative Agent in its sole discretion.
SECTION 10.05 Indemnification by the Borrower. The Borrower shall indemnify and hold harmless the Agents, each Lender, the Arranger and their respective Related Persons (collectively, the Indemnitees) from and against any and all losses, claims, damages, liabilities or expenses (including Attorney Costs and Environmental Liability) to which any such Indemnitee may become subject arising out of, resulting from or in connection with (but limited, in the case of legal fees and expenses, to the reasonable and documented out-of-pocket fees, disbursements and other charges of one counsel to all Indemnitees taken as a whole and, if reasonably necessary, a single local counsel for all Indemnitees taken as a whole in each relevant jurisdiction, and solely in the case of a conflict of interest, one additional counsel in each relevant jurisdiction to each group of affected Indemnitees similarly situated taken as a whole) any actual or threatened claim, litigation, investigation or proceeding relating to the Transactions or to the execution, delivery, enforcement, performance and administration of this Agreement, the other Loan Documents, the Loans or the use, or proposed use of the proceeds therefrom, whether based on contract, tort or any other theory (including any investigation of, preparation for, or defense of any pending or threatened claim, litigation, investigation or proceeding), and regardless of whether any Indemnitee is a
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party thereto (all the foregoing, collectively, the Indemnified Liabilities); provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or expenses resulted from (x) the gross negligence, bad faith or willful misconduct of such Indemnitee or any of its Related Indemnified Persons as determined by a final, non-appealable judgment of a court of competent jurisdiction, (y) a material breach of any obligations under any Loan Document by such Indemnitee or any of its Related Indemnified Persons as determined by a final, non-appealable judgment of a court of competent jurisdiction or (z) any dispute solely among Indemnitees other than any claims against an Indemnitee in its capacity or in fulfilling its role as an administrative agent or arranger or any similar role under any Loan Document and other than any claims arising out of any act or omission of the Borrower or any of their Affiliates (as determined by a final, non-appealable judgment of a court of competent jurisdiction). To the extent that the undertakings to indemnify and hold harmless set forth in this Section 10.05 may be unenforceable in whole or in part because they are violative of any applicable law or public policy, the Borrower shall contribute the maximum portion that they are permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by the Indemnitees or any of them. No Indemnitee shall be liable for any damages arising from the use by others of any information or other materials obtained through SyndTrak or other similar information transmission systems in connection with this Agreement (except to the extent such damages are found in a final non-appealable judgment of a court of competent jurisdiction to have resulted from the willful misconduct, bad faith or gross negligence of such Indemnitee), nor shall any Indemnitee or any Loan Party have any liability for any special, punitive, indirect or consequential damages relating to this Agreement or any other Loan Document or arising out of its activities in connection herewith or therewith (whether before or after the Closing Date) (other than, in the case of any Loan Party, in respect of any such damages incurred or paid by an Indemnitee to a third party for which such Indemnitee is otherwise entitled to indemnification pursuant to this Section 10.05). In the case of an investigation, litigation or other proceeding to which the indemnity in this Section 10.05 applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by any Loan Party, its directors, stockholders or creditors or an Indemnitee or any other Person, whether or not any Indemnitee is otherwise a party thereto and whether or not any of the transactions contemplated hereunder or under any of the other Loan Documents is consummated. All amounts due under this Section 10.05 shall be paid within twenty (20) Business Days after written demand therefor. The agreements in this Section 10.05 shall survive the resignation of the Administrative Agent, the replacement of any Lender, the termination of the Aggregate Commitments and the repayment, satisfaction or discharge of all the other Obligations. This Section 10.05 shall not apply to Taxes, except any Taxes that represent losses or damages arising from any non-Tax claim. Notwithstanding the foregoing, each Indemnitee shall be obligated to refund and return promptly any and all amounts paid by the Borrower, Holdings, the Sponsor or any of their Affiliates under this Section 10.05 to such Indemnitee for any such fees, expenses or damages to the extent such Indemnitee is not entitled to payment of such amounts in accordance with the terms hereof.
SECTION 10.06 Marshaling; Payments Set Aside. None of the Administrative Agent or any Lender shall be under any obligation to marshal any assets in favor of the Loan Parties or any other party or against or in payment of any or all of the Obligations. To the extent that any payment by or on behalf of the Borrower is made to any Agent or any Lender, or any Agent or any Lender exercises its right of setoff, and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by such Agent or such Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any Debtor Relief Law or otherwise, then (a) to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such setoff had not occurred, and (b) each Lender severally agrees to pay to the Administrative Agent upon demand its applicable share of any amount so recovered from or repaid by any Agent, plus interest thereon from the date of such demand to the date such payment is made at a rate per annum equal to the applicable Overnight Rate from time to time in effect.
SECTION 10.07 Successors and Assigns.
(a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and registered assigns permitted hereby, except that neither Holdings nor the Borrower may, except as permitted by Section 7.04, assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent and each Lender and no Lender may assign or otherwise transfer any of its rights or obligations hereunder (including, without limitation, to existing Lenders and their Affiliates) except (i) to an assignee in accordance with the provisions of Section 10.07(b) (such an
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assignee, an Eligible Assignee) and (A) in the case of any Eligible Assignee that, immediately prior to or upon giving effect to such assignment, is an Affiliated Lender, Section 10.07(h), (B) in the case of any Eligible Assignee that is Holdings, the Borrower or any Subsidiary thereof, Section 10.07(l) or (C) in the case of any Eligible Assignee that, immediately prior to or upon giving effect to such assignment, is a Debt Fund Affiliate, Section 10.07(k), (ii) by way of participation in accordance with the provisions of Section 10.07(d), (iii) by way of pledge or assignment of a security interest subject to the restrictions of Section 10.07(f), or (iv) to an SPC in accordance with the provisions of Section 10.07(g) (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in Section 10.07(d) and, to the extent expressly contemplated hereby, Indemnitees and Related Persons of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.
(b) Assignments by Lenders. Any Lender may at any time assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that any such assignment shall be subject to the following conditions:
(i) Minimum Amounts.
(A) in the case of an assignment of the entire remaining amount of the assigning Lenders Commitment and the Loans at the time owing to it or in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, no minimum amount need be assigned; and
(B) in any case not described in subsection (b)(i)(A) of this Section 10.07, the aggregate amount of the Commitment or, the principal outstanding balance of the Loans of the assigning Lender subject to each such assignment, determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent or, if Trade Date is specified in the Assignment and Assumption, as of the Trade Date, shall not be less than $1,000,000 unless each of the Administrative Agent and, so long as no Event of Default under Section 8.01(a) or, solely with respect to the Borrower, Section 8.01(f) has occurred and is continuing, the Borrower otherwise consents (each such consent not to be unreasonably withheld or delayed); provided, however, that concurrent assignments to members of an Assignee Group and concurrent assignments from members of an Assignee Group to a single Eligible Assignee (or to an Eligible Assignee and members of its Assignee Group) will be treated as a single assignment for purposes of determining whether such minimum amount has been met.
(ii) Proportionate Amounts. Each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lenders rights and obligations under this Agreement with respect to the Loans or the Commitment assigned.
(iii) Required Consents. No consent shall be required for any assignment except to the extent required by Section 10.07(b)(i)(B) and, in addition:
(A) the consent of the Borrower (such consent not to be unreasonably withheld or delayed) shall be required unless (1) an Event of Default under Section 8.01(a) or, solely with respect to the Borrower, Section 8.01(f) has occurred and is continuing at the time of such assignment determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent or, if a Trade Date is specified in the Assignment and Assumption, as of the Trade Date or (2) in respect of an assignment of all or a portion of the Term Loans only, such assignment is to a Lender, an Affiliate of a Lender or an Approved Fund; provided, that the Borrower shall be deemed to have consented to any assignment of all or a portion of the Term Loans unless it shall have objected thereto by written notice to the Administrative Agent within ten (10) Business Days after having received notice of a
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failure to respond to such request for assignment; provided, further, that no consent of the Borrower shall be required for an assignment of all or a portion of the Loans pursuant to Section 10.07(h), (k) or (l); and
(B) the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed) shall be required if such assignment is to a Person that is not a Lender, an Affiliate of such Lender or an Approved Fund with respect to such Lender; provided that no consent of the Administrative Agent shall be required for an assignment (i) of all or a portion of the Loans pursuant to Section 10.07(g), (h), (k) or (l), or (ii) from an Agent to its Affiliate.
(iv) Assignment and Assumption. The parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption via an electronic settlement system acceptable to the Administrative Agent (or, if previously agreed with the Administrative Agent, manually), and shall pay to the Administrative Agent a processing and recordation fee of $3,500 (which fee may be waived or reduced in the sole discretion of the Administrative Agent). Other than in the case of assignments pursuant to Section 10.07(l), the Eligible Assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire.
(v) No Assignments to Certain Persons. No such assignment shall be made (A) to Holdings, the Borrower or any of the Borrowers Subsidiaries except as permitted under Section 2.03(a)(iv), (B) subject to Sections 10.07(h), (k) and (l) below, to any Affiliate of the Borrower, (C) to a natural person or (D) to any Disqualified Institution. In no event shall the Administrative Agent be obligated to ascertain, monitor or inquire as to whether any prospective assignee is a Disqualified Institution or have any liability in connection therewith.
This Section 10.07(b) shall not prohibit any Lender from assigning all or a portion of its rights and obligations among separate Facilities on a non-pro rata basis among such Facilities.
Subject to acceptance and recording thereof by the Administrative Agent pursuant to clause (c) of this Section 10.07 (and, in the case of an Affiliated Lender or a Person that, after giving effect to such assignment, would become an Affiliated Lender, to the requirements of clause (h) of this Section 10.07), from and after the effective date specified in each Assignment and Assumption, other than in connection with an assignment pursuant to Section 10.07(l), (x) the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and (y) the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lenders rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 3.01, 3.04, 3.05, 10.04 and 10.05 with respect to facts and circumstances occurring prior to the effective date of such assignment), but shall in any event continue to be subject to Section 10.08. Upon request, and the surrender by the assigning Lender of its Term Note, the Borrower (at its expense) shall execute and deliver a Term Note to the assignee Lender. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this subsection shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with Section 10.07(d).
(c) The Administrative Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at the Administrative Agents Office a copy of each Assignment and Assumption delivered to it, each Affiliated Lender Assignment and Assumption delivered to it, each notice of cancellation of any Loans delivered by the Borrower pursuant to subsections (h) or (l) below, and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts (and related interest amounts) of the Loans and amounts owing to each Lender pursuant to the terms hereof from time to time (the Register). The entries in the Register shall be conclusive absent manifest error, and the Borrower, the Agents and the Lenders shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower, any Agent and, with respect to its own Loans, any Lender, at any reasonable time and from time to time
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upon reasonable prior notice. This Section 10.07(c) and Section 2.09 shall be construed so that all Loans are at all times maintained in registered form within the meaning of Sections 163(f), 871(h)(2) and 881(c)(2) of the Code and any related Treasury regulations (or any other relevant or successor provisions of the Code or of such Treasury regulations). Notwithstanding the foregoing, in no event shall the Administrative Agent be obligated to ascertain, monitor or inquire as to whether any Lender is an Affiliated Lender, nor shall the Administrative Agent be obligated to monitor the aggregate amount of the Term Loans or Incremental Term Loans held by Affiliated Lenders.
(d) Any Lender may at any time, without the consent of, or notice to, the Borrower or the Administrative Agent, sell participations to any Person (other than a natural person, the Borrower or any Affiliate or Subsidiary of the Borrower or a Disqualified Institution) (each, a Participant) in all or a portion of such Lenders rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans owing to it); provided that (i) such Lenders obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Agents and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lenders rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and the other Loan Documents and to approve any amendment, modification or waiver of any provision of this Agreement or any other Loan Document; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, waiver or other modification described in the first proviso to Section 10.01 (other than clauses (d) and (g) thereof) that directly affects such Participant. Subject to subsection (e) of this Section 10.07, the Borrower agree that each Participant shall be entitled to the benefits of Sections 3.01 (subject to the requirements of Section 3.01 (including subsections (b), (c) and/or (d), as applicable as though it were a Lender)), Section 3.04 and 3.05 (through the applicable Lender) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to subsection (b) of this Section 10.07. To the extent permitted by applicable Law, each Participant also shall be entitled to the benefits of Section 10.09 as though it were a Lender; provided that such Participant agrees to be subject to Section 2.11 as though it were a Lender.
(e) Limitations upon Participant Rights. A Participant shall not be entitled to receive any greater payment under Section 3.01, 3.04 or 3.05 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrowers prior written consent or such entitlement to a greater payment results from a Change in Law after the sale of the participation takes place. Each Lender that sells a participation shall (acting solely for this purpose as a non-fiduciary agent of the Borrower) maintain a register complying with the requirements of Sections 163(f), 871(h) and 881(c)(2) of the Code and the Treasury regulations issued thereunder on which is entered the name and address of each Participant and the principal amounts (and stated interest) of each Participants interest in the Loans or other obligations under this Agreement (the Participant Register). The entries in the Participant Register shall be conclusive absent manifest error, and such Lender and the Borrower shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary; provided that no Lender shall have the obligation to disclose all or a portion of the Participant Register (including the identity of the Participant or any information relating to a Participants interest in any commitments, loans, letters of credit or other obligations under any Loan Document) to any Person except to the extent such disclosure is necessary to establish that any such commitments, loans, letters of credit or other obligations are in registered form for U.S. federal income tax purposes.
(f) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement (including under its Term Note, if any) to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank or any other central bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
(g) Notwithstanding anything to the contrary contained herein, any Lender (a Granting Lender) may grant to a special purpose funding vehicle identified as such in writing from time to time by the Granting Lender to the Administrative Agent and the Borrower (an SPC) the option to provide all or any part of any Loan that such Granting Lender would otherwise be obligated to make pursuant to this Agreement; provided that (i) nothing herein shall constitute a commitment by any SPC to fund any Loan, (ii) if an SPC elects not to
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exercise such option or otherwise fails to make all or any part of such Loan, the Granting Lender shall be obligated to make such Loan pursuant to the terms hereof and (iii) such SPC and the applicable Loan or any applicable part thereof shall be appropriately reflected in the Participant Register. Each party hereto hereby agrees that (i) neither the grant to any SPC nor the exercise by any SPC of such option shall increase the costs or expenses or otherwise increase or change the obligations of the Borrower under this Agreement (including its obligations under Section 3.01, 3.04 or 3.05), (ii) no SPC shall be liable for any indemnity or similar payment obligation under this Agreement for which a Lender would be liable, and (iii) the Granting Lender shall for all purposes, including the approval of any amendment, waiver or other modification of any provision of any Loan Document, remain the Lender hereunder. The making of a Loan by an SPC hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Loan were made by such Granting Lender. Notwithstanding anything to the contrary contained herein, any SPC may (i) with notice to, but without prior consent of the Borrower and the Administrative Agent and with the payment of a processing fee of $3,500 (which processing fee may be waived by the Administrative Agent in its sole discretion), assign all or any portion of its right to receive payment with respect to any Loan to the Granting Lender and (ii) disclose on a confidential basis any non-public information relating to its funding of Loans to any rating agency, commercial paper dealer or provider of any surety or Guarantee or credit or liquidity enhancement to such SPC.
(h) Any Lender may at any time, assign all or a portion of its rights and obligations with respect to Term Loans under this Agreement to a Person who is or will become, after such assignment, an Affiliated Lender through (x) Dutch auctions or other offers to purchase or take by assignment open to all Lenders on a pro rata basis in accordance with procedures of the type described in Section 2.03(a)(iv) or (y) open market purchase on a non-pro rata basis, in each case subject to the following limitations:
(i) Affiliated Lenders will not receive information provided solely to Lenders by the Administrative Agent or any Lender and will not be permitted to attend or participate in conference calls or meetings attended solely by the Lenders and the Administrative Agent, other than the right to receive notices of prepayments and other administrative notices in respect of its Loans or Commitments required to be delivered to Lenders pursuant to Article II;
(ii) each Affiliated Lender that purchases any Term Loans pursuant to clause (x) above shall represent and warrant to the selling Term Lender (other than any other Affiliated Lender) that it does not possess material non-public information (or material information of the type that would not be public if the Borrower or any Parent Entity were a publicly-reporting company) with respect to the Borrower and its Subsidiaries that either (1) has not been disclosed to the Term Lenders generally (other than Term Lenders that have elected not to receive such information) or (2) if not disclosed to the Term Lenders, would reasonably be expected to have a material effect on, or otherwise be material to (A) a Term Lenders decision to participate in any such assignment or (B) the market price of such Term Loans, or shall make a statement that such representation cannot be made;
(iii) each Lender (other than any other Affiliated Lender) that assigns any Term Loans to an Affiliated Lender pursuant to clause (y) above shall deliver to the Administrative Agent and the Borrower a customary Big Boy Letter (unless such Affiliated Lender is willing, in its sole discretion, to make the representation and warranty contemplated by the foregoing clause (ii));
(iv) the aggregate principal amount of Term Loans of any Class under this Agreement held by Affiliated Lenders at the time of any such purchase or assignment shall not exceed 25% of the aggregate principal amount of Term Loans of such Class outstanding at such time under this Agreement (such percentage, the Affiliated Lender Cap); provided that to the extent any assignment to an Affiliated Lender would result in the aggregate principal amount of all Term Loans of any Class held by Affiliated Lenders exceeding the Affiliated Lender Cap, the assignment of such excess amount will be void ab initio;
(v) as a condition to each assignment pursuant to this subsection (h), the Administrative Agent and the Borrower shall have been provided a notice in connection with each assignment to an Affiliated Lender or a Person that upon effectiveness of such assignment would constitute an Affiliated Lender pursuant to which such Affiliated Lender shall waive any right to bring any action in connection with such Term Loans against the Administrative Agent, in its capacity as such; and
(vi) the assigning Lender and the Affiliated Lender purchasing such Lenders Term Loans shall execute and deliver to the Administrative Agent an assignment agreement substantially in the form of Exhibit D-2 hereto (an Affiliated Lender Assignment and Assumption).
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Notwithstanding anything to the contrary contained herein, any Affiliated Lender that has purchased Term Loans pursuant to this subsection (h) may, in its sole discretion, contribute, directly or indirectly, the principal amount of such Term Loans or any portion thereof, plus all accrued and unpaid interest thereon, to the Borrower for the purpose of cancelling and extinguishing such Term Loans. Upon the date of such contribution, assignment or transfer, (x) the aggregate outstanding principal amount of Term Loans shall reflect such cancellation and extinguishing of the Term Loans then held by the Borrower and (y) the Borrower shall promptly provide notice to the Administrative Agent of such contribution of such Term Loans, and the Administrative Agent, upon receipt of such notice, shall reflect the cancellation of the applicable Term Loans in the Register.
Each Affiliated Lender agrees to notify the Administrative Agent and the Borrower promptly (and in any event within 10 Business Days) if it acquires any Person who is also a Lender, and each Lender agrees to notify the Administrative Agent and the Borrower promptly (and in any event within ten (10) Business Days) if it becomes an Affiliated Lender. The Administrative Agent may conclusively rely upon any notice delivered pursuant to the immediately preceding sentence and/or pursuant to clause (v) of this subsection (h) and shall not have any liability for any losses suffered by any Person as a result of any purported assignment to or from an Affiliated Lender.
(i) Notwithstanding anything in Section 10.01 or the definition of Required Lenders, or Required Facility Lenders to the contrary, for purposes of determining whether the Required Lenders and Required Facility Lenders (in respect of a Class of Term Loans) have (i) consented (or not consented) to any amendment, modification, waiver, consent or other action with respect to any of the terms of any Loan Document or any departure by any Loan Party therefrom, or subject to Section 10.07(j), any plan of reorganization pursuant to the U.S. Bankruptcy Code, (ii) otherwise acted on any matter related to any Loan Document, or (iii) directed or required the Administrative Agent or any Lender to undertake any action (or refrain from taking any action) with respect to or under any Loan Document, no Affiliated Lender shall have any right to consent (or not consent), otherwise act or direct or require the Administrative Agent or any Lender to take (or refrain from taking) any such action and:
(i) all Term Loans held by any Affiliated Lenders shall be deemed to be not outstanding for all purposes of calculating whether the Required Lenders and Required Facility Lenders (in respect of a Class of Term Loans) have taken any actions; and
(ii) all Term Loans held by Affiliated Lenders shall be deemed to be not outstanding for all purposes of calculating whether all Lenders have taken any action unless the action in question affects such Affiliated Lender in a disproportionately adverse manner than its effect on other Lenders.
(j) Notwithstanding anything in this Agreement or the other Loan Documents to the contrary, each Affiliated Lender hereby agrees that, and each Affiliated Lender Assignment and Assumption shall provide a confirmation that, if a proceeding under any Debtor Relief Law shall be commenced by or against the Borrower or any other Loan Party at a time when such Lender is an Affiliated Lender, such Affiliated Lender irrevocably authorizes and empowers the Administrative Agent to vote on behalf of such Affiliated Lender with respect to the Term Loans held by such Affiliated Lender in any manner in the Administrative Agents sole discretion, unless the Administrative Agent instructs such Affiliated Lender to vote, in which case such Affiliated Lender shall vote with respect to the Term Loans held by it as the Administrative Agent directs; provided that such Affiliated Lender shall be entitled to vote in accordance with its sole discretion (and not in accordance with the direction of the Administrative Agent) in connection with any plan of reorganization to the extent any such plan of reorganization proposes to treat any Obligations held by such Affiliated Lender in a disproportionately adverse manner than the proposed treatment of similar Obligations held by Term Lenders that are not Affiliated Lenders.
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(k) Although Debt Fund Affiliates shall be Eligible Assignees and shall not be subject to the provisions of Section 10.07(h), (i) or (j), any Lender may, at any time, assign all or a portion of its rights and obligations with respect to Term Loans under this Agreement to a Person who is or will become, after such assignment, a Debt Fund Affiliate only through (x) Dutch auctions or other offers to purchase or take by assignment open to all Lenders on a pro rata basis in accordance with procedures of the type described in Section 2.03(a)(iv) (for the avoidance of doubt, without requiring any representation as to the possession of material non-public information by such Affiliate) or (y) open market purchase on a non-pro rata basis. Notwithstanding anything in Section 10.01 or the definition of Required Lenders to the contrary, for purposes of determining whether the Required Lenders have (i) consented (or not consented) to any amendment, modification, waiver, consent or other action with respect to any of the terms of any Loan Document or any departure by any Loan Party therefrom, (ii) otherwise acted on any matter related to any Loan Document or (iii) directed or required the Administrative Agent or any Lender to undertake any action (or refrain from taking any action) with respect to or under any Loan Document, all Term Loans held by Debt Fund Affiliates, in the aggregate, may not account for more than 49.9% of the Term Loans of consenting Lenders included in determining whether the Required Lenders have consented to any action pursuant to Section 10.01.
(l) Any Lender may, so long as no Default or Event of Default has occurred and is continuing, at any time, assign all or a portion of its rights and obligations with respect to Term Loans under this Agreement to Holdings, the Borrower or any Subsidiary of the Borrower through (x) Dutch auctions or other offers to purchase open to all Lenders on a pro rata basis in accordance with procedures of the type described in Section 2.03(a)(iv) or (y) open market purchases on a non-pro rata basis; provided, that:
(i) (x) if the assignee is Holdings or a Subsidiary of the Borrower, upon such assignment, transfer or contribution, the applicable assignee shall automatically be deemed to have contributed or transferred the principal amount of such Term Loans, plus all accrued and unpaid interest thereon, to the Borrower; or (y) if the assignee is the Borrower (including through contribution or transfers set forth in clause (x)), (a) the principal amount of such Term Loans, along with all accrued and unpaid interest thereon, so contributed, assigned or transferred to any the Borrower shall be deemed automatically cancelled and extinguished on the date of such contribution, assignment or transfer, (b) the aggregate outstanding principal amount of Term Loans of the remaining Lenders shall reflect such cancellation and extinguishing of the Term Loans then held by the Borrower and (c) the Borrower shall promptly provide notice to the Administrative Agent of such contribution, assignment or transfer of such Term Loans, and the Administrative Agent, upon receipt of such notice, shall reflect the cancellation of the applicable Term Loans in the Register; and
(ii) each Person that purchases any Term Loans pursuant to clause (x) of this subsection (l) shall represent and warrant to the selling Term Lender (other than any Affiliated Lender) that it does not possess material non-public information (or material information of the type that would not be public if the Borrower or any Parent Entity were a publicly-reporting company) with respect to the Borrower and its Subsidiaries that either (1) has not been disclosed to the Term Lenders generally (other than Term Lenders that have elected not to receive such information) or (2) if not disclosed to the Term Lenders, would reasonably be expected to have a material effect on, or otherwise be material to (A) a Term Lenders decision to participate in any such assignment or (B) the market price of such Term Loans, or shall make a statement that such representation cannot be made.
(m) Notwithstanding anything to the contrary contained herein, without the consent of the Borrower or the Administrative Agent, (1) any Lender may in accordance with applicable Law create a security interest in all or any portion of the Loans owing to it and the Term Note, if any, held by it and (2) any Lender that is a Fund may create a security interest in all or any portion of the Loans owing to it and the Term Note, if any, held by it to the trustee for holders of obligations owed, or securities issued, by such Fund as security for such obligations or securities; provided that unless and until such trustee actually becomes a Lender in compliance with the other provisions of this Section 10.07, (i) no such pledge shall release the pledging Lender from any of its obligations under the Loan Documents and (ii) such trustee shall not be entitled to exercise any of the rights of a Lender under the Loan Documents even though such trustee may have acquired ownership rights with respect to the pledged interest through foreclosure or otherwise.
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SECTION 10.08 Confidentiality. Each of the Agents, the Arranger and the Lenders agrees to maintain the confidentiality of the Information in accordance with its customary procedures (as set forth below), except that Information may be disclosed (a) to its Affiliates and to its and its Affiliates respective partners, directors, officers, employees, legal counsel, independent auditors, agents, trustees, advisors and representatives (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential, with such Affiliate being responsible for such Persons compliance with this Section 10.08; provided, however, that such Agent, Arranger or Lender, as applicable, shall be principally liable to the extent this Section 10.08 is violated by one or more of its Affiliates or any of its or their respective employees, directors or officers), (b) to the extent requested by any regulatory authority purporting to have jurisdiction over it (including any self-regulatory authority, such as the National Association of Insurance Commissioners); provided, however, that each Agent, each Arranger and each Lender to seek confidential treatment with respect to any such disclosure, (c) to the extent required by applicable laws or regulations or by any subpoena or otherwise as required by applicable Law or regulation or as requested by a governmental authority; provided that such Agent, such Arranger or such Lender, as applicable, agrees (x) that it will notify the Borrower as soon as practicable in the event of any such disclosure by such Person (except in connection with any request as part of any audit or examination conducted by bank accountants or any regulatory authority ) unless such notification is prohibited by law, rule or regulation and (y) to seek confidential treatment with respect to any such disclosure, (d) to any other party hereto, (e) subject to an agreement containing provisions at least as restrictive as those of this Section 10.08, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or any Eligible Assignee (or its agent) invited to be an Additional Lender or (ii) with the prior consent of the Borrower, any actual or prospective direct or indirect counterparty (or its advisors) to any swap or derivative transaction relating to the Borrower or any of their Subsidiaries or any of their respective obligations; provided that such disclosure shall be made subject to the acknowledgment and acceptance by such prospective Lender, Participant or Eligible Assignee that such Information is being disseminated on a confidential basis (on substantially the terms set forth in this paragraph or as is otherwise reasonably acceptable to the Borrower, the Agents and the Arranger, including, without limitation, as set forth in any confidential information memorandum or other marketing materials) in accordance with the standard syndication process of the Agents and the Arranger or market standards for dissemination of such type of information which shall in any event require click through or other affirmative action on the part of the recipient to access such confidential information, (f) for purposes of establishing a due diligence defense, (g) with the consent of the Borrower or (h) to the extent such Information (x) becomes publicly available other than as a result of a breach by any Person of this Section 10.08 or any other confidentiality provision in favor of any Loan Party, (y) becomes available to any Agent, any Arranger, any Lender or any of their respective Affiliates on a nonconfidential basis from a source other than Holdings, the Borrower or any Subsidiary thereof, and which source is not known by such Agent, such Lender or the applicable Affiliate to be subject to a confidentiality restriction in respect thereof in favor of Holdings, the Borrower or any Affiliate of the Borrower or (z) is independently developed by the Agents, the Lenders, the Arranger or their respective Affiliates, in each case, so long as not based on information obtained in a manner that would otherwise violate this Section 10.08.
For purposes of this Section 10.08, Information means all information received from any Loan Party or any Subsidiary thereof relating to any Loan Party or any Subsidiary or Affiliate thereof or their respective businesses, other than any such information that is available to any Agent, any Lender on a nonconfidential basis prior to disclosure by any Loan Party or any Subsidiary thereof; it being understood that all information received from Holdings, the Borrower or any Subsidiary or Affiliate thereof after the date hereof shall be deemed confidential unless such information is clearly identified at the time of delivery as not being confidential. Any Person required to maintain the confidentiality of Information as provided in this Section 10.08 shall be considered to have complied with its obligation to do so in accordance with its customary procedures if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.
Each Agent, each Arranger, each Lender acknowledges that (a) the Information may include trade secrets, protected confidential information, or material non-public information concerning the Borrower or a Subsidiary, as the case may be, (b) it has developed compliance procedures regarding the use of such information and (c) it will handle such information in accordance with applicable Law, including United States Federal and state securities Laws and to preserve its trade secret or confidential character.
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The respective obligations of the Agents, the Arranger and the Lenders under this Section 10.08 shall survive, to the extent applicable to such Person, (x) the payment in full of the Obligations and the termination of this Agreement, (y) any assignment of its rights and obligations under this Agreement and (z) the resignation or removal of any Agent.
SECTION 10.09 Setoff. If an Event of Default shall have occurred and be continuing, each Lender is hereby authorized at any time and from time to time, after obtaining the prior written consent of the Administrative Agent, to the fullest extent permitted by applicable law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Lender to or for the credit or the account of any Loan Party against any and all of the obligations of such Loan Party then due and payable under this Agreement or any other Loan Document to such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement or any other Loan Document. The rights of each Lender under this Section 10.09 are in addition to other rights and remedies (including other rights of setoff) that such Lender may have. Each Lender agrees to notify the Borrower and the Administrative Agent promptly after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application.
SECTION 10.10 Interest Rate Limitation. Notwithstanding anything to the contrary contained in any Loan Document, the interest paid or agreed to be paid under the Loan Documents shall not exceed the maximum rate of non-usurious interest permitted by applicable Law (the Maximum Rate). If any Agent or any Lender shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the principal of the Loans or, if it exceeds such unpaid principal, refunded to the Borrower. In determining whether the interest contracted for, charged, or received by an Agent or a Lender exceeds the Maximum Rate, such Person may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the Obligations hereunder.
SECTION 10.11 Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and the other Loan Documents constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto. Delivery of an executed counterpart of a signature page of this Agreement by facsimile or other electronic imaging (including in .pdf format) means shall be effective as delivery of a manually executed counterpart of this Agreement.
SECTION 10.12 Electronic Execution of Assignments and Certain Other Documents. The words execution, signed, signature, and words of like import in any Assignment and Assumption or in any amendment or other modification hereof (including waivers and consents) shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.
SECTION 10.13 Survival of Representations and Warranties. All representations and warranties made hereunder and in any other Loan Document or other document delivered pursuant hereto or thereto or in connection herewith or therewith shall survive the execution and delivery hereof and thereof. Such representations and warranties have been or will be relied upon by the Administrative Agent and each Lender, regardless of any investigation made by the Administrative Agent or any Lender or on their behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default at the time of any Borrowing, and shall continue in full force and effect as long as any Loan or any other Obligation hereunder shall remain unpaid or unsatisfied.
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SECTION 10.14 Severability. If any provision of this Agreement or the other Loan Documents is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Agreement and the other Loan Documents shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
SECTION 10.15 GOVERNING LAW.
(a) THIS AGREEMENT AND EACH OTHER LOAN DOCUMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
(b) THE BORROWER, HOLDINGS, THE ADMINISTRATIVE AGENT AND EACH LENDER EACH IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK CITY IN THE BOROUGH OF MANHATTAN AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. EACH PARTY HERETO AGREES THAT THE AGENTS AND LENDERS RETAIN THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST ANY LOAN PARTY IN THE COURTS OF ANY OTHER JURISDICTION IN CONNECTION WITH THE EXERCISE OF ANY RIGHTS UNDER ANY COLLATERAL DOCUMENT OR THE ENFORCEMENT OF ANY JUDGMENT.
(c) THE BORROWER, HOLDINGS, THE ADMINISTRATIVE AGENT AND EACH LENDER EACH IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN PARAGRAPH (b) OF THIS SECTION 10.15. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.
SECTION 10.16 WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.16.
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SECTION 10.17 Binding Effect. This Agreement shall become effective when it shall have been executed by the Borrower, Holdings and the Administrative Agent and the Administrative Agent shall have been notified by each Lender that each such Lender has executed it and thereafter shall be binding upon and inure to the benefit of the Borrower, Holdings, each Agent and each Lender and their respective successors and assigns.
SECTION 10.18 Lender Action. Each Lender agrees that it shall not take or institute any actions or proceedings, judicial or otherwise, for any right or remedy against any Loan Party under any of the Loan Documents (including the exercise of any right of setoff, rights on account of any bankers lien or similar claim or other rights of self-help), or institute any actions or proceedings, or otherwise commence any remedial procedures, with respect to any Collateral or any other property of any such Loan Party, without the prior written consent of the Administrative Agent. The provision of this Section 10.18 are for the sole benefit of the Lenders and shall not afford any right to, or constitute a defense available to, any Loan Party.
SECTION 10.19 Use of Name, Logo, Etc. Each Loan Party consents to the publication in the ordinary course by Administrative Agent or the Arranger of customary advertising material relating to the financing transactions contemplated by this Agreement using such Loan Partys name, product photographs, logo or trademark. Such consent shall remain effective until revoked by such Loan Party in writing to the Administrative Agent and the Arranger.
SECTION 10.20 USA PATRIOT Act. Each Lender that is subject to the USA PATRIOT Act and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Borrower that pursuant to the requirements of the USA PATRIOT Act, it is required to obtain, verify and record information that identifies each Loan Party, which information includes the name and address of each Loan Party and other information that will allow such Lender or the Administrative Agent, as applicable, to identify each Loan Party in accordance with the USA PATRIOT Act. The Borrower shall, promptly following a request by the Administrative Agent or any Lender, provide all documentation and other information that the Administrative Agent or such Lender requests in order to comply with its ongoing obligations under applicable know your customer and anti-money laundering rules and regulations, including the USA PATRIOT Act.
SECTION 10.21 Service of Process. EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 10.02. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.
SECTION 10.22 No Advisory or Fiduciary Responsibility. In connection with all aspects of each transaction contemplated hereby (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document), each of the Borrower and Holdings acknowledges and agrees that (i) (A) the arranging and other services regarding this Agreement provided by the Agents and the Arranger are arms-length commercial transactions between the Borrower, Holdings and their respective Affiliates, on the one hand, and the Administrative Agents and the Arranger, on the other hand, (B) each of the Borrower and Holdings has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate, and (C) each of the Borrower and Holdings is capable of evaluating, and understands and accepts, the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents; (ii) (A) each Agent, Arranger and Lender is and has been acting solely as a principal and, except as expressly agreed in writing by the relevant parties, has not been, is not, and will not be acting as an advisor, agent or fiduciary for the Borrower, Holdings or any of their respective Affiliates, or any other Person and (B) none of the Agents, the Arranger nor any Lender has any obligation to the Borrower, Holdings or any of their respective Affiliates with respect to the transactions contemplated hereby except those obligations expressly set forth herein and in the other Loan Documents; and (iii) the Agents, the Arranger, the Lenders and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Borrower, Holdings and their respective Affiliates, and none of the Agents, the Arranger nor any Lender has any obligation to disclose any of such interests to the Borrower, Holdings or any of their respective Affiliates. To the fullest extent permitted by law, each of the Borrower and Holdings hereby waives and releases any claims that it may have against the Agents, the Arranger or any Lender with respect to any breach or alleged breach of agency or fiduciary duty in connection with any aspect of any transaction contemplated hereby.
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ARTICLE XI
Guaranty
SECTION 11.01 Guaranty Subject to this Article XI, each of the Guarantors hereby, jointly and severally, irrevocably and unconditionally, guarantees to each Lender and to the Collateral Agent and its successors and assigns, irrespective of the validity and enforceability of this Agreement or the obligations of the Borrower hereunder or thereunder, that: (a) the principal of and interest and premium, if any, on the Term Loans shall be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Term Loans, if any, if lawful, and all other obligations of the Borrower hereunder or thereunder shall be promptly paid in full, all in accordance with the terms hereof and thereof; and (b) in case of any extension of time of payment or renewal of any Term Loans or any of such other obligations, that same shall be promptly paid in full when due in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed for whatever reason, the Guarantors shall be jointly and severally obligated to pay the same immediately. Each Guarantor agrees that this is a guarantee of payment and not a guarantee of collection.
The Guarantors hereby agree that their obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Term Loans or this Agreement, the absence of any action to enforce the same, any waiver or consent by any Lender with respect to any provisions hereof or thereof, the recovery of any judgment against the Borrower, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Borrower, any right to require a proceeding first against the Borrower, protest, notice and all demands whatsoever and covenants that this Guaranty shall not be discharged except by full payment of the obligations contained in this Agreement.
Each Guarantor also agrees to pay any and all costs and expenses (including reasonable attorneys fees) incurred by the Collateral Agent in enforcing any rights under this Section 11.01.
If any Lender or the Collateral Agent is required by any court or otherwise to return to the Borrower, the Guarantors or any custodian, trustee, liquidator or other similar official acting in relation to either the Borrower or the Guarantors, any amount paid either to the Collateral Agent or such Borrower, this Guaranty, to the extent theretofore discharged, shall be reinstated in full force and effect.
Each Guarantor agrees that it shall not be entitled to any right of subrogation in relation to the Lenders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. Each Guarantor further agrees that, as between the Guarantors, on the one hand, and the Lenders and the Collateral Agent, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article VIII hereof for the purposes of this Guaranty, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (y) in the event of any declaration of acceleration of such obligations as provided in Article VIII hereof, such obligations (whether or not due and payable) shall forthwith become due and payable by the Guarantors for the purpose of this Guaranty. The Guarantors shall have the right to seek contribution from any nonpaying Guarantor so long as the exercise of such right does not impair the rights of the Lenders under the Guaranty.
Each Guaranty shall remain in full force and effect and continue to be effective should any petition be filed by or against the Borrower for liquidation, reorganization, should the Borrower become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of the Borrowers assets, and shall, to the fullest extent permitted by law, continue to be effective or be reinstated, as the case may be, if at any time payment of the Term Loans are, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee on the Term Loans or Guaranty, whether as a voidable preference, fraudulent transfer or otherwise, all as though such payment had not been made. In the event that any payment or any part thereof, is rescinded, reduced, restored or returned, the Term Loans shall, to the fullest extent permitted by law, be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.
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In case any provision of any Guaranty shall be invalid, illegal or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
The Guaranty issued by any Guarantor shall be a general secured senior obligation of such Guarantor and shall rank equally in right of payment with all existing and future First Lien Obligations of such Guarantor, if any.
Each payment to be made by a Guarantor in respect of its Guaranty shall be made without set-off, counterclaim, reduction or diminution of any kind or nature.
SECTION 11.02 Limitation on Guarantor Liability. Each Guarantor and each Lender, hereby confirms that it is the intention of all such parties that the Guaranty of such Guarantor not constitute a fraudulent transfer or conveyance, or similar limitation, for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to any Guaranty. To effectuate the foregoing intention, the Collateral Agent, the Lenders and the Guarantors hereby irrevocably agree that the obligations of each Guarantor shall be limited to the maximum amount as shall, after giving effect to such maximum amount and all other contingent and fixed liabilities of such Guarantor that are relevant under such laws and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under this Article XI, result in the obligations of such Guarantor under its Guaranty not constituting a fraudulent conveyance or fraudulent transfer, or similar limitation, under applicable law. Each Guarantor that makes a payment under its Guaranty shall be entitled upon payment in full of all guaranteed obligations under this Agreement to a contribution from each other Guarantor in an amount equal to such other Guarantors pro rata portion of such payment based on the respective net assets of all the Guarantors at the time of such payment determined in accordance with GAAP.
SECTION 11.03 Execution and Delivery. To evidence its Guaranty set forth in Section 11.01 hereof, each Guarantor hereby agrees that this Agreement shall be executed on behalf of such Guarantor by a Responsible Officer.
Each Guarantor hereby agrees that its Guaranty set forth in Section 11.01 hereof shall remain in full force and effect notwithstanding the absence of the endorsement of any notation of such Guaranty on any Term Loan Notes.
If required by Section 7.12 hereof, the Borrower shall cause any Restricted Subsidiary to comply with the provisions of Section 7.12 hereof and this Article XI, to the extent applicable.
SECTION 11.04 Subrogation. Each Guarantor shall be subrogated to all rights of the Lenders against the Borrower in respect of any amounts paid by any Guarantor pursuant to the provisions of Section 11.01 hereof; provided that, if an Event of Default has occurred and is continuing, no Guarantor shall be entitled to enforce or receive any payments arising out of, or based upon, such right of subrogation until all amounts then due and payable by the Borrower under this Agreement shall have been paid in full.
SECTION 11.05 Benefits Acknowledged. Each Guarantor acknowledges that it shall receive direct and indirect benefits from the financing arrangements contemplated by this Agreement and that the guarantee and waivers made by it pursuant to its Guaranty are knowingly made in contemplation of such benefits.
SECTION 11.06 Release of Guaranty by Guarantors. Each Guaranty by a Guarantor shall provide by its terms that it shall be automatically and unconditionally released and discharged, and no further action by such Guarantor, the Borrower or the Collateral Agent is required for the release of the such Guarantors Guaranty, upon:
(a) (i) any sale, exchange, disposition or transfer (by merger, amalgamation, consolidation or otherwise) of (i) the Capital Stock of such Guarantor, after which the applicable Guarantor is no longer a Restricted Subsidiary or (ii) all or substantially all the assets of such Guarantor, in each case if such sale, exchange, disposition or transfer is made in compliance with the applicable provisions of this Agreement;
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(ii) the release or discharge of the guarantee by such Guarantor of Indebtedness under a guarantee (other than a guarantee of the ABL Credit Agreement or the Senior Notes) that resulted in the creation of such Guaranty, except a discharge or release by or as a result of payment under such guarantee (it being understood that a release subject to a contingent reinstatement is still a release, and that if any such Guaranty is so reinstated, such Guaranty shall also be reinstated to the extent that such Subsidiary Guarantor would then be required to provide a Guaranty pursuant to Section 7.12 hereof) (notwithstanding the foregoing, a Guaranty provided by a Guarantor on the Closing Date may not be released and discharged pursuant to this Section 11.06(a)(ii)); and
(b) the designation of any Restricted Subsidiary that is a Guarantor as an Unrestricted Subsidiary in compliance with the applicable provisions of this Agreement.
ARTICLE XII
Collateral Documents
SECTION 12.01 Collateral and Collateral Documents.
(a) The due and punctual payment of the principal of and interest on the Term Loans when and as the same shall be due and payable, whether on an Interest Payment Date, at maturity, by acceleration, repurchase, redemption or otherwise, and interest on the overdue principal of and interest on the Term Loans and performance of all other Obligations of the Borrower and the Guarantors to the Lender, the Administrative Agent or the Collateral Agent under this Agreement, the Term Loans, the Intercreditor Agreements and the Collateral Documents, according to the terms hereunder or thereunder, shall be secured as provided in the Collateral Documents, which define the terms of the Liens that secure the Term Loans and such other Obligations, subject to the terms of the Intercreditor Agreements. The Administrative Agent and the Borrower hereby acknowledge and agree that the Collateral Agent holds the Collateral in trust for the benefit of the Collateral Agent, the Administrative Agent and the Lenders, in each case pursuant to the terms of the Collateral Documents and the Intercreditor Agreements. Each Lender consents and agrees to the terms of the Collateral Documents (including the provisions providing for the possession, use, release and foreclosure of Collateral) and the Intercreditor Agreements as the same may be in effect or may be amended from time to time in accordance with their terms and this Agreement and the Intercreditor Agreements, and authorizes and directs the Administrative Agent to enter into the Collateral Documents and the Intercreditor Agreements and to perform its obligations and exercise its rights thereunder in accordance therewith. The Borrower shall deliver to the Collateral Agent copies of all documents pursuant to the Collateral Documents, and shall do or cause to be done all such acts and things as may be reasonably required by the next sentence of this Section 12.01, to assure and confirm to the Collateral Agent the security interest in the Collateral contemplated hereby, by the Collateral Documents or any part thereof, as from time to time constituted, so as to render the same available for the security and benefit of this Agreement and of the Term Loans secured hereby, according to the intent and purposes herein expressed. The Borrower shall, and shall cause the Restricted Subsidiaries of the Borrower to, use its and their commercially reasonable efforts to take any and all actions reasonably required to cause the Collateral Documents to create and maintain, as security for the Obligations, a valid and enforceable perfected Lien and security interest in and on all of the Collateral (subject to the terms of the Intercreditor Agreements), in favor of the Collateral Agent for the benefit of the Secured Parties.
(b) Notwithstanding the foregoing,
(i) the Capital Stock of the Restricted Subsidiaries of the Borrower that are owned by the Borrower or any Guarantor (other than the capital stock of the Borrower) shall constitute Collateral only to the extent that such Capital Stock can secure the Term Loans without Rule 3-16 of Regulation S-X under the Securities Act (Rule 3-16) (or any other law, rule or regulation) requiring separate financial statements of such Subsidiary to be filed with the SEC (or any other governmental agency);
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(ii) in the event that Rule 3-16 requires or is amended, modified or interpreted by the SEC to require (or is replaced with another rule or regulation, or any other law, rule or regulation is adopted, which would require) the filing with the SEC (or any other governmental agency) of separate financial statements of any Restricted Subsidiary (other than the Borrower) due to the fact that such Subsidiarys Capital Stock secure the Term Loans, then the Capital Stock of such Subsidiary shall automatically be deemed not to be part of the Collateral, but only to the extent necessary to not be subject to such requirement (in such event, the Collateral Documents may be amended or modified, without the consent of any Lender, to the extent necessary to release the security interests in the shares of Capital Stock and other securities that are so deemed to no longer constitute part of the Collateral); and
(iii) in the event that either Rule 3-16 is amended, modified or interpreted by the SEC to permit (or is replaced with another rule or regulation, or any other law, rule or regulation is adopted, which would permit) such Subsidiarys Capital Stock to secure the Term Loans in excess of the amount then pledged without the filing with the SEC (or any other governmental agency) of separate financial statements of such Subsidiary, then the Capital Stock of such Subsidiary shall automatically be deemed to be a part of the Collateral but only to the extent necessary to not be subject to any such financial statement requirement (in such event, the Collateral Documents may be amended or modified, without the consent of any Lender, to the extent necessary to subject to the Liens under the Collateral Documents such additional Capital Stock).
(c) In addition to the limitations described in Section 12.01(b), the Collateral shall not include (i) property or assets as to which the Collateral Agent has notified any Guarantor in writing that it has reasonably determined that the costs of obtaining a security interest are excessive in relation to the value of the security to be afforded thereby and (ii) the Excluded Assets.
(d) In the case of any Foreign Subsidiary, the Collateral shall be limited to 100% of the non-voting Capital Stock and 65% of the voting Capital Stock of such Foreign Subsidiaries.
(e) Each Lender (i) consents to the subordination of Liens provided for in the Crossing Lien Intercreditor Agreement and (ii) agrees that it shall be bound by, and shall take no actions contrary to, the provisions of the Crossing Lien Intercreditor Agreement. The foregoing provisions of this Section 12.01(e) are intended as an inducement to the holders of Indenture Noteholder Lien Obligations to acquire the Term Loans and such Lenders are intended third party beneficiaries of such provisions and of the Crossing Lien Intercreditor Agreement.
(f) In addition, the Borrower and its Subsidiaries shall not be required to obtain any landlord waivers, estoppels or collateral access letters and shall not be required to (i) take actions to perfect by control, other than stock pledges and control agreements relating to ABL Collateral, promissory notes, letter of credit rights and commercial tort claims, in each case not exceeding of $5,000,000 or (ii) take any actions under any laws outside of the United States to grant, perfect or enforce any security interest.
SECTION 12.02 [Reserved]
SECTION 12.03 Release of Collateral.
(a) Subject to Sections 12.03(b) and 12.04 hereof, Collateral may be released from the Lien and security interest created by the Collateral Documents at any time or from time to time in accordance with the provisions of the Collateral Documents, the Intercreditor Agreements or as provided hereby. The Borrower and the Guarantors shall be entitled to a release of property and other assets included in the Collateral from the Liens securing the Term Loans, and the Collateral Agent shall release, or instruct the Notes Collateral Agent to release, as applicable, the same from such Liens at the Borrowers sole cost and expense, under one or more of the following circumstances:
(i) to enable the Borrower or any Guarantor to sell, exchange or otherwise dispose of any of the Collateral to the extent not prohibited under Section 7.05 hereof;
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(ii) in the case of a Guarantor that is released from its Guaranty with respect to all of the Obligations, the release of the property and assets of such Guarantor;
(iii) to the extent property is subject to a lease, upon termination of the lease;
(iv) pursuant to an amendment or waiver in accordance with Article X hereof;
(v) if all of the Term Loans have been satisfied and discharged pursuant to Article X hereof; or
(vi) upon payment in full of the principal of, together with accrued and unpaid interest on, all of the Term Loans and all other Obligations related thereto under this Agreement, the Guaranty and the Collateral Documents with respect thereto, that are due and payable at or prior to the time such principal, together with accrued and unpaid interest are paid.
(b) Subject to the provisions contained in the Intercreditor Agreements, in general the second-priority lien on the ABL Collateral securing the Term Loans shall remain in full force and effect notwithstanding the termination and repayment in full of the ABL Credit Agreement and the release by the ABL Agent of the first-priority liens on the ABL Collateral. The second-priority lien on the ABL Collateral securing the Term Loans shall terminate and be released automatically if the first-priority liens on the ABL Collateral are released by the ABL Agent (unless, at the time of such release of such first-priority liens, an Event of Default shall have occurred and be continuing under this Agreement). Notwithstanding the existence of an Event of Default, the second-priority lien on the ABL Collateral securing the Senior Notes shall also terminate and be released automatically to the extent the first-priority liens on the ABL Collateral are released by the ABL Agent in connection with a sale, transfer or disposition of ABL Collateral that is either not prohibited under this Agreement or occurs in connection with the foreclosure of, or other exercise of remedies with respect to, such ABL Collateral by the ABL Agent (except with respect to any proceeds of such sale, transfer or disposition that remain after satisfaction in full of the obligations under the ABL Credit Agreement). Notwithstanding the foregoing, in the event of a release of liens by the ABL Agent on all or substantially all of the ABL Collateral (other than in connection with a foreclosure upon or other exercise of rights and remedies by the ABL Agent with respect to such ABL Collateral), no release of the second-priority liens on the ABL Collateral securing the Term Loans shall be made unless (i) consent to such release has been given by the requisite percentage or number of the holders of the Lenders at the time outstanding, in accordance with Section 10.01 hereof, as provided for in this Agreement or the Collateral Documents and (ii) the Borrower has delivered an Officers Certificate to the Collateral Agent certifying that all such consents have been obtained. The second priority Liens in the ABL Collateral securing the Term Loans that otherwise would have been released pursuant to the second sentence of this clause (b) but for the occurrence and continuation of an Event of Default shall be released when such Event of Default and all other Events of Default under this Agreement cease to exist.
(c) Upon satisfaction of all conditions precedent under this Agreement and the Collateral Documents, if any, to such release have been met and any necessary or proper instruments of termination, satisfaction or release prepared by the Borrower, the Administrative Agent shall, or shall cause the Collateral Agent, to execute, deliver or acknowledge (at the Borrowers expense) such instruments or releases to evidence the release of any Collateral permitted to be released pursuant to this Agreement or the Collateral Documents or the Intercreditor Agreements. Neither the Administrative Agent nor the Collateral Agent shall be liable for any such release executed in accordance with the terms hereof.
SECTION 12.04 Permitted Releases Not To Impair Lien. Any release of Collateral permitted by Section 12.03 hereof shall be deemed not to impair the Liens under this Agreement and the Collateral Documents in contravention thereof.
SECTION 12.05 [Reserved].
SECTION 12.06 Suits To Protect the Collateral.
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Subject to the provisions of Article VIII hereof and the Intercreditor Agreements, the Administrative Agent in its sole discretion and without the consent of the Lenders, on behalf of the Lenders, may direct the Collateral Agent to take all actions it deems necessary or appropriate in order to:
(a) enforce any of the terms of the Collateral Documents; and
(b) collect and receive any and all amounts payable in respect of the Obligations hereunder.
(c) Subject to the provisions of the Collateral Documents and the Intercreditor Agreements, the Administrative Agent shall have power to institute and to maintain such suits and proceedings as it may deem expedient to prevent any impairment of the Collateral by any acts which may be unlawful or in violation of any of the Collateral Documents or this Agreement, and such suits and proceedings as the Administrative Agent, in its sole discretion, may deem expedient to preserve or protect its interests and the interests of the Lenders in the Collateral (including power to institute and maintain suits or proceedings to restrain the enforcement of or compliance with any legislative or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid if the enforcement of, or compliance with, such enactment, rule or order would impair the Lien on the Collateral or be prejudicial to the interests of the Lenders or the Collateral Agent). Nothing in this Section 12.06 shall be considered to impose any such duty or obligation to act on the part of the Administrative Agent.
SECTION 12.07 Authorization of Receipt of Funds by the Administrative Agent Under the Collateral Documents.
Subject to the provisions of the Intercreditor Agreements, the Administrative Agent is authorized to receive any funds for the benefit of the Lenders distributed under the Collateral Documents, and to make further distributions of such funds to the Lenders according to the provisions of this Agreement.
SECTION 12.08 Purchaser Protected.
In no event shall any purchaser in good faith of any property purported to be released hereunder be bound to ascertain the authority of the Collateral Agent or the Administrative Agent to execute the release or to inquire as to the satisfaction of any conditions required by the provisions hereof for the exercise of such authority or to see to the application of any consideration given by such purchaser or other transferee; nor shall any purchaser or other transferee of any property or rights permitted by this Article XII to be sold be under any obligation to ascertain or inquire into the authority of the Borrower or the applicable Guarantor to make any such sale or other transfer.
SECTION 12.09 Powers Exercisable by Receiver or Administrative Agent.
In case the Collateral shall be in the possession of a receiver or trustee, lawfully appointed, the powers conferred in this Article XII upon the Borrower or a Guarantor with respect to the release, sale or other disposition of such property may be exercised by such receiver or trustee, and an instrument signed by such receiver or trustee shall be deemed the equivalent of any similar instrument of the Borrower or a Guarantor or of any officer or officers thereof required by the provisions of this Article XII; and if the Administrative Agent shall be in the possession of the Collateral under any provision of this Agreement, then such powers may be exercised by the Administrative Agent.
SECTION 12.10 Release Upon Termination of the Borrowers Obligations.
In the event that the Borrower delivers to the Administrative Agent, in form and substance reasonably acceptable to it, an certificate of a Responsible Officer certifying that (i) payment in full of the principal of, together with accrued and unpaid interest on, all of the Term Loans and all other Obligations under this Agreement and the Collateral Documents with respect thereto, that are due and payable at or prior to the time such principal, together with accrued and unpaid interest, are paid or (ii) the Borrower shall have exercised its satisfaction and discharge option, in compliance with the provisions of Article X hereof, in each case with respect to all of the Term Loans, the Administrative Agent shall deliver to the Borrower and the Collateral Agent a notice stating that the Administrative Agent, on behalf of the Lenders, disclaims and gives up any and all rights it has in or to the
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Collateral, and any rights it has under the Collateral Documents, and upon receipt by the Collateral Agent of such notice, the Collateral Agent shall be deemed not to hold a Lien in the Collateral on behalf of the Administrative Agent and shall do or cause to be done all acts reasonably necessary at the Borrowers cost to release such Lien as soon as is reasonably practicable.
SECTION 12.11 Collateral Agent.
(a) The Administrative Agent and each of the Lenders hereby designates and appoints the Collateral Agent as its agent under this Agreement, the Collateral Documents and the Intercreditor Agreements and the Administrative Agent and each of the Lenders hereby irrevocably authorizes the Collateral Agent to take such action on its behalf under the provisions of this Agreement, the Collateral Documents and the Intercreditor Agreements and to exercise such powers and perform such duties as are expressly delegated to the Collateral Agent by the terms of this Agreement, the Collateral Documents and the Intercreditor Agreements, together with such powers as are reasonably incidental thereto. The provisions of this Section 12.11 are solely for the benefit of the Notes Collateral Agent and none of the Administrative Agent, any of the Lenders, the Borrower nor any of the Guarantors shall have any rights as a third party beneficiary of any of the provisions contained herein other than as expressly provided in Section 12.03. Notwithstanding any provision to the contrary contained elsewhere in this Agreement, the Collateral Documents and the Intercreditor Agreements, the Collateral Agent shall not have any duties or responsibilities hereunder nor shall the Collateral Agent have or be deemed to have any fiduciary relationship with the Administrative Agent, any Lender or any Guarantor, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement, the Collateral Documents and the Intercreditor Agreements or otherwise exist against the Collateral Agent. Without limiting the generality of the foregoing sentence, the use of the term agent in this Agreement with reference to the Collateral 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 an administrative relationship between independent contracting parties. Except as expressly otherwise provided in this Agreement, the Collateral 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 which the Collateral Agent is expressly entitled to take or assert under this Agreement, the Collateral Documents and the Intercreditor Agreements, including the exercise of remedies pursuant to Article VIII, and any action so taken or not taken shall be deemed consented to by the Administrative Agent and the Lenders.
(b) None of the Collateral Agent or any of its Affiliates shall (i) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or the transactions contemplated hereby (except for its own gross negligence or willful misconduct) or under or in connection with any Collateral Document or the Intercreditor Agreements or the transactions contemplated thereby (except for its own gross negligence or willful misconduct), or (ii) be responsible in any manner to any of the Administrative Agent or any Lender for any recital, statement, representation, warranty, covenant or agreement made by the Borrower or any Guarantor, or any officer or Affiliate of any of the foregoing, contained in this or any Agreement, or in any certificate, report, statement or other document referred to or provided for in, or received by the Collateral Agent under or in connection with, this Agreement, the Collateral Documents or the Intercreditor Agreements, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement, the Collateral Documents or the Intercreditor Agreements, or for any failure of the Borrower, any Guarantor or any other party to this Agreement, the Collateral Documents or the Intercreditor Agreements to perform its obligations hereunder or thereunder. None of the Collateral Agent or any of its Affiliates shall be under any obligation to the Administrative Agent or any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement, the Collateral Documents or the Intercreditor Agreements or to inspect the properties, books, or records of the Borrower, any Guarantor or any Guarantors Affiliates.
(c) The Collateral Agent and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting, or other business with the Borrower, any Guarantor and their Affiliates as though it was not the Collateral Agent hereunder and without notice to or consent of the Administrative Agent. The Administrative Agent and the Lenders acknowledge that, pursuant to such activities, the Collateral Agent or its Affiliates may receive information regarding the Borrower, any Guarantor or its Affiliates (including information that may be subject to confidentiality obligations in favor of the Borrower, any such Guarantor or such Affiliate) and
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acknowledge that the Collateral Agent shall not be under any obligation to provide such information to the Administrative Agent or the Lenders. Nothing herein shall impose or imply any obligation on the part of the Collateral Agent to advance funds.
(d) The Collateral Agent is authorized and directed to (i) enter into the Collateral Documents, (ii) enter into the Intercreditor Agreements, (iii) bind the Lenders on the terms as set forth in the Collateral Documents and the Intercreditor Agreements and (iv) perform and observe its obligations under the Collateral Documents and the Intercreditor Agreements.
(e) The Administrative Agent agrees that it shall not (and shall not be obliged to), and shall not instruct the Collateral Agent to, unless specifically requested to do so by the Required Lenders, take or cause to be taken any action to enforce its rights under this Agreement or against the Borrower or any Guarantor, including the commencement of any legal or equitable proceedings, to foreclose any Lien on, or otherwise enforce any security interest in, any of the Collateral.
If at any time or times the Administrative Agent shall receive (i) by payment, foreclosure, set-off or otherwise, any proceeds of Collateral or any payments with respect to the Obligations arising under, or relating to, this Agreement, except for any such proceeds or payments received by the Administrative Agent from the Collateral Agent pursuant to the terms of this Agreement, or (ii) payments from the Collateral Agent in excess of the amount required to be paid to the Administrative Agent pursuant to Article VIII, the Administrative Agent shall promptly turn the same over to the Collateral Agent, in kind, and with such endorsements as may be required to negotiate the same to the Collateral Agent.
(f) The Administrative Agent is each Lenders agent for the purpose of perfecting the Lenders security interest in assets which, in accordance with Article 9 of the Uniform Commercial Code can be perfected only by possession. Should the Administrative Agent obtain possession of any such Collateral, upon request from the Borrower, the Administrative Agent shall notify the Collateral Agent thereof, and, promptly upon the Collateral Agents request therefor shall deliver such Collateral to the Collateral Agent or otherwise deal with such Collateral in accordance with the Collateral Agents instructions.
(g) The Collateral Agent shall have no obligation whatsoever to the Administrative Agent or any of the Lenders to assure that the Collateral exists or is owned by the Borrower or any Guarantor or is cared for, protected, or insured or has been encumbered, or that the Collateral Agents Liens have been properly or sufficiently or lawfully created, perfected, protected, maintained or enforced or are entitled to any particular priority, or to determine whether all or the Borrower or any Guarantors property constituting collateral intended to be subject to the Lien and security interest of the Collateral Documents has been properly and completely listed or delivered, as the case may be, or the genuineness, validity, marketability or sufficiency thereof or title thereto, 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 the Collateral Agent pursuant to this Agreement, any Collateral Document or the Intercreditor Agreements, it being understood and agreed that in respect of the Collateral, or any act, omission, or event related thereto, the Collateral Agent may act in any manner it may deem appropriate, in its sole discretion given the Collateral Agents own interest in the Collateral and that the Collateral Agent shall have no other duty or liability whatsoever to the Administrative Agent or any Lender as to any of the foregoing.
(h) No provision of this Agreement, the Intercreditor Agreements or any Collateral Document shall require the Collateral Agent (or the Administrative Agent) to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or thereunder or to take or omit to take any action hereunder or thereunder or take any action at the request or direction of Lenders (or the Administrative Agent in the case of the Collateral Agent) if it shall have reasonable grounds for believing that repayment of such funds is not assured to it.
(i) The Collateral Agent (i) shall not be liable for any action it takes or omits to take in good faith which it reasonably believes to be authorized or within its rights or powers, or for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Collateral Agent was grossly negligent in ascertaining the pertinent facts, (ii) shall not be liable for interest on any money received by it except as the
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Collateral Agent may agree in writing with the Borrower (and money held in trust by the Collateral Agent need not be segregated from other funds except to the extent required by law), (iii) the Collateral Agent may consult with counsel of its selection and the advice or opinion of such counsel as to matters of law shall be full and complete authorization and protection from liability in respect of any action taken, omitted or suffered by it in good faith and in accordance with the advice or opinion of such counsel. The grant of permissive rights or powers to the Collateral Agent shall not be construed to impose duties to act.
(j) Neither the Collateral Agent nor the Administrative Agent shall be liable for delays or failures in performance resulting from acts beyond its control. Such acts shall include but not be limited to acts of God, strikes, lockouts, riots, acts of war, epidemics, governmental regulations superimposed after the fact, fire, communication line failures, computer viruses, power failures, earthquakes or other disasters. Neither the Collateral Agent nor the Administrative Agent shall be liable for any indirect, special or consequential damages (included but not limited to lost profits) whatsoever, even if it has been informed of the likelihood thereof and regardless of the form of action.
SECTION 12.12 Designations.
Except as provided in the next sentence, for purposes of the provisions hereof and the Intercreditor Agreements requiring the Borrower to designate Indebtedness for the purposes of the term Additional Noteholder Lien Debt Facility or any other such designations hereunder or under the Intercreditor Agreements, any such designation shall be sufficient if the relevant designation is set forth in writing, signed on behalf of the Borrower by a Responsible Officer and delivered to the Administrative Agent, the Collateral Agent and the ABL Agent.
SECTION 12.13 Additional Collateral.
(a) (i) Subject to the limitations set forth or referenced in this Section 12.13, applicable law and any exceptions set forth in the Security Agreement, the Borrower and each Subsidiary Guarantor will cause the issued and outstanding Capital Stock (other than Excluded Capital Stock) of each Subsidiary directly owned by the Borrower or any Subsidiary Guarantor to be subject at all times to a first priority (subject to the Intercreditor Agreements and to other Permitted Liens), perfected Lien in favor of the Collateral Agent pursuant to the terms and conditions of this Agreement and the other Collateral Documents.
(ii) Subject to the limitations set forth or referenced in this Section 12.13, applicable law and any exceptions set forth in the Security Agreement, the Borrower and each Subsidiary Guarantor will cause, except with respect to intercompany Indebtedness, all evidences of Indebtedness for borrowed money in a principal amount in excess of $2,500,000 (individually) that is owing to the Borrower or any Subsidiary Guarantor to be evidenced by a duly executed promissory note and pledged and delivered to the Collateral Agent under the Security Agreement and accompanied by instruments of transfer with respect thereto endorsed in blank.
(iii) Each of the Borrower and each Subsidiary Guarantor agrees that all Indebtedness of Holdings, the Borrower and each of its Subsidiaries that is owing to the Borrower or any Subsidiary Guarantor shall be evidenced by the Intercompany Note, which promissory note shall be required to be pledged and delivered to the Collateral Agent under the Security Agreement and accompanied by instruments of transfer with respect thereto endorsed in blank.
(b) In furtherance of Section 6.13, but subject to the limitations set forth or referenced in this Section 12.13, applicable law and any exceptions set forth in the Security Agreement, and without limiting the foregoing, the Borrower and each Subsidiary Guarantor will execute and deliver to the Collateral Agent such documents, agreements and instruments, and will take or cause to be taken such further actions (including the filing and recording of financing statements, fixture filings, mortgages, deeds of trust and other documents and such other actions or deliveries, as applicable (including the delivery of the Real Property Collateral Requirements), which may be required by law or which the Collateral Agent may, from time to time, reasonably request to carry out the terms and conditions of this Agreement and the other Collateral Documents and to ensure perfection and priority of the Liens created or intended to be created by the Collateral Documents, all at the expense of the Borrower and the Guarantors, provided, however, that neither the Borrower nor any Subsidiary Guarantor shall be required to grant any security interest or take any action to perfect any security interest under the law of any jurisdiction outside the United States of America.
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(c) Subject to the limitations set forth or referred to in this Section 12.13, applicable law and any exceptions set forth in the Security Agreement, if any material assets (including any real property or improvements thereto or any interest therein) are acquired by the Borrower or any Subsidiary Guarantor after the Closing Date (other than assets constituting Collateral under the Security Agreement that become subject to the Lien in favor of the Collateral Agent upon acquisition thereof), the Borrower will, as soon as reasonably practicable, notify the Collateral Agent thereof, and, if requested by the Collateral Agent, the Borrower or such Subsidiary Guarantor will cause such assets to be subjected to a Lien securing the Obligations and will take such actions as shall be necessary or reasonably requested by the Collateral Agent to grant and perfect such Liens, including actions described in paragraph (b) of this Section 12.13, all at the expense of the Borrower and the Guarantors.
(d) Notwithstanding anything to the contrary contained in this Agreement, real property required to be mortgaged under the Collateral Documents (i) shall exclude the Miami, Florida and Simi Valley, California real estate and (ii) shall be limited to real property located in the United States of America that is owned in fee by the Borrower or a Subsidiary Guarantor, the cost or book value of which (whichever is greater) at the time of the acquisition thereof (or, in the case of real property owned on the Closing Date), the cost or book value of which (whichever is greater) on the Closing Date is $2,500,000 or more (provided that the cost of perfecting such Lien is not unreasonable in relation to the benefits to the Lenders of the security afforded thereby in the reasonable determination of the Borrower and the Administrative Agent).
(e) Notwithstanding anything to the contrary contained herein, the Borrower and the Subsidiary Guarantors shall not be required to include as Collateral any Excluded Assets.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.
BORROWER: | AMERICAN TIRE DISTRIBUTORS, INC. | |||||||
By: | /s/ J. Michael Gaither | |||||||
Name: | J. Michael Gaither | |||||||
Title: | Executive Vice President, General Counsel | |||||||
and Secretary | ||||||||
HOLDINGS: | AMERICAN TIRE DISTRIBUTORS HOLDINGS, INC. | |||||||
By: | /s/ J. Michael Gaither | |||||||
Name: | J. Michael Gaither | |||||||
Title: | Executive Vice President, General Counsel | |||||||
and Secretary | ||||||||
SUBSIDIARY GUARANTORS: | AM-PAC TIRE DIST. INC. | |||||||
By: | /s/ J. Michael Gaither | |||||||
Name: | J. Michael Gaither | |||||||
Title: | Secretary | |||||||
THE HERCULES TIRE AND RUBBER COMPANY | ||||||||
By: | /s/ J. Michael Gaither | |||||||
Name: | J. Michael Gaither | |||||||
Title: | Secretary | |||||||
HERCULES ASIA PACIFIC LLC | ||||||||
By: | /s/ J. Michael Gaither | |||||||
Name: | J. Michael Gaither | |||||||
Title: | Secretary | |||||||
TIRE WHOLESALERS, INC. | ||||||||
By: | /s/ J. Michael Gaither | |||||||
Name: | J. Michael Gaither | |||||||
Title: | Secretary |
[Credit Agreement]
TERRYS TIRE TOWN HOLDINGS, INC. | ||||||||
By: | /s/ J. Michael Gaither | |||||||
Name: | J. Michael Gaither | |||||||
Title: | Secretary | |||||||
T & Z TIRE WHOLESALERS, INC. | ||||||||
By: | /s/ J. Michael Gaither | |||||||
Name: | J. Michael Gaither | |||||||
Title: | Secretary | |||||||
TERRYS TIRE TOWN, INC. | ||||||||
By: | /s/ J. Michael Gaither | |||||||
Name: | J. Michael Gaither | |||||||
Title: | Secretary | |||||||
TERRYS TIRE TOWN VIRGINIA, LTD. | ||||||||
By: | /s/ J. Michael Gaither | |||||||
Name: | J. Michael Gaither | |||||||
Title: | Secretary | |||||||
TERRYS TIRE TOWN BALTIMORE, LTD. | ||||||||
By: | /s/ J. Michael Gaither | |||||||
Name: | J. Michael Gaither | |||||||
Title: | Secretary | |||||||
SUMMIT TIRES NORTHEAST, LLC | ||||||||
By: | /s/ J. Michael Gaither | |||||||
Name: | J. Michael Gaither | |||||||
Title: | Secretary | |||||||
ENGLEWOOD TIRE WHOLESALE, INC. | ||||||||
By: | /s/ J. Michael Gaither | |||||||
Name: | J. Michael Gaither | |||||||
Title: | Secretary |
[Credit Agreement]
2
BANK OF AMERICA, N.A., | ||||||||
as Administrative Agent and Lender | ||||||||
By: | /s/ Edward Martin | |||||||
Name: | Edward Martin | |||||||
Title: | Director |
[Credit Agreement]
3
SCHEDULE 1.01
Closing Date Guarantors
1. | Am-Pac Tire Dist. Inc. |
2. | Tire Wholesalers, Inc. |
3. | The Hercules Tire & Rubber Company |
4. | Hercules Asia Pacific, LLC |
5. | Terrys Tire Town Holdings, Inc. |
6. | Terrys Tire Town, Inc. |
7. | T & Z Tire Wholesalers, Inc. |
8. | Englewood Tire Wholesale, Inc. |
9. | Summit Tires Northeast, LLC |
10. | Terrys Tire Town Virginia, Ltd. |
11. | Terrys Tire Town Baltimore, Ltd. |
1
SCHEDULE 1.01A
Closing Date Security Documents
| The Security Agreement; |
| Grant of Security Interests in Trademark Rights, dated as of March 28, 2014, by American Tire Distributors, Inc., Am-Pac Tire Dist. Inc., The Hercules Tire & Rubber Company and Terrys Tire Town, Inc. in favor of Bank of Americ, N.A. as Administrative Agent and Term Collateral Agent for the Secured Parties; |
| UCC-1 financing statements covering the appropriate Collateral in the jurisdiction of organization of each Loan Party; |
| The Intercreditor Agreements; |
| the Joinder Agreement, dated as of the date hereof, to the Intercreditor and Collateral Agency Agreement among Holdings, the Borrower, The Bank of New York Mellon Trust Company, N.A. as Collateral Agent and as Trustee (each as defined in the Intercreditor and Collateral Agency Agreement) under the Senior Notes Indenture and the Administrative Agent; |
| the Lien Sharing and Priority Confirmation Joinder, dated as of the date hereof, to the Lien Subordination and Intercreditor Agreement among Bank of America, N.A. as ABL Agent (as defined in the Lien Subordination and Intercreditor Agreement), The Bank of New York Mellon Trust Company, N.A. as Noteholder Collateral Agent (as defined in the Lien Subordination and Intercreditor Agreement) and the Administrative Agent; |
2
SCHEDULE 2.01
Commitments
Term Lender | Term Commitment | |
Bank of America, N.A. |
$300,000,000 | |
Total | $300,000,000 |
3
SCHEDULE 4.01(a)(vi)
Local Counsel
Local Counsel | Jurisdiction | |
Benesch, Friedlander, Coplan & Aronoff LLP | Ohio | |
Finn Dixon & Herling LLP | Connecticut | |
K&L Gates LLP | New Jersey | |
K&L Gates LLP | Washington |
4
SCHEDULE 5.12
Subsidiaries and Other Equity Investments
Entity |
Interest Issued (number and type) |
Record and Beneficial Owner |
Percentage | |||
American Tire Distributors Holdings, Inc. | 50 shares of Common Stock; $0.01 par value | Accelerate Holdings Corp. | 100% | |||
American Tire Distributors, Inc. | 1,000 shares of Common Stock; $0.01 par value | American Tire Distributors Holdings, Inc. | 100% | |||
Am-Pac Tire Dist. Inc. | 1,200 shares of Common Stock; $0.00 par value | American Tire Distributors, Inc. | 100% | |||
Tire Pros Francorp | 7,000 shares of Common Stock | Am-Pac Tire Dist. Inc. | 100% | |||
Tire Wholesalers, Inc. | 100 shares of Common Stock; $0.00 par value | American Tire Distributors, Inc. | 100% | |||
Trican Tire Distributors, Inc. | 6,500 shares | American Tire Distributors, Inc. | 100% | |||
The Hercules Tire & Rubber Company | 1,052,794.7274 shares | American Tire Distributors, Inc. | 100% | |||
Hercules Asia Pacific, LLC (limited liability company) | Membership Interests | The Hercules Tire & Rubber Company | 100% | |||
Hercules Tire (Qingdao), Co., Ltd. | Membership Interests | Hercules Asia Pacific, LLC | 100% | |||
Hercules Tire Company of Canada, Inc. | 100 shares | The Hercules Tire & Rubber Company | 100% | |||
Terrys Tire Town Holdings, Inc. | 100 shares common stock | American Tire Distributors, Inc. | 100% | |||
Terrys Tire Town, Inc. | 1,500 shares of common stock | Terrys Tire Town Holdings, Inc. | 100% | |||
T & Z Tire Wholesalers, Inc. | 100 shares of common stock | Terrys Tire Town Holdings, Inc. | 100% | |||
Englewood Tire Wholesale, Inc. | 100 shares of capital stock | Terrys Tire Town Holdings, Inc. | 100% | |||
Summit Tires Northeast, LLC | Membership Interests | Terrys Tire Town Holdings, Inc. | 100% | |||
Terrys Tire Town Virginia, Ltd. | Membership Interests | Terrys Tire Town Holdings, Inc. | 100% | |||
Terrys Tire Town Baltimore, Ltd. | Membership Interests | Terrys Tire Town Holdings, Inc. | 100% | |||
Premier Bandag #8, Inc. | 85 shares of common stock | Terrys Tire Town Holdings, Inc. | 100% |
5
SCHEDULE 7.01
Existing Liens
1. | Liens pursuant to the Premium Finance Agreement, Security Agreement, Disclosure Statement and Limited Power of Attorney, dated as of October 18, 2013, between TTT Holdings, Inc. and its subsidiaries and Flatiron Capital. |
2. | Liens pursuant to the Security Agreement (Chattel Mortgage), dated as of February 25, 2011, between Summit Tires Northeast, LLC and Michelin, as amended on May 31, 2011. |
3. | Liens pursuant to the Security Agreement (Chattel Mortgage), dated as of February 24, 1986, between T & Z Tire Wholesalers, Inc. and Michelin, as amended on December 1, 2011. |
4. | Liens pursuant to the Security Agreement (Chattel Mortgage), dated as of June 25, 1979, between Terrys Tire Town, Inc. and Michelin, as amended on December 1, 2011. |
5. | Liens pursuant to the Security Agreement (Chattel Mortgage), dated as of December 17, 2004, between Terrys Tire Town Baltimore, Ltd. and Michelin, as amended on December 1, 2011. |
6. | Liens pursuant to the Security Agreement (Chattel Mortgage), dated as of December 17, 2004, between Terrys Tire Town Virginia, Ltd. and Michelin, as amended on December 1, 2011. |
7. | Liens pursuant to the Purchase Money Security Agreement, dated as of November 30, 2011, between Englewood Tire Wholesale, Inc. and ETD Discount Tire Centers, Inc. |
8. | Liens pursuant to the Limited Inventory Collateral Security Agreement, dated as of February 22, 2011, between Summit Tires Northeast, LLC and Falken. |
9. | Liens pursuant to the Security Agreement, dated as of April 16, 2011, between Terrys Tire Town, Inc. and Nitto Tire North America, Inc. |
10. | Liens pursuant to the Security Agreement, dated as of June 7, 2000, between Englewood Tire Wholesale, Inc. and Bridgestone/Firestone, Inc. |
11. | Liens pursuant to the Purchase Money Inventory Security Agreement, dated as of November 19, 2010, among Terrys Tire Town Holdings, Inc., Terrys Tire Town, Inc., Terrys Tire Town Virginia, Ltd., Terrys Tire Town Baltimore, Ltd., T & Z Tire Wholesalers, Inc., and Continental Tire. |
12. | Liens pursuant to the Purchase Money Inventory Security Agreement, dated as of July 10, 2003, between Englewood Tire Wholesale, Inc. and Continental Tire. |
13. | Liens pursuant to the Purchase Money Security Agreement, dated as of March 14, 2005, between Englewood Tire Wholesale, Inc. and Cooper Tire & Rubber. |
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14. | Liens pursuant to the Limited Inventory Collateral Security Agreement, dated as of July 14, 2005, between Englewood Tire Wholesale, Inc. and Falken. |
15. | Liens pursuant to the Security Agreement, dated as of December 15, 2006, between Englewood Tire Wholesale, Inc. and Kumho Tire USA, Inc. |
16. | Liens pursuant to the Security Agreement (Chattel Mortgage), dated as of December 27, 2006, between Englewood Tire Wholesale, Inc. and Michelin. |
17. | Liens pursuant to the Security Agreement, dated as of May 21, 1986, between T & Z Tire Wholesalers, Inc. and Bridgestone (U.S.A.), Inc. |
18. | Liens pursuant to the Security Agreement, dated as of March 13, 2009, between T & Z Tire Wholesalers, Inc. and Pirelli Tire LLC. |
19. | Liens pursuant to the Dealer Security Agreement, dated as of January 28, 1998, between T & Z Tire Wholesalers, Inc. and Yokohama Tire Corporation. |
20. | Liens pursuant to the Security Agreement, dated as of August 5, 2004, between Summit Tires Northeast, LLC (as successor to Summit Tires of Massachusetts, Inc.) and Yokohama. |
21. | Liens pursuant to the Security Agreement, dated as of December 27, 2006, between Englewood Tire Wholesale, Inc. and Yokohama. |
22. | Liens pursuant to the Purchase Money Inventory Security Agreement, dated as of February 10, 2011, between Summit Tires Northeast, LLC and Continental Tire. |
23. | Assignment of Deposit Accounts, dated as of January 31, 2014, made by The Hercules Tire & Rubber Company in favor of JPMorgan Chase Bank, N.A. |
24. | Open-End Mortgage and Security Agreement from Toledo-Lucas County Port Authority, to Chase Manhattan Trust Company, National Association, Trustee, in the maximum amount of $5,000,000.00 Taxable Development Revenue Bonds (Northwest Ohio Bond Fund) Series 1998E, filed for record November 12, 1998, in Volume 1675, Page 1, of the Hancock County Records. |
25. | Assignment of Certain Rights under a Lease from Toledo-Lucas County Port Authority to Chase Manhattan Trust Company, National Association and Director of Development of the State of Ohio, with the consent of Chase Manhattan Trust Company, National Association, as agent, filed for record November 12, 1998 in Volume 1675, Page 76, of the Hancock County Records. |
26. | Intercreditor Agreement by and between The Director of Development of the State of Ohio and Chase Manhattan Trust Company, National Association, as NWOCBF Trustee and Chase Manhattan Trust Company, National Association, as agent and Toledo-Lucas County Port Authority, filed for record November 12, 1998 in Volume 1675, Page 92, of the Hancock County Records. |
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27. | Financing Statement No. 50143 from The Hercules Tire & Rubber Company (debtor) to Toledo-Lucas County Port Authority (secured party), filed for record November 12, 1998, in the Hancock County Records. |
28. | Financing Statement No. 50144 from Toledo Lucas County Port Authority (debtor) to Chase Manhattan Trust Company, N.A. (secured party), filed for record November 12, 1998 in the Hancock County Records. |
29. | Non-Disturbance and Attornment Agreement by and between Toledo-Lucas County Port Authority, Chase Manhattan Trust Company, National Association, as NWOCBF Trustee; The Director of Development of the State of Ohio; and The Hercules Tire & Rubber Company, filed for record November 12, 1998 in Volume 1675, Page 114, of the Hancock County Records. |
30. | Collateral Assignment of Mortgage and Assignment from Chase Manhattan Trust Company, National Association and Toledo-Lucas County Port Authority to The Fifth Third Bank of Northwestern Ohio, National Association, filed for record November 12, 1998 in Volume 1675, Page 124, of the Hancock County Records. |
31. | Financing Statement Assignment No. 50143 from Toledo-Lucas County Port Authority to Chase Manhattan Trust Company, N.A. and Director of Development, filed for record November 12, 1998, in the Hancock County Records. |
32. | Amended and Restated Collateral Assignment of Mortgages and Security Agreements tom Chase Manhattan Trust Company, National Association and Toledo-Lucas County Port Authority to Fifth Third Bank of Northwestern Ohio, National Association, filed for record March 18, 1999 in Volume 1735, Page 62, of the Hancock County Records. |
33. | First Amendment to Intercreditor Agreement by and between The Director of Development of the State of Ohio and The Bank of New York Trust Company, NA, as NWOCBF Trustee and The Bank of New York Trust Company, NA, as agent and Toledo-Lucas County Port Authority, filed for record June 3, 2008 in Volume 2341, Page 491, of the Hancock County Records. |
34. | Open-End Mortgage, and Security Agreement from Toledo-Lucas County Port Authority, to Director of Development of the State of Ohio, in the maximum amount of $8,350,000.00, State Economic Development Revenue Bonds (Ohio Enterprise Bond Fund) Series 1998-5, filed for record November 12, 1998, in Volume 1675, Page 31, of the Hancock County Records. |
35. | All Encumbrances of record related to the Owned Real Property as set forth on that certain Commitment for Title Insurance, issued by the Chicago Title Insurance Company, dated as of January 16, 2014. |
36. | All Encumbrances related to that certain Consignment Agreement, dated as of March 29, 1999, between Cooper Tire & Rubber Company and Hercules. |
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37. | The following liens: |
Debtor |
Jurisdiction |
Secured Party |
Collateral |
Original File |
Original File Number | |||||
Terrys Tire Town, Inc. | OH - Secretary of State | Cooper Tire & Rubber Company | Inventory | 3/1/2005 | OH00086784254 | |||||
Terrys Tire Town, Inc. | OH - Secretary of State | Dell Financial Services | Specific Computer Equipment | 5/4/2006 | OH00101694677 | |||||
Terrys Tire Town, Inc. | OH - Secretary of State | Max-Trac Tire Co., Inc. Mickey Thompson Tires |
Inventory | 10/25/2006 | OH00107949664 | |||||
Terrys Tire Town, Inc. | OH - Secretary of State | COMDOC | Specific Equipment (Xerox) | 4/4/2012 | OH00157272821 | |||||
Terrys Tire Town, Inc. | OH - Secretary of State | COMDOC | Specific Equipment (Xerox) | 5/18/2012 | OH00158448330 | |||||
Terrys Tire Town, Inc. | OH - Secretary of State | COMDOC | Specific Equipment (Xerox & Sharp) | 9/20/2012 | OH00161376716 | |||||
Terrys Tire Town, Inc. | OH - Secretary of State | COMDOC | Specific Equipment (Xerox) | 12/31/2012 | OH00163766109 | |||||
Terrys Tire Town, Inc. | OH - Secretary of State | COMDOC | Specific Equipment (Xerox) | 7/10/2013 | OH00168713395 | |||||
Summit Tires Northeast, LLC | OH - Secretary of State | Wells Fargo Bank, N.A. | Specific Equipment | 2/22/2011 | OH00148333466 | |||||
Summit Tires Northeast, LLC | OH - Secretary of State | Wells Fargo Bank, N.A. | Specific Equipment | 2/22/2011 | OH00148333355 | |||||
Englewood Tire Wholesale, Inc. | NJ - Secretary of State | Cooper Tire & Rubber Company | Inventory | 3/22/2005 | 22889126 | |||||
Englewood Tire Wholesale, Inc. | NJ - Secretary of State | Bridgestone Americas Tire Operations LLC | Inventory | 10/27/1981 | 647742 | |||||
T & Z Wholesalers, Inc. | OH - Secretary of State | Cooper Tire & Rubber Co. | Inventory | 5/16/1988 | AA18088 | |||||
T & Z Wholesalers, Inc. | OH - Secretary of State | Bridgestone Firestone North American Tire, LLC | Inventory | 12/30/1998 | AP0111743 | |||||
American Tire Distributors, Inc. | DE - Secretary of State | Bridgestone/ Firestone North American Tire, LLC | Inventory | 12/18/2001 | 20160626 | |||||
American Tire Distributors, Inc. | DE - Secretary of State | Crown Credit Company | Specific Equipment | 4/13/2009 | 1163580 | |||||
American Tire Distributors, Inc. | DE - Secretary of State | Crown Credit Company | Specific Equipment | 4/13/2009 | 1163630 | |||||
American Tire Distributors, Inc. | DE - Secretary of State | Crown Credit Company | Specific Equipment | 5/7/2009 | 1451100 | |||||
American Tire Distributors, Inc. | DE - Secretary of State | Wells Fargo, N.A. | Specific Equipment | 5/26/2009 | 1653481 | |||||
American Tire Distributors, Inc. | DE - Secretary of State | Crown Credit Company | Specific Equipment | 5/28/2009 | 1682894 | |||||
Tire Wholesalers, Inc. | Wa - Department of Licensing | Bridgestone Americas Tire Operations, LLC | Inventory | 4/10/1995 | 95-1000303 |
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Debtor |
Jurisdiction |
Secured Party |
Collateral |
Original File |
Original File Number | |||||
Tire Wholesalers, Inc. | Wa - Department of Licensing | Continental Tire of the Americas, LLC | Purchase Money Collateral | 3/19/1996 | 96-079-0138 | |||||
The Hercules Tire & Rubber Company | CT - Secretary of State | Rebas, Inc. DBA Toyota-Lift of Los Angeles | Specific Equipment | 06/14/2013 | 0002943344 | |||||
The Hercules Tire & Rubber Company | CT - Secretary of State | U.S. Bancorp Business Equipment Finance, a division of U.S. Bank National Association | Specific Equipment | 07/18/2013 | 0002948779 | |||||
The Hercules Tire & Rubber Company | CT - Secretary of State | U.S. Bancorp Business Equipment Finance, a division of U.S. Bank National Association | Specific Equipment | 05/02/2013 | 0002934938 | |||||
The Hercules Tire & Rubber Company | CT - Secretary of State | U.S. Bancorp Business Equipment Finance | Specific Equipment | 10/28/2013 | 0002963547 | |||||
The Hercules Tire & Rubber Company | CT - Secretary of State | U.S. Bancorp Business Equipment Finance | Specific Equipment | 10/31/2013 | 0002964428 |
10
SCHEDULE 7.03
Existing Indebtedness
1. | Indebtedness pursuant to the Premium Finance Agreement, Security Agreement, Disclosure Statement and Limited Power of Attorney, dated October 18, 2013, between Flatiron Capital (a division of Wells Fargo Bank, N.A.) and TTT Holdings, Inc., and its Subsidiaries |
2. | Indebtedness pursuant to the non-maintenance portion of the Oracle License and Services Agreement, dated February 27, 2013, between Oracle America, Inc. and Terrys Tire Town, Inc. |
3. | The following guaranties: |
a. | Corporate Guaranty Agreement, dated March 28, 2014, by American Tire Distributors, Inc. for the benefit of The Goodyear Tire & Rubber Company. |
b. | Guaranty, dated March 13, 2009, granted by Terrys Tire Town, Inc. to Michelin North America, Inc. in favor of T & Z Tire Wholesalers, Inc. |
c. | Guaranty, dated March 13, 2009, granted by Terrys Tire Town Baltimore, Ltd. to Michelin North America, Inc. in favor of T & Z Tire Wholesalers, Inc. |
d. | Guaranty, dated March 13, 2009, granted by Terrys Tire Town Virginia, Ltd. to Michelin North America, Inc. in favor of T & Z Tire Wholesalers, Inc. |
e. | Guaranty, as of November 30, 2011, granted by Terrys Tire Town Holdings, Inc. to Michelin North America, Inc. in favor of Englewood Tire Wholesale, Inc. |
f. | Guaranty, as of November 30, 2011, granted by Summit Tires Northeast, LLC to Michelin North America, Inc. in favor of Englewood Tire Wholesale, Inc. |
g. | Guaranty, as of November 30, 2011, granted by T & Z Tire Wholesalers, Inc. to Michelin North America, Inc. in favor of Englewood Tire Wholesale, Inc. |
h. | Guaranty, as of November 30, 2011, granted by Englewood Tire Wholesale, Inc. to Michelin North America, Inc. in favor of TTT Holdings, Inc. |
i. | Guaranty, as of November 30, 2011, granted by Englewood Tire Wholesale, Inc. to Michelin North America, Inc. in favor of Summit Tires Northeast, LLC. |
j. | Guaranty, as of November 30, 2011, granted by Englewood Tire Wholesale, Inc. to Michelin North America, Inc. in favor of T & Z Tire Wholesalers, Inc. |
k. | Guaranty, as of November 30, 2011, granted by Englewood Tire Wholesale, Inc. to Michelin North America, Inc. in favor of Terrys Tire Town Holdings, Inc. |
l. | Guaranty, dated December 3, 2004, granted by Terrys Tire Town, Inc. to Liberty Property Limited Partnership regarding the obligations of Terrys Tire Town Virginia, Ltd. |
m. | Continuing Guaranty, dated February 2, 1995, granted by T & Z Tire Wholesalers, Inc. and Terrys Tire Town, Inc. to Kumho U.S.A., Inc. in favor of T & Z Tire Wholesalers, Inc. and Terrys Tire Town, Inc. |
n. | Cross Corporate Guaranty by Terrys Tire Town, Inc. in favor of Falken Tire re: Summit Tires Northeast, LLC dated February 28, 2011. |
o. | Wells Fargo Corporate Lease Guaranty for lease no. 200867413 issued by Terrys Tire Town, Inc. in favor of Summit Tires Northeast, LLC. |
11
p. | Wells Fargo Corporate Lease Guaranty for lease no. 200755881 issued by Terrys Tire Town, Inc. in favor of Summit Tires Northeast, LLC. |
q. | Guaranty issued by Terrys Tire Town Holdings, Inc. in favor of Continental Tire re: Englewood Tire Wholesale, Inc. dated November 30, 2011. |
r. | Guaranty issued by Terrys Tire Town, Inc. in favor of Continental Tire re: Englewood Tire Wholesale, Inc. dated November 30, 2011. |
s. | Guaranty issued by Terrys Tire Town Virginia Ltd. in favor of Continental Tire re: Englewood Tire Wholesale, Inc. dated November 30, 2011. |
t. | Guaranty issued by Terrys Tire Town Baltimore Ltd. in favor of Continental Tire re: Englewood Tire Wholesale, Inc. dated November 30, 2011. |
u. | Guaranty issued by T & Z Tire Wholesalers, Inc. in favor of Continental Tire re: Englewood Tire Wholesale, Inc. dated November 30, 2011. |
v. | Guaranty issued by Summit Tires Northeast, LLC in favor of Continental Tire re: Englewood Tire Wholesale, Inc. dated November 30, 2011. |
w. | Guaranty issued by T & Z Tire Wholesalers, Inc. in favor of Continental Tire re: Summit Tires Northeast, LLC dated November 30, 2011. |
x. | Guaranty issued by Englewood Tire Wholesale, Inc. in favor of Continental Tire re: Summit Tires Northeast, LLC dated November 30, 2011. |
y. | Guaranty issued by Englewood Tire Wholesale, Inc. in favor of Continental Tire re: T & Z Tire Wholesalers, Inc. dated November 30, 2011. |
z. | Guaranty issued by Terrys Tire Town, Inc. in favor of Continental Tire re: T & Z Tire Wholesalers, Inc. dated February 10, 2011. |
aa. | Guaranty issued by Summit Tires Northeast, LLC in favor of Continental Tire re: T & Z Wholesalers, Inc. dated March 18, 2011. |
bb. | Guaranty issued by Terrys Tire Town Baltimore, Ltd. in favor of Continental Tire re: T & Z Tire Wholesalers, Inc. dated March 18, 2011. |
cc. | Guaranty issued by Terrys Tire Town Virginia, Ltd. in favor of Continental Tire re: T & Z Tire Wholesalers, Inc. dated March 18, 2011. |
dd. | Guaranty issued by Terrys Tire Town Holdings, Inc. in favor of Continental Tire re: T & Z Tire Wholesalers, Inc. dated March 18, 2011. |
ee. | Guaranty issued by Terrys Tire Town, Inc. in favor of Michelin North America, Inc. re: TTT Holdings, Inc. dated February 22, 2011. |
ff. | Guaranty issued by Terrys Tire Town Holdings, Inc. in favor of Michelin North America, Inc. re: TTT Holdings, Inc. dated February 22, 2011. |
gg. | Guaranty issued by Terrys Tire Town Holdings, Inc. in favor of Michelin North America, Inc. re: Terrys Tire Town, Inc. dated February 22, 2011. |
hh. | Guaranty issued by Terrys Tire Town Holdings, Inc. in favor of Michelin North America, Inc. re: T & Z Tire Wholesalers, Inc. dated February 22, 2011. |
ii. | Guaranty issued by Terrys Tire Town, Inc. in favor of Michelin North America, Inc. re: Terrys Tire Town Holdings, Inc. dated February 22, 2011. |
jj. | Guaranty issued by T & Z Tire Wholesalers, Inc. in favor of Michelin North America, Inc. re: Terrys Tire Town Holdings, Inc. dated February 22, 2011. |
kk. | Guaranty issued by T & Z Tire Wholesalers, Inc. in favor of Michelin North America, Inc. re: TTT Holdings, Inc. dated February 22, 2011. |
ll. | Corporate Lease Guaranty, dated February 28, 2011 by Terrys Tire Town Holdings, Inc., in favor of Fat Boys Realty, LLC. |
12
mm. | Corporate Lease Guaranty, dated February 28, 2011 by Terrys Tire Town Holdings, Inc., in favor of Benjamin W. Kravitz, Francis G. Ledwith and Harvey K. Rudnick, Trustees of Rubber Realty Trust u/d/t dated December 16, 1988 and recorded with Plymouth County Registry of Deeds at Book 8890, Page 32, with an address at 195 Liberty Street Suite #2, Brockton, Massachusetts 02301, and Summit Tires Northeast, LLC. |
4. | As a condition of the Port Authority Loan Agreement the Toledo Port-Authority requires a letter of credit, pursuant to which Hercules has obtained (i) Irrevocable Standby Letter of Credit No. 05152582, dated as of November 7, 2000, issued by JPMorgan Chase Bank, N.A. (successor to Bank One Michigan) in favor of The Bank of New York Trust Company (successor to Chase Manhattan Trust Company National Association) for the account of Hercules in the amount of $500,000, as amended by Amendment No. 6 dated October 7, 2005 and Amendment No. 7 dated February 27, 2007, and (ii) Irrevocable Standby Letter of Credit No. CLS152583, dated as of November 7, 2000, issued by JPMorgan Chase Bank, N.A. (successor to Bank One Michigan) in favor of The Huntington National Bank (successor to The Provident Bank) for the account of Hercules in the amount of $835,000, as amended by Amendment No. 2 dated June 21, 2005 and Amendment No. 3 dated June 21, 2005. In addition, the Port Authority Loan Agreement is secured by the following mortgages: Open-end mortgage and Security Agreement from Toledo Lucas County Port Authority to Chase Manhattan Trust Company, National Association, dated as of November 1, 1998 and Open-end mortgage and Security Agreement from Toledo Lucas County Port Authority to Director of Development of the State of Ohio, dated as of November 1, 1998. |
5. | As a condition to providing services, Svizz-One Corporation Ltd. requires a letter of credit, pursuant to which Hercules has obtained Irrevocable Standby Letter of Credit No. CPCS-918313, dated as of June 27, 2011, issued by JPMorgan Chase Bank, N.A. in favor of Svizz-One Corporation Ltd. (successor to Deestone Radial Tire Company) for the account of Hercules in the amount of $500,000, as amended by Amendment No. 4 as of dated June 11, 2013. |
6. | Lease Agreement dated March 26, 2002, as amended on February 1, 2012, by and between HEF (NC-SC) QRS, 14-86, Inc., a Delaware corporation, as Landlord and American Tire Distributors Inc., a Delaware corporation, as Tenant representing a liability as express on American Tires balance sheet of $12,131,602.81 |
7. | Reimbursement obligations under Letter of Credit in favor of The Realty Associates Fund IX L.P. in the aggregate amount of $100,000. |
8. | Reimbursement Obligations under Letter of Credit in favor of Argonaut Insurance Co. in the aggregate amount of $115,000. |
9. | Reimbursement Obligations under Letter of Credit in favor of Universal Underwriters Insurance Company in the aggregate amount of $150,000. |
10. | Reimbursement Obligations under Letter of Credit in favor of XL Specialty Insurance Company in the aggregate amount of $6,744,000. |
13
11. | Reimbursement Obligations under Letter of Credit in favor of HEF (NC-SC) QRS 14-86 Inc. in the aggregate amount of $1,308,693. |
12. | Reimbursement Obligations under Letter of Credit issued by The Huntington National Bank on October 29, 2009 for the account of Terrys Tire Town, Inc. for the benefit of Arundel Crossing IV, LLC in the face amount of $94,444.36, which Terrys Tire Town, Inc. will cash collateralize on or after the Closing Date by funding 105% of the value directly into a blocked account at The Huntington National Bank. |
13. | Guarantees of certain leases of Winston Tire Company of $1.9 million at February 2014. |
14. | Financing obligation dated August 17, 2005 of American Tire Distributors, Inc. in favor of Space Providers of Asheville LLC for financing the Asheville, NC distribution center leasehold improvements. The remaining balance is $216,933.68. |
15. | Financing obligation dated June 30, 2011of American Tire Distributors, Inc. in favor of Golden Springs Development Company, LLC for financing the Santa Fe Springs, CA distribution center leasehold improvements. The remaining balance is $419,448.90. |
16. | Promissory Note dated December 22, 2011 of Tire Pros Francorp in favor of Tire Pros of Rhode Island, Inc. for the assignment of trademarks. The remaining balance is $100,000. |
17. | Promissory Note dated March 27, 2008 of The Bowlus Service Company dba North Central Tire in favor of Chris Hutteman for Noncompetition and Consulting Agreement. The remaining balance is $255,018. |
18. | Promissory Note dated March 20, 2008 of The Bowlus Service Company in favor of Webster Wholesale Tire, Inc. in the original principal amount of $206,309. The remaining balance is $84,242.96. |
19. | Lease Agreement by and between Ally Financial Inc. and Tire Wholesalers, Inc. representing a liability as expressed on American Tires balance sheet of $7,862.87. |
20. | Lease Agreement by and between MailFinance, A Neopost USA Company, and American Tire Distributors, Inc. representing a liability as expressed on American Tires balance sheet of $117,941.11. |
21. | Indebtedness outstanding in respect of Interest Rate Swap Agreement entered into by American Tire Distributors, Inc. with Bank of America N.A. from time to time to manage exposure to fluctuations in interest rates. As of February 28, 2014, American Tire Distributors, Inc. had an Interest Rate Swap Agreement in place covering a notional amount of $50,000,000 with an interest rate of 0.74% maturing on September 18, 2014 and a fair value of $168,010. |
22. | Indebtedness outstanding in respect of Interest Rate Swap Agreement entered into by American Tire Distributors, Inc. with Bank of America N.A. from time to time to manage exposure to fluctuations in interest rates. As of February 28, 2014, American Tire Distributors, Inc. had an Interest Rate Swap Agreement in place covering a notional amount of $50,000,000 with an interest rate of 1.00% maturing on September 18, 2015 and a fair value of $592,197. |
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23. | Indebtedness outstanding in respect of Interest Rate Swap Agreement entered into by American Tire Distributors, Inc. with Bank of America N.A. from time to time to manage exposure to fluctuations in interest rates. As of February 28, 2014, American Tire Distributors, Inc. had an Interest Rate Swap Agreement in place covering a notional amount of $50,000,000 with an interest rate of 0.655% maturing on June 6, 2016 and a fair value of $246,611. |
24. | Indebtedness outstanding in respect of Interest Rate Swap Agreement entered into by American Tire Distributors, Inc. with Bank of America N.A. from time to time to manage exposure to fluctuations in interest rates. As of February 28, 2014, American Tire Distributors, Inc. had an Interest Rate Swap Agreement in place covering a notional amount of $50,000,000 with an interest rate of 0.655% maturing on June 6, 2016 and a fair value of $244,982. |
25. | Indebtedness outstanding in respect of Interest Rate Swap Agreement entered into by American Tire Distributors, Inc. with Wells Fargo Bank, N.A. from time to time to manage exposure to fluctuations in interest rates. As of February 28, 2014, American Tire Distributors, Inc. had an Interest Rate Swap Agreement in place covering a notional amount of $100,000,000 with an interest rate of 1.145% maturing on September 6, 2016 and a fair value of $1,421,146.12. |
26. | Indebtedness outstanding in respect of Interest Rate Swap Agreement entered into by American Tire Distributors, Inc. with Wells Fargo Bank, N.A. from time to time to manage exposure to fluctuations in interest rates. As of February 28, 2014. American Tire Distributors Inc. had an Interest Rate Swap Agreement in place that will become effective September 8, 2014 covering a notional amount of $50,000,000 with an interest rate of 1.464% maturing on September 6, 2016 and a fair value of $697,067.25. |
27. | Indebtedness outstanding in respect of Interest Rate Swap Agreement entered into by American Tire Distributors, Inc. with Wells Fargo Bank, N.A. from time to time to manage exposure to fluctuations in interest rates. As of February 28, 2014. American Tire Distributors Inc. had an Interest Rate Swap Agreement in place that will become effective September 8, 2015 covering a notional amount of $50,000,000 with an interest rate of 1.942% maturing on September 6, 2016 and a fair value of $417,170.25. |
15
SCHEDULE 7.06
Existing Investments
1. | All existing equity investments in Subsidiaries listed on Schedule 5.12 hereto. |
2. | Hercules Tire Company of Canada Inc./Compagnie de Pneus Hercules du Canada Inc. owns 51 common shares of 2046825 Ontario Inc. |
3. | Hercules Tire Company of Canada Inc./Compagnie de Pneus Hercules du Canada Inc. owns 50 common shares of 1077990 Ontario Inc. |
4. | Investments in American Car Care Centers, Inc., with a reported redemption value of $992,982.34 as November 2012 in the name of American Tire Distributors, Inc., Am-Pac Tire Dist., Inc. and Tire Wholesalers, Inc. |
5. | Terrys Tire Town Holdings, Inc. owns a 20% interest in ACCC Holdings, LLC, a Delaware limited liability company and is a party to the Limited Liability Company agreement, dated January 24, 2014, among ACCC Holdings, LLC, Terrys Tire Town Holdings, Inc., American Tire Distributors, Inc., Dunn Tire, LLC, Jack Williams Tire Co., Inc. and U.S. Venture, Inc. |
6. | Summit Tires Northeast, LLC owns the following debentures issued by Del-Nat Tire Corporation: |
Cert# | Rate | Issue Date |
Original Principal |
Balance at 12/31/13 |
Accrued Interest at 12/31/13 | |||||||||
722 | 9.00 | % | 9/15/1997 | $48,118.09 | $19,247.24 | $512.56 | ||||||||
762 | 9.00 | % | 9/15/1998 | $48,386.65 | $24,193.33 | $644.27 | ||||||||
825 | 9.00 | % | 9/15/1999 | $73,075.25 | $43,845.16 | $1,167.60 | ||||||||
923 | 9.00 | % | 9/15/2000 | $38,700.90 | $27,090.63 | $721.43 | ||||||||
1165 | 9.00 | % | 9/15/2001 | $2,318.29 | $1,854.63 | $49.39 | ||||||||
1136 | 9.00 | % | 9/15/2003 | $32,598.34 | $32,598.34 | $868.10 | ||||||||
1237 | 7.25 | % | 9/15/2006 | $16,738.20 | $16,738.20 | $359.07 | ||||||||
1325 | 8.25 | % | 9/15/2007 | $34,172.96 | $34,172.96 | $834.19 | ||||||||
1409 | 7.25 | % | 9/15/2008 | $17,494.85 | $17,494.85 | $375.30 | ||||||||
1473 | 3.25 | % | 9/15/2010 | $6,097.69 | $6,097.69 | $58.64 | ||||||||
1552 | 3.25 | % | 9/15/2011 | $13,279.81 | $13,279.81 | $127.70 | ||||||||
1629 | 3.25 | % | 9/15/2012 | $5,154.12 | $5,154.12 | $49.56 | ||||||||
1658 | 3.25 | % | 9/15/2012 | $8,040.49 | $8,040.49 | $77.32 | ||||||||
1733 | 3.25 | % | 9/15/2013 | $867.92 | $867.92 | $8.35 | ||||||||
Totals: | $345,043.56 | $250,675.36 | $5,853.48 |
16
SCHEDULE 7.08
Transactions with Affiliates
1. | Loan Agreement, dated as of November 25, 2013, between Hercules and Nancy Smith (employee), in the principal amount of $15,000. |
2. | Shared Services Support Agreement, dated May 3, 2010, between American Tire Distributors, Inc. and Tire Pros Francorp. |
3. | Transaction and Monitoring Fee Letter, dated as of May 28, 2010, between TPG Capital, L.P. and American Tire Distributors, Inc. |
17
SCHEDULE 7.09
Existing Restrictions
1. | All security agreements listed on Schedule 7.01 hereto. |
2. | Contractual arrangements restricting the ability to create or incur liens on the real property and improvements located at 14801 County Road 212, Findlay, OH 45840 (also identified as Parcel Nos. 63-1018541 and 63-1018542), as long as the Open-End Mortgage and Security Agreement from Toledo-Lucas County Port Authority to Chase Manhattan Trust Company, National Association, Trustee, in the maximum amount of $5,000,000.00, filed for record November 12, 1998, in Volume 1675, Page 1, of the Hancock County, Ohio records as Instrument No. 17866 (the Mortgage) or a refinance of this obligation is in place and of record, and as long as the Open-End Mortgage and Security Agreement from Toledo-Lucas County Port Authority to Director of Development of the State of Ohio, as Mortgagee and Secured Party, in the Principal Amount of $8,350,000, filed for record November 12, 1998, in Volume 1675, Page 31, of the Hancock County, Ohio records as Instrument No. 17867 (the State Loan Mortgage) or a refinance of this obligation is in place and of record, which Mortgage and State Loan Mortgage by their terms prohibit certain further liens and encumbrances, as long as the Mortgage and/or State Loan Mortgage and/or a subsequent mortgage or lien by which the Mortgage and/or State Loan Mortgage is refinanced remains in place and of record |
18
SCHEDULE 10.02
Administrative Agents Office, Certain Addresses for Notices
For Payments and Requests for Credit Extensions:
Rose Bollard
Bank of America, N.A.
101 N. Tryon Street
Charlotte, NC 28255
Telephone: 980-386-2881
Fax: 704-409-0355
Email: Rose.Bollard@BAML.com
PAYMENT INSTRUCTIONS:
BANK OF AMERICA, NA
NEW YORK, NY
ABA #026009593
ACCT #1366212250600
NAME: CORPORATE CREDIT SERVICES
REF: AMERICAN TIRE
For Credit Related Matters:
Kathryn Walters
Bank of America, N.A.
Mail Code: NC1-007-17-15
100 N Tryon St
Charlotte, NC 28255-0001
Phone: 980-683-4879
Fax: 804-662-1927
Email: katie.walters@baml.com
Other Notices/Deliveries to Administrative Agent:
Christine Trotter
Bank of America, N.A.
Mail Code: IL4-135-05-41
135 S. LaSalle Street
Chicago, Illinois 60603
Phone: 312-828-4172
Fax: 877-207-0702
Email: christine.trotter@baml.com
19
EXHIBIT A
FORM OF COMMITTED LOAN NOTICE
Date: ,
To: Bank of America, N.A., as Administrative Agent
Bank of America, N.A.
Mail Code: NC1-007-17-15
100 N Tryon St
Charlotte, NC 28255-0001
Attn: Kathryn Walters
Bank of America, N.A.
Mail Code: IL4-135-05-41
135 S. LaSalle St.
Chicago, IL 60603
Attn: Christine Trotter
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement dated as of March 28, 2014 (as amended, restated, amended and restated, refinanced, extended, supplemented and/or otherwise modified from time to time, the Credit Agreement; the terms defined therein being used herein as therein defined), among American Tire Distributors Holdings, Inc., a Delaware corporation (Holdings), American Tire Distributors, Inc., a Delaware corporation, (Borrower), the Guarantors from time to time party thereto, Bank of America, N.A., as Administrative Agent, and the Lenders and other parties from time to time party thereto.
The Borrower hereby requests (select one):
¨ | A Borrowing of Loans |
¨ | A conversion of Loans made on |
¨ | A continuation of Loans made on |
to be made on the following terms:
(A) | Class of Borrowing1 |
| ||||
(B) | Date of Borrowing, conversion or continuation (which is a Business Day) |
| ||||
(C) | Principal amount2 |
| ||||
(D) | Type of Loan3 |
|
(1) | E.g., Initial Term Loans, Incremental Term Loans, Other Term Loans, Extended Term Loans or Replacement Loans. |
(2) | Eurodollar Rate Borrowings to be in a minimum amount of $5,000,000 or in whole multiples of $1,000,000 in excess thereof. Base Rate Borrowings to be in a minimum amount of $1,000,000 or in whole multiples of $500,000 in excess thereof. |
(3) | Specify Eurodollar Rate or Base Rate. |
Exhibit A - 1
(E) | Interest Period and the last day thereof4 |
| ||
(F) | Wire instructions for Borrowers account(s) and amount of requested Borrowing |
|
[The undersigned hereby represents and warrants to the Administrative Agent and the Lenders that the Specified Representations are true and correct in all material respects on and as of the proposed date of the Borrowing; provided that, to the extent that such representations and warranties specifically refer to an earlier date, they shall be true and correct in all material respects as of such earlier date. The Borrowings contemplated by this Committed Loan Notice are conditioned upon the closing of the Acquisition.]5
Except in respect of any conversion or continuation of a Borrowing, the undersigned hereby represents and warrants to the Administrative Agent and the Lenders that the conditions to lending specified in Section 4.01 of the Credit Agreement will be satisfied as of the date of the Borrowing set forth above.
[The remainder of this page is intentionally left blank.]
4 | Applicable for Eurodollar Rate Borrowings/Loans only. |
5 | Applies only to the Borrowing on the Closing Date. |
Exhibit A - 2
AMERICAN TIRE DISTRIBUTORS, INC., as Borrower | ||
By: | ||
Name: Title: |
[Committed Loan Notice]
EXHIBIT B
[THIS NOTE HAS BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT (WITHIN THE MEANING OF SECTION 1272 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED). UPON WRITTEN REQUEST, THE ISSUER OF THIS NOTE WILL PROMPTLY MAKE AVAILABLE TO ANY HOLDER OF THIS NOTE THE FOLLOWING INFORMATION: (1) THE ISSUE PRICE AND DATE OF THE NOTE, (2) THE AMOUNT OF ORIGINAL ISSUE DISCOUNT ON THE NOTE AND (3) THE YIELD TO MATURITY OF THE NOTE. IN ORDER TO REQUEST SUCH INFORMATION, A HOLDER OF THIS NOTE SHOULD CONTACT THE CHIEF FINANCIAL OFFICER AT AMERICAN TIRE DISTRIBUTORS, INC., 12200 HERBERT WAYNE COURT, SUITE 150, HUNTERSVILLE, NC 28078]
FORM OF TERM NOTE
[New York, New York] | ||
$ | [Date] |
FOR VALUE RECEIVED, the undersigned (the Borrower) hereby promises to pay to [LENDER] or its registered assigns (the Lender) in accordance with Section 10.07 of the Credit Agreement (as defined below), in lawful money of the United States of America in immediately available funds at the Administrative Agents Office (such term, and each other capitalized term used but not defined herein, having the meaning assigned to it in the Credit Agreement dated as of March 28, 2014 (as amended, restated, amended and restated, refinanced, extended, supplemented and/or otherwise modified from time to time, the Credit Agreement), among American Tire Distributors Holdings, Inc., a Delaware corporation, as Holdings, American Tire Distributors, Inc., a Delaware corporation, as Borrower, the Guarantors from time to time party thereto, Bank of America, N.A., as Administrative Agent, and the Lenders and other parties from time to time party thereto), (i) on the dates set forth in the Credit Agreement, the principal amounts set forth in the Credit Agreement with respect to Term Loans made by the Lender to Borrower pursuant to the Credit Agreement and (ii) on each Interest Payment Date, interest at the rate or rates per annum as provided in the Credit Agreement on the unpaid principal amount of all Term Loans made by the Lender to the Borrower pursuant to the Credit Agreement.
The Borrower promises to pay interest, on demand, on any overdue principal and, to the extent permitted by law, overdue interest from their due dates at the rate or rates provided in the Credit Agreement.
The Borrower hereby waives diligence, presentment, demand, protest and notice of any kind whatsoever, subject to entry in the Register. The non-exercise by the holder hereof of any of its rights hereunder in any particular instance shall not constitute a waiver thereof in that or any subsequent instance.
All Borrowings evidenced by this note and all payments and prepayments of the principal hereof and interest hereon and the respective dates thereof shall be endorsed by the holder hereof on the schedule attached hereto and made a part hereof or on a continuation thereof which shall be attached hereto and made a part hereof, or otherwise recorded by such holder in its internal records; provided, however, that the failure of the holder hereof to make such a notation or any error in such notation shall not affect the obligations of the Borrower under this note.
This note is one of the Term Notes referred to in the Credit Agreement that, among other things, contains provisions for the acceleration of the maturity hereof upon the happening of certain events, for optional and mandatory prepayment of the principal hereof prior to the maturity hereof and for the amendment or waiver of certain provisions of the Credit Agreement, all upon the terms and conditions therein specified. This note is also entitled to the benefits of the Guaranty and is secured by the Collateral.
THIS NOTE MAY NOT BE TRANSFERRED EXCEPT IN COMPLIANCE WITH THE TERMS OF THE CREDIT AGREEMENT. TRANSFERS OF THIS NOTE MUST BE RECORDED IN THE REGISTER MAINTAINED BY THE ADMINISTRATIVE AGENT PURSUANT TO THE TERMS OF THE CREDIT AGREEMENT.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
Exhibit B - 1
IN WITNESS WHEREOF, the parties hereto have caused this note to be duly executed by their respective authorized officers as of the day and year first above written.
AMERICAN TIRE DISTRIBUTORS, INC. | ||
By: | ||
Name: Title: |
[Term Note]
LOANS AND PAYMENTS
Date |
Amount of Loan |
Maturity Date |
Payments of Principal/ |
Principal Balance of |
Name of Person |
Exhibit B - 3
EXHIBIT C
FORM OF COMPLIANCE CERTIFICATE1
[Insert date]
Reference is made to that certain Credit Agreement dated as of March 28, 2014 (as amended, restated, amended and restated, refinanced, extended, supplemented and/or otherwise modified from time to time, the Credit Agreement), among American Tire Distributors Holdings, Inc., a Delaware corporation, as Holdings, American Tire Distributors, Inc., a Delaware corporation, as Borrower, the Guarantors from time to time party thereto, Bank of America, N.A., as Administrative Agent, and the Lenders and other parties from time to time party thereto. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement. Pursuant to Section 6.02(a) of the Credit Agreement, the undersigned, solely in his/her capacity as a Financial Officer of the Borrower, certifies as follows:
[1. The financial statements for the fiscal quarter ending [DATE] delivered pursuant to Section 6.01(b) of the Credit Agreement and delivered herewith fairly present in all material respects the financial position, results of operations and cash flows of the Borrower and its Subsidiaries in accordance with GAAP, subject to normal year-end adjustments and the absence of footnotes.]2
[1. The Projections for the fiscal year ending [DATE] delivered pursuant to Section 6.01(c) of the Credit Agreement and delivered herewith have been prepared in good faith on the basis of the assumptions stated therein, which assumptions were believed to be reasonable at the time of preparation of such Projections. Actual results may vary from such Projections and such variations may be material.]3
2. Attached hereto as Annex A are the details of all applications for registrations of material Patents, Trademarks or Copyrights with the USPTO or the Copyright Office as required to be delivered pursuant to Section 4.07(c) of the Security Agreement (and as such terms are defined therein).
[3. To my knowledge, [except as otherwise disclosed to the Administrative Agent pursuant to the Credit Agreement, no Default has occurred and is continuing][a Default has occurred and is continuing as of the date hereof, as described in Annex B attached hereto]4.]5
[4. Attached hereto as Schedule 1 are reasonably detailed calculations setting forth Excess Cash Flow for [the fiscal year ended [DATE].]6
[5. Attached hereto as Schedule 2 are reasonably detailed calculations of the Net Cash Proceeds received during the fiscal year ended [DATE] by or on behalf of the Borrower or any Restricted Subsidiary in respect of any Disposition subject to prepayment pursuant to Section 2.03(b)(ii)(A) of the Credit Agreement and the portion of such Net Cash Proceeds that has been invested or are intended to be reinvested in accordance with Section 2.03(b)(ii)(B) of the Credit Agreement.]7
1 | to Section 6.02(a) of the Credit Agreement, the first Compliance Certificate is not required to be delivered until 5 days after the delivery of the quarterly financial statements for the fiscal quarter ending June 30, 2014 pursuant to Section 6.01(b) of the Credit Agreement. |
2 | To be included if accompanying quarterly financial statements only. |
3 | To be included only in annual compliance certificates. |
4 | If a Default exists, Annex B should specify the details thereof and any action taken or proposed to be taken with respect thereto. |
5 | Pursuant to Section 6.02(a) of the Credit Agreement, this item 3 and items 4-7 may be disclosed in a separate certificate no later than five (5) days after delivery of financial statements pursuant to Sections 6.02(a) and 6.02(b) of the Credit Agreement. |
6 | To be included only in annual compliance certificates. |
7 | To be included only in annual compliance certificates. |
Exhibit C - 1
[[6]. Attached hereto as Schedule [3] is a calculation of the Consolidated Net Leverage Ratio as of the last day of the most recent Test Period.]8
[[7]. Attached hereto is the information required to be delivered pursuant to Section 6.02(d) of the Credit Agreement.]9
[REMAINDER OF THE PAGE INTENTIONALLY LEFT BLANK]
8 | To be included in quarterly and annual compliance certificates if the Consolidated Net Leverage Ratio as of the last day of the most recent Test Period would result in a change in the applicable Pricing Level as set forth in the definition of Applicable Rate. |
9 | To be included in annual compliance certificates. Section 6.02(d) requires (i) a report setting forth the information required by Sections 1(a) and 2 of the Perfection Certificate (or confirming that there has been no change in such information since the Closing Date or the last date of disclosure of any such information to the Administrative Agent) and (ii) a list of each Subsidiary of the Borrower that identifies each Subsidiary as a Restricted Subsidiary or an Unrestricted Subsidiary as of the date of delivery of such list or a confirmation that there is no change in such information since the later of the Closing Date and the last date of disclosure of any such information to the Administrative Agent. |
Exhibit C - 2
IN WITNESS WHEREOF, the undersigned, solely in his/her capacity as a Financial Officer of the Borrower, has caused this certificate to be delivered as of the date first set forth above.
AMERICAN TIRE DISTRIBUTORS, INC. | ||
By: | ||
Name: Title: |
[Compliance Certificate]
[ANNEX A TO COMPLIANCE CERTIFICATE]
Intellectual Property
[Insert details of all applications for registrations of material Patents, Trademarks or Copyrights with the USPTO or the Copyright Office as required to be delivered pursuant to Section 4.07(c) of the Security Agreement.]
Exhibit C - 4
[ANNEX B TO COMPLIANCE CERTIFICATE]
Default
[Insert description of Default here (specify the details thereof and any action taken or proposed to be taken with respect thereto)]
Exhibit C - 5
[SCHEDULE 1 TO COMPLIANCE CERTIFICATE]
Excess Cash Flow Calculation
[See attached.]
Exhibit C - 6
[SCHEDULE 2 TO COMPLIANCE CERTIFICATE]
Net Cash Proceeds Calculation
[See attached.]
Exhibit C - 7
[SCHEDULE 3 TO COMPLIANCE CERTIFICATE]
Consolidated Net Leverage Ratio Calculation
[See attached.]
Exhibit C - 8
EXHIBIT D-1
FORM OF ASSIGNMENT AND ASSUMPTION
This Assignment and Assumption (this Assignment and Assumption) is dated as of the Effective Date set forth below and is entered into by and between [the][each]1 Assignor identified in item 1 below ([the][each, an] Assignor) and [the][each]2 Assignee identified in item 2 below ([the][each, an] Assignee). [It is understood and agreed that the rights and obligations of [the Assignors][the Assignees]3 hereunder are several and not joint.]4 Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below, receipt of a copy of which is hereby acknowledged by the Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.
For an agreed consideration, [the][each] Assignor hereby irrevocably sells and assigns to [the Assignee][the respective Assignees], and [the][each] Assignee hereby irrevocably purchases and assumes from [the Assignor][the respective Assignors], subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below (i) all of [the Assignors][the respective Assignors] rights and obligations in [its capacity as a Lender][their respective capacities as Lenders] under the Credit Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of [the Assignor][the respective Assignors] under the respective facilities identified below and (ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of [the Assignor (in its capacity as a Lender)][the respective Assignors (in their respective capacities as Lenders)] against any Person, whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including, but not limited to, contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned by [the][any] Assignor to [the][any] Assignee pursuant to clauses (i) and (ii) above being referred to herein collectively as [the][an] Assigned Interest). Each such sale and assignment is without recourse to [the][any] Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by [the][any] Assignor.
1. | Assignor[s]: |
| ||||
| ||||||
Assignor is [not] a Defaulting Lender. | ||||||
2. | Assignee[s]: |
| ||||
| ||||||
[for each Assignee, indicate if [Affiliate][Approved Fund] of [identify Lender]] |
1 | For bracketed language here and elsewhere in this form relating to the Assignor(s), if the assignment is from a single Assignor, choose the first bracketed language. If the assignment is from multiple Assignors, choose the second bracketed language. |
2 | For bracketed language here and elsewhere in this form relating to the Assignee(s), if the assignment is to a single Assignee, choose the first bracketed language. If the assignment is to multiple Assignees, choose the second bracketed language. |
3 | Select as appropriate. |
4 | Include bracketed language if there are either multiple Assignors or multiple Assignees. |
Exhibit D - 1 - 1
3. | Affiliate Status: | The Assignee is not an Affiliated Lender. [If the Assignee hereunder is an Affiliated Lender, do NOT use this Exhibit D-1 to the Credit Agreement. Instead, use Exhibit D-2 to the Credit Agreement.] | ||
4. | Borrower: | American Tire Distributors, Inc. | ||
5. | Administrative Agent: | Bank of America, N.A., including any successor thereto, as the Administrative Agent under the Credit Agreement | ||
6. | Credit Agreement: | The Credit Agreement dated as of March 28, 2014 (as amended, restated, amended and restated, refinanced, extended, supplemented and/or otherwise modified from time to time, the Credit Agreement), among American Tire Distributors Holdings, Inc., a Delaware corporation, as Holdings, American Tire Distributors, Inc., a Delaware corporation, as Borrower, the Guarantors from time to time party thereto, Bank of America, N.A., as Administrative Agent, and the Lenders and other parties from time to time party thereto. | ||
7. | Assigned Interest: |
Assignor[s]5 |
Assignee[s]6 |
Facility Assigned7 |
Aggregate Amount of Commitment/Loans |
Amount of Commitment/ |
Percentage Assigned of Loans9 |
CUSIP Number | ||||||
____________ | $ | $ | % | |||||||||
____________ | $ | $ | % | |||||||||
____________ | $ | $ | % |
[8. | Trade Date: | ]10 |
Effective Date: , 20 [TO BE INSERTED BY THE ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]
5 | List each Assignor, as appropriate. |
6 | List each Assignee, as appropriate. |
7 | Fill in the appropriate terminology for the types of facilities under the Credit Agreement that are being assigned under this Assignment and Assumption (e.g. Initial Term Loans, Incremental Term Loans, Other Term Loans, Extended Term Loans, Replacement Loans, etc.). |
8 | Amounts in this column and in the column immediately to the right to be adjusted by the counterparties to take into account any payments or prepayments made between the Trade Date and the Effective Date. |
9 | Set forth, to at least 9 decimals, as a percentage of the Commitment/Loans of all Lenders thereunder. |
10 | To be completed if the Assignor and the Assignee intend that the minimum assignment amount is to be determined as of the Trade Date. |
Exhibit D - 1 - 2
The terms set forth in this Assignment and Assumption are hereby agreed to:
ASSIGNOR [NAME OF ASSIGNOR] | ||
By: | ||
Name: | ||
Title: |
ASSIGNEE [NAME OF ASSIGNEE] | ||
By: | ||
Name: | ||
Title: |
[Consented to and]1 Accepted for Recordation in the Register:
BANK OF AMERICA, N.A., as Administrative Agent | ||
By: | ||
Name: | ||
Title: |
1 | To be added only if the consent of the Administrative Agent is required by the terms of the Credit Agreement. |
[Assignment and Assumption]
[Consented to]:1
AMERICAN TIRE DISTRIBUTORS, INC. | ||
By: | ||
Name: | ||
Title: |
1 | To be added only if the consent of the Borrower is required by the terms of the Credit Agreement. |
[Assignment and Assumption]
ANNEX 1 TO ASSIGNMENT AND ASSUMPTION
STANDARD TERMS AND CONDITIONS FOR
ASSIGNMENT AND ASSUMPTION
1. | Representations and Warranties. |
1.1. Assignor. [The][Each] Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of [the][the relevant] Assigned Interest, (ii) [the][such] Assigned Interest is free and clear of any lien, encumbrance or other adverse claim, (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and (iv) it is [not] a Defaulting Lender; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of the Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by the Borrower, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document.
1.2. Assignee. [The][Each] Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it meets all the requirements to be an assignee under Sections 10.07(a) and 10.07(b)(v) of the Credit Agreement (subject to such consents, if any, as may be required under Section 10.07(b)(iii) of the Credit Agreement), (iii) from and after the Effective Date referred to in this Assignment and Assumption, it shall be bound by the provisions of the Credit Agreement and the other Loan Documents as a Lender thereunder and, to the extent of [the][the relevant] Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it is sophisticated with respect to decisions to acquire assets of the type represented by [the][such] Assigned Interest and either it, or the Person exercising discretion in making its decision to acquire [the][such] Assigned Interest, is experienced in acquiring assets of such type, (v) it has received a copy of the Credit Agreement, and has received or has been accorded the opportunity to receive copies of the most recent financial statements delivered pursuant to Section 6.01(a) and (b) thereof, as applicable, and such other documents and information as it deems appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase [the][such] Assigned Interest, (vi) it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Assignment and Assumption and to purchase [the][such] Assigned Interest, and (vii) attached hereto is any documentation required to be delivered by it pursuant to the terms of the Credit Agreement, including but not limited to any documentation required pursuant to Section 3.01(c) of the Credit Agreement, duly completed and executed by [the][such] Assignee; and (b) agrees that (i) it will, independently and without reliance upon the Administrative Agent, [the][any] Assignor 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 the Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender.
2. Payments. From and after the Effective Date, the Administrative Agent shall make all payments in respect of [the][each] Assigned Interest (including payments of principal, interest, fees and other amounts) to [the][the relevant] Assignor for amounts which have accrued to but excluding the Effective Date and to [the][the relevant] Assignee for amounts which have accrued from and after the Effective Date.
3. General Provisions. This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment and Assumption by telecopy or other electronic imaging (including in .pdf format) means shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption. This Assignment and Assumption shall be governed by, and construed in accordance with, the law of the State of New York.
Exhibit D - 1 - 5
EXHIBIT D-2
FORM OF AFFILIATED LENDER ASSIGNMENT AND ASSUMPTION
This Affiliated Lender Assignment and Assumption (this Affiliated Lender Assignment and Assumption) is dated as of the Effective Date set forth below and is entered into by and between [the][each]1 Assignor identified in item 1 below ([the][each, an] Assignor) and [the][each]2 Assignee identified in item 2 below ([the][each, an] Assignee). [It is understood and agreed that the rights and obligations of [the Assignors][the Assignees]3 hereunder are several and not joint.]4 Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below, receipt of a copy of which is hereby acknowledged by the Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Affiliated Lender Assignment and Assumption as if set forth herein in full.
For an agreed consideration, [the][each] Assignor hereby irrevocably sells and assigns to [the Assignee][the respective Assignees], and [the][each] Assignee hereby irrevocably purchases and assumes from [the Assignor][the respective Assignors], subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below (i) all of [the Assignors][the respective Assignors] rights and obligations in [its capacity as a Lender][their respective capacities as Lenders] under the Credit Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of [the Assignor][the respective Assignors] under the respective facilities identified below and (ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of [the Assignor (in its capacity as a Lender)][the respective Assignors (in their respective capacities as Lenders)] against any Person, whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including, but not limited to, contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned by [the][any] Assignor to [the][any] Assignee pursuant to clauses (i) and (ii) above being referred to herein collectively as [the][an] Assigned Interest). Each such sale and assignment is without recourse to [the][any] Assignor and, except as expressly provided in this Affiliated Lender Assignment and Assumption, without representation or warranty by [the][any] Assignor.
1. | Assignor[s]: |
| ||
| ||||
Assignor is [not] a Defaulting Lender. | ||||
2. | Assignee[s]: |
| ||
|
1 | For bracketed language here and elsewhere in this form relating to the Assignor(s), if the assignment is from a single Assignor, choose the first bracketed language. If the assignment is from multiple Assignors, choose the second bracketed language. |
2 | For bracketed language here and elsewhere in this form relating to the Assignee(s), if the assignment is to a single Assignee, choose the first bracketed language. If the assignment is to multiple Assignees, choose the second bracketed language. |
3 | Select as appropriate. |
4 | Include bracketed language if there are either multiple Assignors or multiple Assignees. |
Exhibit D - 2 - 1
[for each Assignee, indicate if the Sponsor or an Affiliate of the Sponsor (other than (a) Holdings, the Borrower or any Subsidiary of the Borrower, (b) any Debt Fund Affiliate and (c) any natural person)] | ||||
3. |
Affiliate Status: |
| ||
4. |
Borrower: | American Tire Distributors, Inc. | ||
5. |
Administrative Agent: | Bank of America, N.A., including any successor thereto, as the Administrative Agent under the Credit Agreement | ||
6. |
Credit Agreement: | The Credit Agreement dated as of March 28, 2014 (as amended, restated, amended and restated, refinanced, extended, supplemented and/or otherwise modified from time to time, the Credit Agreement), among American Tire Distributors Holdings, Inc., a Delaware corporation, as Holdings, American Tire Distributors, Inc., a Delaware corporation, as Borrower, the Guarantors from time to time party thereto, Bank of America, N.A., as Administrative Agent, and the Lenders and other parties from time to time party thereto. | ||
7. |
Assigned Interest: |
Assignor[s]5 |
Assignee[s]6 |
Facility Assigned7 |
Aggregate Amount of Commitment/Loans |
Amount of Commitment/ |
Percentage Assigned of Loans9 |
CUSIP Number | ||||||
____________ | $ | $ | % | |||||||||
____________ | $ | $ | % | |||||||||
____________ | $ | $ | % |
[8. | Trade Date: | ]10 |
Effective Date: , 20 [TO BE INSERTED BY THE ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]
5 | List each Assignor, as appropriate. |
6 | List each Assignee, as appropriate. |
7 | Fill in the appropriate terminology for the types of facilities under the Credit Agreement that are being assigned under this Affiliated Lender Assignment and Assumption (e.g. Initial Term Loans, Incremental Term Loans, Other Term Loans, Extended Term Loans, Replacement Loans, etc.). |
8 | Amounts in this column and in the column immediately to the right to be adjusted by the counterparties to take into account any payments or prepayments made between the Trade Date and the Effective Date. |
9 | Set forth, to at least 9 decimals, as a percentage of the Commitment/Loans of all Lenders thereunder. |
10 | To be completed if the Assignor and the Assignee intend that the minimum assignment amount is to be determined as of the Trade Date. |
Exhibit D - 2 - 2
The terms set forth in this Affiliated Lender Assignment and Assumption are hereby agreed to:
ASSIGNOR
[NAME OF ASSIGNOR] | ||
By: | ||
Name: | ||
Title: |
ASSIGNEE
[NAME OF ASSIGNEE] | ||
By: | ||
Name: | ||
Title: |
[Consented to and]1 Accepted for Recordation in the Register:
BANK OF AMERICA, N.A., as Administrative Agent | ||
By: | ||
Name: | ||
Title: |
[Consented to]:2
AMERICAN TIRE DISTRIBUTORS, INC. | ||
By: | ||
Name: | ||
Title: |
1 | To be added only if the consent of the Administrative Agent is required by the terms of the Credit Agreement. |
2 | To be added only if the consent of the Borrower is required by the terms of the Credit Agreement. |
[Affiliated Lender Assignment and Assumption]
ANNEX 1 TO AFFILIATED LENDER ASSIGNMENT AND ASSUMPTION
STANDARD TERMS AND CONDITIONS FOR
AFFILIATED LENDER ASSIGNMENT AND ASSUMPTION
1. | Representations and Warranties. |
1.1. Assignor. [The][Each] Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of [the][the relevant] Assigned Interest, (ii) [the][such] Assigned Interest is free and clear of any lien, encumbrance or other adverse claim, (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Affiliated Lender Assignment and Assumption and to consummate the transactions contemplated hereby and (iv) it is [not] a Defaulting Lender; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of the Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by the Borrower, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document.
1.2. Assignee. [The][Each] Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Affiliated Lender Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it is an Affiliated Lender as such term is defined in the Credit Agreement, (iii) it meets all the requirements to be an assignee under Section 10.07(h) of the Credit Agreement (subject to such consents, if any, as may be required under Section 10.07(b)(iii) of the Credit Agreement), (iv) from and after the Effective Date referred to in this Affiliated Lender Assignment and Assumption, it shall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of [the][the relevant] Assigned Interest, shall have the obligations of a Lender thereunder, (v) it is sophisticated with respect to decisions to acquire assets of the type represented by [the][such] Assigned Interest and either it, or the Person exercising discretion in making its decision to acquire [the][such] Assigned Interest, is experienced in acquiring assets of such type, (vi) it has received a copy of the Credit Agreement, and has received or has been accorded the opportunity to receive copies of the most recent financial statements delivered pursuant to Section 6.01(a) and (b) thereof, as applicable, and such other documents and information as it deems appropriate to make its own credit analysis and decision to enter into this Affiliated Lender Assignment and Assumption and to purchase [the][such] Assigned Interest, (vii) it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Affiliated Lender Assignment and Assumption and to purchase [the][such] Assigned Interest[,] [and] (viii) attached hereto is any documentation required to be delivered by it pursuant to the terms of the Credit Agreement, including but not limited to any documentation required pursuant to Section 3.01(c) of the Credit Agreement, duly completed and executed by [the][such] Assignee, [and (ix) it does not possess material non-public information (or material information of the type that would not be public if the Borrower or any Parent Entity were a publicly-reporting company) with respect to the Borrower and its Subsidiaries that either (1) has not been disclosed to the Term Lenders generally (other than Term Lenders that have elected not to receive such information) or (2) if not disclosed to the Term Lenders, would reasonably be expected to have a material effect on, or otherwise be material to (A) a Term Lenders decision to participate in any such assignment or (B) the market price of such Term Loans]1; and (b) agrees that (i) it will,
1 | To be included only in the case of a Dutch auction or other offers to purchase open to all Lenders on a pro rata basis in accordance with procedures of the type described in Section 2.03(a)(iv) of the Credit Agreement. If the Assignee cannot make the representation specified in brackets, then the following text should be inserted in lieu thereof: |
The Assignee[s] cannot represent at this time that [it does][they do] not possess material non-public information (or material information of the type that would not be public if the Borrower or any Parent Entity were a publicly-reporting company) with respect to the Borrower and its Subsidiaries that either (1) has not been disclosed to the Term Lenders generally (other than Term Lenders that have elected not to receive such information) or (2) if not disclosed to the Term Lenders, would reasonably be expected to have a material effect on, or otherwise be material to (A) a Term Lenders decision to participate in any such assignment or (B) the market price of such Term Loans. |
Exhibit D - 2 - 4
EXHIBIT E
independently and without reliance upon the Administrative Agent, [the][any] Assignor 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 the Loan Documents, (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender and (iii) any assignment to an Affiliated Lender which, after giving effect to its purchase and assumption of the Assigned Interest, results in the aggregate principal amount of all Term Loans of any Class held by Affiliated Lenders exceeding the Affiliated Lender Cap, will be void ab initio in respect of the assignment of such excess amount.
a. Each Affiliated Lender hereby agrees that it shall have no right to receive information provided solely to Lenders by the Administrative Agent or any Lender and will not be permitted to attend or participate in conference calls or meetings attended solely by the Lenders and the Administrative Agent, other than the right to receive notices of prepayments and other administrative notices in respect of its Loans or Commitments required to be delivered to Lenders pursuant to Article II of the Credit Agreement.
b. If [the] [each] Affiliated Lender is a Lender when a proceeding under Debtor Relief Laws is commenced by or against the Borrower or any other Loan Party, [the] [each] Affiliated Lender irrevocably authorizes and empowers the Administrative Agent to vote on behalf of such Affiliated Lender with respect to the Term Loans held by such Affiliated Lender in any manner in the Administrative Agents sole discretion, unless the Administrative Agent instructs such Affiliated Lender to vote, in which case such Affiliated Lender shall vote with respect to the Term Loans held by it as the Administrative Agent directs; provided that such Affiliated Lender shall be entitled to vote in accordance with its sole discretion (and not in accordance with the direction of the Administrative Agent) in connection with any plan of reorganization to the extent any such plan of reorganization proposes to treat any Obligations held by such Affiliated Lender in a disproportionately adverse manner than the proposed treatment of similar Obligations held by Term Lenders that are not Affiliated Lenders.
2. Payments. From and after the Effective Date, the Administrative Agent shall make all payments in respect of [the][each] Assigned Interest (including payments of principal, interest, fees and other amounts) to [the][the relevant] Assignor for amounts which have accrued to but excluding the Effective Date and to [the][the relevant] Assignee for amounts which have accrued from and after the Effective Date.
3. General Provisions. This Affiliated Lender Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Affiliated Lender Assignment and Assumption may be executed in any number of counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Affiliated Lender Assignment and Assumption by telecopy or other electronic imaging (including in .pdf format) means shall be effective as delivery of a manually executed counterpart of this Affiliated Lender Assignment and Assumption. This Affiliated Lender Assignment and Assumption shall be governed by, and construed in accordance with, the law of the State of New York.
Exhibit D - 2 - 5
EXHIBIT E
FORM OF GUARANTOR JOINDER AGREEMENT
This Guarantor Joinder Agreement is dated as of [], 20[] (this Agreement), and is entered into by and among AMERICAN TIRE DISTRIBUTORS, INC., a Delaware corporation (the Borrower), [ADDITIONAL GUARANTOR], a [ADDITIONAL GUARANTOR DESCRIPTION] (the Additional Guarantor) and BANK OF AMERICA, N.A., as Administrative Agent for the Credit Agreement (as defined herein).
Reference is made to the Credit Agreement dated as of March 28, 2014 (as amended, restated, amended and restated, refinanced, extended, supplemented and/or otherwise modified from time to time, the Credit Agreement), among American Tire Distributors Holdings, Inc., a Delaware corporation, (Holdings), the Borrower, the Guarantors from time to time party thereto, Bank of America, N.A., as Administrative Agent, and the Lenders and other parties from time to time party thereto (collectively, the Lenders and individually, a Lender). Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement.
Under the Credit Agreement, the Lenders have agreed, upon the terms and subject to the conditions therein set forth, to make Loans available to the Borrower. The Borrower and the Additional Guarantor desire that the Additional Guarantor become a Guarantor under the Credit Agreement.
The Additional Guarantor represents that (1) after giving effect to the Supplemental Schedules (as defined below) the representations and warranties set forth in Article V of the Credit Agreement that relate to the Additional Guarantor are true and correct in all material respects after giving effect to this Agreement, except that any such representation and warranty that is qualified as to materiality, Material Adverse Effect or similar language is true and correct in all respects and (2) as of the date hereof and immediately after giving effect to this Agreement, no Default or Event of Default has occurred and is continuing.
The Borrower agrees that the guarantees of the Obligations contained in the Credit Agreement and/or the Collateral Documents will apply to the Obligations of the Additional Guarantor, to the extent applicable in accordance with the terms thereof. Upon execution of this Agreement by each of the Borrower, the Additional Guarantor and the Administrative Agent, the Additional Guarantor (1) shall be a party to the Credit Agreement and shall constitute a Guarantor for all purposes thereof with the same force and effect as if original named a Guarantor therein, and (2) agrees (i) to be bound by all provisions of the Credit Agreement and the other Loan Documents and shall have all the rights and obligations of a Guarantor thereunder and (ii) to take each action required to be taken by the Additional Guarantor pursuant to the Credit Agreement within the time period specified therein.
THIS AGREEMENT AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING THEREUNDER OR RELATED TO THIS AGREEMENT SHALL BE CONSTRUED AND INTERPRETED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK.
Exhibit E - 1
EXHIBIT F-1
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their authorized officers as of [ ].
AMERICAN TIRE DISTRIBUTORS, INC., as Borrower | ||
By: | ||
Name: | ||
Title: |
[NAME OF ADDITIONAL GUARANTOR] | ||
By: | ||
Name: | ||
Title: |
BANK OF AMERICA, N.A., as Administrative Agent | ||
By: | ||
Name: | ||
Title: |
[Guarantor Joinder Agreement]
EXHIBIT F-1
FORM OF UNITED STATES TAX COMPLIANCE CERTIFICATE
UNITED STATES TAX COMPLIANCE CERTIFICATE
(For Foreign Lenders That Are Not Treated As Partnerships For
U.S. Federal Income Tax Purposes)
Reference is made to the Credit Agreement dated as of March 28, 2014 (as amended, restated, amended and restated, refinanced, extended, supplemented and/or otherwise modified from time to time, the Credit Agreement), among American Tire Distributors Holdings, Inc., a Delaware corporation, as Holdings, American Tire Distributors, Inc., a Delaware corporation, as Borrower, the Guarantors from time to time party thereto, Bank of America, N.A., as Administrative Agent, and the Lenders and other parties from time to time party thereto. Capitalized terms used but not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement.
Pursuant to the provisions of Section 3.01(c) of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record and beneficial owner of the Loan(s) (as well as any Note(s) evidencing such Loan(s)) in respect of which it is providing this certificate, (ii) it is not a bank within the meaning of Section 881(c)(3)(A) of the Code, (iii) it is not a ten percent shareholder of the Borrower within the meaning of Section 871(h)(3)(B) of the Code, (iv) it is not a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code, and (v) no payments in connection with any Loan Document are effectively connected with the undersigneds conduct of a U.S. trade or business.
The undersigned has furnished the Borrower and the Administrative Agent with a certificate of its non-U.S. person status on IRS Form W-8BEN. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform the Borrower and the Administrative Agent in writing and (2) the undersigned shall furnish the Borrower and the Administrative Agent with a properly completed and currently effective certificate in either the calendar year in which payment is to be made by the Borrower or the Administrative Agent to the undersigned, or in either of the two calendar years preceding each such payment.
[Signature Page Follows]
Exhibit F - 1 - 1
[Foreign Lender] | ||
By: | ||
Name: | ||
Title: |
[Address] |
Dated: , 20[ ]
[Tax Compliance Certificate]
EXHIBIT F-2
UNITED STATES TAX COMPLIANCE CERTIFICATE
(For Foreign Lenders That Are Treated As Partnerships For
U.S. Federal Income Tax Purposes)
Reference is made to the Credit Agreement dated as of March 28, 2014 (as amended, restated, amended and restated, refinanced, extended, supplemented and/or otherwise modified from time to time, the Credit Agreement), among American Tire Distributors Holdings, Inc., a Delaware corporation, American Tire Distributors, Inc., a Delaware corporation, the Guarantors from time to time party thereto, Bank of America, N.A., as Administrative Agent, and the Lenders and other parties from time to time party thereto. Capitalized terms used but not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement.
Pursuant to the provisions of Section 3.01(c) of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record owner of the Loan(s) (as well as any Note(s) evidencing such Loan(s)) in respect of which it is providing this certificate, (ii) its direct or indirect partners/members are the sole beneficial owners of such Loan(s) (as well as any Note(s) evidencing such Loan(s)), (iii) neither the undersigned nor any of its direct or indirect partners/members is a bank within the meaning of Section 881(c)(3)(A) of the Code, (iv) none of its direct or indirect partners/members is a ten percent shareholder of the Borrower within the meaning of Section 871(h)(3)(B) of the Code, (v) none of its direct or indirect partners/members is a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code, and (vi) no payments in connection with any Loan Document are effectively connected with the undersigneds or its direct or indirect partners/members conduct of a U.S. trade or business.
The undersigned has furnished the Administrative Agent and the Borrower with IRS Form W-8IMY accompanied by one of the following forms from each of its partners/members claiming the portfolio interest exemption: (i) an IRS Form W-8BEN or (ii) an IRS Form W-8IMY accompanied by an IRS Form W-8BEN from each of such partners/members beneficial owners that is claiming the portfolio interest exemption. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform the Borrower and the Administrative Agent in writing and (2) the undersigned shall have at all times furnished the Borrower and the Administrative Agent with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding each such payment.
[Signature Page Follows]
Exhibit F - 2 - 1
[Foreign Lender] | ||
By: | ||
Name: | ||
Title: |
[Address] |
Dated: , 20[ ]
[Tax Compliance Certificate]
EXHIBIT F-3
UNITED STATES TAX COMPLIANCE CERTIFICATE
(For Foreign Participants That Are Not Treated As Partnerships For
U.S. Federal Income Tax Purposes)
Reference is made to the Credit Agreement dated as of March 28, 2014 (as amended, restated, amended and restated, refinanced, extended, supplemented and/or otherwise modified from time to time, the Credit Agreement), among American Tire Distributors Holdings, Inc., a Delaware corporation, as Holdings, American Tire Distributors, Inc., a Delaware corporation, as Borrower, the Guarantors from time to time party thereto, Bank of America, N.A., as Administrative Agent, and the Lenders and other parties from time to time party thereto. Capitalized terms used but not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement.
Pursuant to the provisions of Section 3.01(c) and Section 10.07(d) of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record and beneficial owner of the participation in respect of which it is providing this certificate, (ii) it is not a bank within the meaning of Section 881(c)(3)(A) of the Code, (iii) it is not a ten percent shareholder of the Borrower within the meaning of Section 871(h)(3)(B) of the Code, (iv) it is not a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code, and (v) no payments in connection with any Loan Document are effectively connected with the undersigneds conduct of a U.S. trade or business.
The undersigned has furnished its participating Lender with a certificate of its non-U.S. person status on IRS Form W-8BEN. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform such Lender in writing and (2) the undersigned shall have at all times furnished such Lender with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding each such payment.
[Signature Page Follows]
Exhibit F - 3 - 1
[Foreign Participant] | ||
By: | ||
Name: | ||
Title: |
[Address] |
Dated: , 20[ ]
[Tax Compliance Certificate]
EXHIBIT F-4
UNITED STATES TAX COMPLIANCE CERTIFICATE
(For Foreign Participants That Are Treated As Partnerships For
U.S. Federal Income Tax Purposes)
Reference is made to the Credit Agreement dated as of March 28, 2014 (as amended, restated, amended and restated, refinanced, extended, supplemented and/or otherwise modified from time to time, the Credit Agreement), among American Tire Distributors Holdings, Inc., a Delaware corporation, as Holdings, American Tire Distributors, Inc., a Delaware corporation, as Borrower, the Guarantors from time to time party thereto, Bank of America, N.A., as Administrative Agent, and the Lenders and other parties from time to time party thereto. Capitalized terms used but not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement.
Pursuant to the provisions of Section 3.01(c) and 10.07(d) of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record owner of the participation in respect of which it is providing this certificate, (ii) its direct or indirect partners/members are the sole beneficial owners of such participation, (iii) neither the undersigned nor any of its direct or indirect partners/members is a bank within the meaning of Section 881(c)(3)(A) of the Code, (iv) none of its direct or indirect partners/members is a ten percent shareholder of the Borrower within the meaning of Section 871(h)(3)(B) of the Code, (v) none of its direct or indirect partners/members is a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code, and (vi) no payments in connection with any Loan Document are effectively connected with the undersigneds or its direct or indirect partners/members conduct of a U.S. trade or business.
The undersigned has furnished its participating Lender with IRS Form W-8IMY accompanied by one of the following forms from each of its partners/members claiming the portfolio interest exemption: (i) an IRS Form W-8BEN or (ii) an IRS Form W-8IMY accompanied by an IRS Form W-8BEN from each of such partners/members beneficial owners that is claiming the portfolio interest exemption. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform such Lender in writing and (2) the undersigned shall have at all times furnished such Lender with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding each such payment.
[Signature Page Follows]
Exhibit F - 4 - 1
[Foreign Participant] | ||
By: | ||
Name: | ||
Title: |
[Address] |
Dated: , 20[ ]
[Tax Compliance Certificate]
EXHIBIT G
[FORM OF]
SOLVENCY CERTIFICATE OF
AMERICAN TIRE DISTRIBUTORS, INC.,
AMERICAN TIRE DISTRIBUTORS HOLDINGS, INC.
AND THEIR SUBSIDIARIES
[ ], 2014
Pursuant to the Credit Agreement, dated as of March 28, 2014 (the Credit Agreement), among American Tire Distributors, Inc., a Delaware corporation (the Borrower), American Tire Distributors Holdings, Inc., a Delaware corporation, the Guarantors from time to time party thereto, the Lenders and other parties from time to time party thereto, Bank of America, N.A., as administrative agent under the Loan Documents, the undersigned hereby certifies, solely in such undersigneds capacity as a Financial Officer of the Borrower, and not individually, as follows:
As of the date hereof, after giving effect to the consummation of the Transactions, including the making of the Initial Term Loans under the Credit Agreement and the incurrence of the other Indebtedness on the date hereof, and after giving effect to the application of the proceeds of such Initial Term Loans and other Indebtedness:
a. | The fair value of the assets of the Borrower and the Restricted Subsidiaries exceeds, on a consolidated basis, their debts and liabilities, subordinated, contingent or otherwise; |
b. | The present fair saleable value of the property of the Borrower and the Restricted Subsidiaries, on a consolidated basis, is greater than the amount that will be required to pay the probable liability, on a consolidated basis, of their debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; |
c. | The Borrower and the Restricted Subsidiaries, on a consolidated basis, are able to pay their debts and liabilities, subordinated, contingent or otherwise, as such liabilities become absolute and matured; and |
d. | The Borrower and the Restricted Subsidiaries, on a consolidated basis, are not engaged in, and are not about to engage in, business for which they have unreasonably small capital. |
For purposes of this Solvency Certificate, the amount of any contingent liability at any time shall be computed as the amount that would reasonably be expected to become an actual and matured liability. Capitalized terms used but not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement.
The undersigned is familiar with the business and financial position of the Borrower and the Restricted Subsidiaries. In reaching the conclusions set forth in this Solvency Certificate, the undersigned has made such other investigations and inquiries as the undersigned has deemed appropriate, having taken into account the nature of the particular business anticipated to be conducted by the Borrower and the Restricted Subsidiaries after consummation of the Transactions.
[Signature Page Follows]
Exhibit G - 1
IN WITNESS WHEREOF, the undersigned has executed this Solvency Certificate in such undersigneds capacity as a Financial Officer of the Borrower, and not individually, as of the date first stated above.
AMERICAN TIRE DISTRIBUTORS, INC. | ||
By: | ||
Name: | ||
Title: |
[Solvency Certificate]
EXHIBIT H
FORM OF DISCOUNT RANGE PREPAYMENT NOTICE
Date: , 20
To: [Bank of America, N.A.], as Auction Agent
Ladies and Gentlemen:
This Discount Range Prepayment Notice is delivered to you pursuant to Section 2.03(a)(iv)(C) of that certain Credit Agreement dated as of March 28, 2014 (as amended, restated, amended and restated, refinanced, extended, supplemented and/or otherwise modified from time to time, the Credit Agreement), among American Tire Distributors Holdings, Inc., a Delaware corporation, as Holdings, American Tire Distributors, Inc., a Delaware corporation, as Borrower, the Guarantors from time to time party thereto, Bank of America, N.A., as Administrative Agent, and the Lenders and other parties from time to time party thereto. Capitalized terms used herein and not otherwise defined herein shall have the meaning ascribed to such terms in the Credit Agreement.
Pursuant to Section 2.03(a)(iv)(C) of the Credit Agreement, the Borrower Party hereby requests that [each Term Lender] [each Term Lender of the [ , 20 ]1 tranche[s] of the [ ]2 Class of Term Loans] submit a Discount Range Prepayment Offer. Any Discounted Term Loan Prepayment made in connection with this solicitation shall be subject to the following terms:
1. This Borrower Solicitation of Discount Range Prepayment Offers is extended at the sole discretion of the Borrower Party to [each Term Lender] [each Term Lender of the [ , 20 ]3 tranche[s] of the [ ]4 Class of Term Loans].
2. The maximum aggregate principal amount of the Discounted Term Loan Prepayment that will be made in connection with this solicitation is [$[ ] of Term Loans] [$[ ] of the [ , 20 ]5 tranche[(s)] of the [ ]6 Class of Term Loans] (the Discount Range Prepayment Amount).7
3. The Borrower Party is willing to make Discounted Term Loan Prepayments at a percentage discount to par value greater than or equal to [[ ]% but less than or equal to [ ]% in respect of the Term Loans] [[ ]% but less than or equal to [ ]% in respect of the [ , 20 ]8 tranche[(s)] of the [ ]9 Class of Term Loans] (the Discount Range).
1 | List multiple tranches if applicable. |
2 | List applicable Class(es) of Term Loans (e.g., Initial Term Loans, Incremental Term Loans, Other Term Loans, Extended Term Loans or Replacement Loans). |
3 | List multiple tranches if applicable. |
4 | List applicable Class(es) of Term Loans (e.g., Initial Term Loans, Incremental Term Loans, Other Term Loans, Extended Term Loans or Replacement Loans). |
5 | List multiple tranches if applicable. |
6 | List applicable Class(es) of Term Loans (e.g., Initial Term Loans, Incremental Term Loans, Other Term Loans, Extended Term Loans or Replacement Loans). |
7 | Minimum of $5.0 million and whole increments of $1.0 million. |
8 | List multiple tranches if applicable. |
9 | List applicable Class(es) of Term Loans (e.g., Initial Term Loans, Incremental Term Loans, Other Term Loans, Extended Term Loans or Replacement Loans). |
Exhibit H - 1
To make an offer in connection with this solicitation, you are required to deliver to the Auction Agent a Discount Range Prepayment Offer by no later than 5:00 p.m., New York time, on the date that is the third Business Day following the date of delivery of this notice pursuant to Section 2.03(a)(iv)(C) of the Credit Agreement.
The Borrower Party hereby represents and warrants to the Auction Agent and [the Term Lenders][each Term Lender of the [ , 20 ]10 tranche[s] of the [ ]11 Class of Term Loans] as follows:
1. No Default or Event of Default has occurred and is continuing.
2. [At least ten (10) Business Days have passed since the consummation of the most recent Discounted Term Loan Prepayment as a result of a prepayment made by a Borrower Party on the applicable Discounted Prepayment Effective Date.][At least three (3) Business Days have passed since the date the Borrower Party was notified that no Term Lender was willing to accept any prepayment of any Term Loan at the Specified Discount, within the Discount Range or at any discount to par value, as applicable, or in the case of Borrower Solicitation of Discounted Prepayment Offers, the date of any Borrower Partys election not to accept any Solicited Discounted Prepayment Offers made by a Lender.]12
3. The Borrower Party does not possess material non-public information (or material information of the type that would not be public if the Borrower or any Parent Entity were a publicly-reporting company) with respect to the Borrower and its Subsidiaries that either (1) has not been disclosed to the Term Lenders generally (other than Term Lenders that have elected not to receive such information) or (2) if not disclosed to the Term Lenders, would reasonably be expected to have a material effect on, or otherwise be material to (A) a Term Lenders decision to participate in any such Discounted Term Loan Prepayment13 or (B) the market price of such Term Loans.14
The Borrower Party acknowledges that the Auction Agent and the relevant Term Lenders are relying on the truth and accuracy of the foregoing representations and warranties in connection with any Discount Range Prepayment Offer made in response to this Discount Range Prepayment Notice and the acceptance of any prepayment made in connection with this Discount Range Prepayment Notice.
The Borrower Party requests that the Auction Agent promptly notify each relevant Term Lender party to the Credit Agreement of this Discount Range Prepayment Notice.
10 | List multiple tranches if applicable. |
11 | List applicable Class(es) of Term Loans (e.g., Initial Term Loans, Incremental Term Loans, Other Term Loans, Extended Term Loans or Replacement Loans). |
12 | Insert applicable representation. |
13 | No such representation will be required in the case of open market purchases by Affiliated Lenders, which may possess such material non-public information. |
14 | If the Borrower Party cannot make this representation, then the following text should be inserted in lieu thereof: |
The Borrower Party cannot represent at this time that it does not possess material non-public information (or material information of the type that would not be public if the Borrower or any Parent Entity were a publicly-reporting company) with respect to the Borrower and its Subsidiaries that either (1) has not been disclosed to the Term Lenders generally (other than Term Lenders that have elected not to receive such information) or (2) if not disclosed to the Term Lenders, would reasonably be expected to have a material effect on, or otherwise be material to (A) a Term Lenders decision to participate in any such assignment or (B) the market price of such Term Loans. |
Exhibit H - 2
IN WITNESS WHEREOF, the undersigned has executed this Discount Range Prepayment Notice as of the date first above written.
[NAME OF APPLICABLE BORROWER PARTY] | ||
By: | ||
Name: | ||
Title: |
Enclosure: Form of Discount Range Prepayment Offer
[Discount Range Prepayment Notice]
EXHIBIT I
FORM OF DISCOUNT RANGE PREPAYMENT OFFER
Date: , 20
To: [Bank of America, N.A.], as Auction Agent
Ladies and Gentlemen:
Reference is made to (a) the Credit Agreement dated as of March 28, 2014 (as amended, restated, amended and restated, refinanced, extended, supplemented and/or otherwise modified from time to time, the Credit Agreement), among American Tire Distributors Holdings, Inc., a Delaware corporation, as Holdings, American Tire Distributors, Inc., a Delaware corporation, as Borrower, the Guarantors from time to time party thereto, Bank of America, N.A., as Administrative Agent, and the Lenders and other parties from time to time party thereto, and (b) the Discount Range Prepayment Notice, dated , 20 , from the applicable Borrower Party (the Discount Range Prepayment Notice). Capitalized terms used herein and not otherwise defined herein shall have the meaning ascribed to such terms in the Discount Range Prepayment Notice or, to the extent not defined therein, in the Credit Agreement.
The undersigned Term Lender hereby gives you irrevocable notice, pursuant to Section 2.03(a)(iv)(C) of the Credit Agreement, that it is hereby offering to accept a Discounted Term Loan Prepayment on the following terms:
1. This Discount Range Prepayment Offer is available only for prepayment on [the Term Loans] [the [ , 20 ]1 tranche[s] of the [ ]2 Class of Term Loans] held by the undersigned.
2. The maximum aggregate principal amount of the Discounted Term Loan Prepayment that may be made in connection with this offer shall not exceed (the Submitted Amount):
[Term Loans - $[ ]]
[[ , 20 ]3 tranche[s] of the [ ]4 Class of Term Loans - $[ ]]
3. The percentage discount to par value at which such Discounted Term Loan Prepayment may be made is [[ ]% in respect of the Term Loans] [[ ]% in respect of the [ , 20 ]5 tranche[(s)] of the [ ]6 Class of Term Loans] (the Submitted Discount).
The undersigned Lender hereby expressly and irrevocably consents and agrees to a prepayment of its [Term Loans] [[ , 20 ]7 tranche[s] of the [ ]8 Class of Term Loans] indicated above pursuant to
1 | List multiple tranches if applicable. |
2 | List applicable Class(es) of Term Loans (e.g., Initial Term Loans, Incremental Term Loans, Other Term Loans, Extended Term Loans or Replacement Loans). |
3 | List multiple tranches if applicable. |
4 | List applicable Class(es) of Term Loans (e.g., Initial Term Loans, Incremental Term Loans, Other Term Loans, Extended Term Loans or Replacement Loans). |
5 | List multiple tranches if applicable. |
6 | List applicable Class(es) of Term Loans (e.g., Initial Term Loans, Incremental Term Loans, Other Term Loans, Extended Term Loans or Replacement Loans). |
7 | List multiple tranches if applicable. |
8 | List applicable Class(es) of Term Loans (e.g., Initial Term Loans, Incremental Term Loans, Other Term Loans, Extended Term Loans or Replacement Loans). |
Exhibit I - 1
Section 2.03(a)(iv)(C) of the Credit Agreement at a price equal to the Applicable Discount and in an aggregate outstanding amount not to exceed the Submitted Amount, as such amount may be reduced in accordance with the Discount Range Proration, if any, and as otherwise determined in accordance with and subject to the requirements of the Credit Agreement.
[REMAINDER OF THE PAGE INTENTIONALLY LEFT BLANK]
Exhibit I - 2
IN WITNESS WHEREOF, the undersigned has executed this Discount Range Prepayment Offer as of the date first above written.
[NAME OF LENDER] | ||
By: | ||
Name: | ||
Title: |
[Discount Range Prepayment Offer]
EXHIBIT J
FORM OF SOLICITED DISCOUNTED PREPAYMENT NOTICE
Date: , 20
To: [Bank of America, N.A.], as Auction Agent
Ladies and Gentlemen:
This Solicited Discounted Prepayment Notice is delivered to you pursuant to Section 2.03(a)(iv)(D) of that certain Credit Agreement dated as of March 28, 2014 (as amended, restated, amended and restated, refinanced, extended, supplemented and/or otherwise modified from time to time, the Credit Agreement), among American Tire Holdings, Inc., a Delaware corporation, as Holdings, American Tire, Inc., a Delaware corporation, as Borrower, the Guarantors from time to time party thereto, Bank of America, N.A., as Administrative Agent, and the Lenders and other parties from time to time party thereto. Capitalized terms used herein and not otherwise defined herein shall have the meaning ascribed to such terms in the Credit Agreement.
Pursuant to Section 2.03(a)(iv)(D) of the Credit Agreement, the Borrower Party hereby requests that [each Term Lender] [each Term Lender of the [ , 20 ]1 tranche[s] of the [ ]2 Class of Term Loans] submit a Solicited Discounted Prepayment Offer. Any Discounted Term Loan Prepayment made in connection with this solicitation shall be subject to the following terms:
1. This Borrower Solicitation of Discounted Prepayment Offers is extended at the sole discretion of the Borrower Party to [each Term Lender] [each Term Lender of the [ , 20 ]3 tranche[s] of the [ ]4 Class of Term Loans].
2. The maximum aggregate amount of the Discounted Term Loan Prepayment that will be made in connection with this solicitation is (the Solicited Discounted Prepayment Amount):5
[Term Loans - $[ ]]
[[ , 20 ]6 tranche[s] of the [ ]7 Class of Term Loans - $[ ]]
To make an offer in connection with this solicitation, you are required to deliver to the Auction Agent a Solicited Discounted Prepayment Offer by no later than 5:00 p.m., New York time on the date that is the third Business Day following delivery of this notice pursuant to Section 2.03(a)(iv)(D) of the Credit Agreement.
The Borrower Party requests that the Auction Agent promptly notify each Term Lender party to the Credit Agreement of this Solicited Discounted Prepayment Notice.
1 | List multiple tranches if applicable. |
2 | List applicable Class(es) of Term Loans (e.g., Initial Term Loans, Incremental Term Loans, Other Term Loans, Extended Term Loans or Replacement Loans). |
3 | List multiple tranches if applicable. |
4 | List applicable Class(es) of Term Loans (e.g., Initial Term Loans, Incremental Term Loans, Other Term Loans, Extended Term Loans or Replacement Loans). |
5 | Minimum of $5.0 million and whole increments of $1.0 million. |
6 | List multiple tranches if applicable. |
7 | List applicable Class(es) of Term Loans (e.g., Initial Term Loans, Incremental Term Loans, Other Term Loans, Extended Term Loans or Replacement Loans). |
Exhibit J - 1
IN WITNESS WHEREOF, the undersigned has executed this Solicited Discounted Prepayment Notice as of the date first above written.
[NAME OF APPLICABLE BORROWER PARTY] | ||
By: | ||
Name: | ||
Title: |
Enclosure: Form of Solicited Discounted Prepayment Offer
[Solicited Discounted Prepayment Notice]
EXHIBIT K
FORM OF ACCEPTANCE AND PREPAYMENT NOTICE
Date: , 20
To: [Bank of America, N.A.], as Auction Agent
Ladies and Gentlemen:
This Acceptance and Prepayment Notice is delivered to you pursuant to (a) Section 2.03(a)(iv)(D) of that certain Credit Agreement dated as of March 28, 2014 (as amended, restated, amended and restated, refinanced, extended, supplemented and/or otherwise modified from time to time, the Credit Agreement), among American Tire Distributors Holdings, Inc., a Delaware corporation, as Holdings, American Tire Distributors, Inc., a Delaware corporation, as Borrower, the Guarantors from time to time party thereto, Bank of America, N.A., as Administrative Agent, and the Lenders and other parties from time to time party thereto, and (b) that certain Solicited Discounted Prepayment Notice, dated , 20 , from the applicable Borrower Party (the Solicited Discounted Prepayment Notice). Capitalized terms used herein and not otherwise defined herein shall have the meaning ascribed to such terms in the Credit Agreement.
Pursuant to Section 2.03(a)(iv)(D) of the Credit Agreement, the Borrower Party hereby irrevocably notifies you that it accepts offers delivered in response to the Solicited Discounted Prepayment Notice having an Offered Discount equal to or greater than [[ ]% in respect of the Term Loans] [[ ]% in respect of the [ , 20 ]1 tranche[(s)] of the [ ]2 Class of Term Loans] (the Acceptable Discount) in an aggregate amount not to exceed the Solicited Discounted Prepayment Amount.
The Borrower Party expressly agrees that this Acceptance and Prepayment Notice shall be irrevocable and is subject to the provisions of Section 2.05(a)(v)(D) of the Credit Agreement.
The Borrower Party hereby represents and warrants to the Auction Agent and [the Term Lenders][each Term Lender of the [ , 20 ]3 tranche[s] of the [ ]4 Class of Term Loans] as follows:
1. No Default or Event of Default has occurred and is continuing.
2. [At least ten (10) Business Days have passed since the consummation of the most recent Discounted Term Loan Prepayment as a result of a prepayment made by a Borrower Party on the applicable Discounted Prepayment Effective Date.][At least three (3) Business Days have passed since the date the Borrower Party was notified that no Lender was willing to accept any prepayment of any Loan at the Specified Discount, within the Discount Range or at any discount to par value, as applicable, or in the case of Borrower Solicitation of Discounted Prepayment Offers, the date of any Borrower Partys election not to accept any Solicited Discounted Prepayment Offers made by a Term Lender.]5
3. The Borrower Party does not possess material non-public information (or material information of the type that would not be public if the Borrower or any Parent Entity were a publicly-reporting company) with respect to the Borrower and its Subsidiaries that either (1) has not been disclosed
1 | List multiple tranches if applicable. |
2 | List applicable Class(es) of Term Loans (e.g., Initial Term Loans, Incremental Term Loans, Other Term Loans, Extended Term Loans or Replacement Loans). |
3 | List multiple tranches if applicable. |
4 | List applicable Class(es) of Term Loans (e.g., Initial Term Loans, Incremental Term Loans, Other Term Loans, Extended Term Loans or Replacement Loans). |
5 | Insert applicable representation. |
Exhibit K - 1
to the Term Lenders generally (other than Term Lenders that have elected not to receive such information) or (2) if not disclosed to the Term Lenders, would reasonably be expected to have a material effect on, or otherwise be material to (A) a Term Lenders decision to participate in any such Discounted Term Loan Prepayment6 or (B) the market price of such Term Loans.7
The Borrower Party acknowledges that the Auction Agent and the relevant Term Lenders are relying on the truth and accuracy of the foregoing representations and warranties in connection with the acceptance of any prepayment made in connection with a Solicited Discounted Prepayment Offer.
The Borrower Party requests that the Auction Agent promptly notify each Term Lender party to the Credit Agreement of this Acceptance and Prepayment Notice.
[REMAINDER OF THE PAGE INTENTIONALLY LEFT BLANK]
6 | No such representation will be required in the case of open market purchases by Affiliated Lenders, which may possess such material non-public information. |
7 | If the Borrower Party cannot make this representation, then the following text should be inserted in lieu thereof: |
The Borrower Party cannot represent at this time that it does not possess material non-public information (or material information of the type that would not be public if the Borrower or any Parent Entity were a publicly-reporting company) with respect to the Borrower and its Subsidiaries that either (1) has not been disclosed to the Term Lenders generally (other than Term Lenders that have elected not to receive such information) or (2) if not disclosed to the Term Lenders, would reasonably be expected to have a material effect on, or otherwise be material to (A) a Term Lenders decision to participate in any such assignment or (B) the market price of such Term Loans. |
Exhibit K - 2
IN WITNESS WHEREOF, the undersigned has executed this Acceptance and Prepayment Notice as of the date first above written.
[NAME OF APPLICABLE BORROWER PARTY] | ||
By: | ||
Name: | ||
Title: |
[Acceptance and Prepayment Notice]
EXHIBIT L
FORM OF SPECIFIED DISCOUNT PREPAYMENT NOTICE
Date: , 20
To: [Bank of America, N.A.], as Auction Agent
Ladies and Gentlemen:
This Specified Discount Prepayment Notice is delivered to you pursuant to Section 2.03(a)(iv)(B) of that certain Credit Agreement dated as of March 28, 2014 (as amended, restated, amended and restated, refinanced, extended, supplemented and/or otherwise modified from time to time, the Credit Agreement), among American Tire Distributors Holdings, Inc., a Delaware corporation, as Holdings, American Tire Distributors, Inc., a Delaware corporation, as Borrower, the Guarantors from time to time party thereto, Bank of America, N.A., as Administrative Agent, and the Lenders and other parties from time to time party thereto. Capitalized terms used herein and not otherwise defined herein shall have the meaning ascribed to such terms in the Credit Agreement.
Pursuant to Section 2.03(a)(iv)(B) of the Credit Agreement, the Borrower Party hereby offers to make a Discounted Term Loan Prepayment [to each Term Lender] [to each Term Lender of the [ , 20 ]1 tranche[s] of the [ ]2 Class of Term Loans] on the following terms:
1. This Borrower Offer of Specified Discount Prepayment is available only [to each Term Lender] [to each Term Lender of the [ , 20 ]3 tranche[s] of the [ ]4 Class of Term Loans].
2. The aggregate principal amount of the Discounted Term Loan Prepayment that will be made in connection with this offer shall not exceed [$[ ] of Term Loans] [$[ ] of the [ , 20 ]5 tranche[(s)] of the [ ]6 Class of Term Loans] (the Specified Discount Prepayment Amount).7
3. The percentage discount to par value at which such Discounted Term Loan Prepayment will be made is [[ ]% in respect of the Term Loans] [[ ]% in respect of the [ , 20 ]8 tranche[(s)] of the [ ]9 Class of Term Loans] (the Specified Discount).
1 | List multiple tranches if applicable. |
2 | List applicable Class(es) of Term Loans (e.g., Initial Term Loans, Incremental Term Loans, Other Term Loans, Extended Term Loans or Replacement Loans). |
3 | List multiple tranches if applicable. |
4 | List applicable Class(es) of Term Loans (e.g., Initial Term Loans, Incremental Term Loans, Other Term Loans, Extended Term Loans or Replacement Loans). |
5 | List multiple tranches if applicable. |
6 | List applicable Class(es) of Term Loans (e.g., Initial Term Loans, Incremental Term Loans, Other Term Loans, Extended Term Loans or Replacement Loans). |
7 | Minimum of $5.0 million and whole increments of $1.0 million. |
8 | List multiple tranches if applicable. |
9 | List applicable Class(es) of Term Loans (e.g., Initial Term Loans, Incremental Term Loans, Other Term Loans, Extended Term Loans or Replacement Loans). |
Exhibit L - 1
To accept this offer, you are required to submit to the Auction Agent a Specified Discount Prepayment Response by no later than 5:00 p.m., New York time, on the date that is the third Business Day following the date of delivery of this notice pursuant to Section 2.03(a)(iv)(B) of the Credit Agreement.
The Borrower Party hereby represents and warrants to the Auction Agent and [the Term Lenders][each Term Lender of the [ , 20 ]10 tranche[s] of the [ ]11 Class of Term Loans] as follows:
1. No Default or Event of Default has occurred and is continuing.
2. [At least ten (10) Business Days have passed since the consummation of the most recent Discounted Term Loan Prepayment as a result of a prepayment made by a Borrower Party on the applicable Discounted Prepayment Effective Date.][At least three (3) Business Days have passed since the date the Borrower was notified that no Term Lender was willing to accept any prepayment of any Term Loan at the Specified Discount, within the Discount Range or at any discount to par value, as applicable, or in the case of Borrower Solicitation of Discounted Prepayment Offers, the date of any Borrower Partys election not to accept any Solicited Discounted Prepayment Offers made by a Lender.]12
3. The Borrower Party does not possess material non-public information (or material information of the type that would not be public if the Borrower or any Parent Entity were a publicly-reporting company) with respect to the Borrower and its Subsidiaries that either (1) has not been disclosed to the Term Lenders generally (other than Term Lenders that have elected not to receive such information) or (2) if not disclosed to the Term Lenders, would reasonably be expected to have a material effect on, or otherwise be material to (A) a Term Lenders decision to participate in any such Discounted Term Loan Prepayment13 or (B) the market price of such Term Loans.14
The Borrower Party acknowledges that the Auction Agent and the relevant Term Lenders are relying on the truth and accuracy of the foregoing representations and warranties in connection with their decision whether or not to accept the offer set forth in this Specified Discount Prepayment Notice and the acceptance of any prepayment made in connection with this Specified Discount Prepayment Notice.
The Borrower Party requests that the Auction Agent promptly notify each relevant Term Lender party to the Credit Agreement of this Specified Discount Prepayment Notice.
10 | List multiple tranches if applicable. |
11 | List applicable Class(es) of Term Loans (e.g., Initial Term Loans, Incremental Term Loans, Other Term Loans, Extended Term Loans or Replacement Loans). |
12 | Insert applicable representation. |
13 | No such representation will be required in the case of open market purchases by Affiliated Lenders, which may possess such material non-public information. |
14 | If the Borrower Party cannot make this representation, then the following text should be inserted in lieu thereof: |
The Borrower Party cannot represent at this time that it does not possess material non-public information (or material information of the type that would not be public if the Borrower or any Parent Entity were a publicly-reporting company) with respect to the Borrower and its Subsidiaries that either (1) has not been disclosed to the Term Lenders generally (other than Term Lenders that have elected not to receive such information) or (2) if not disclosed to the Term Lenders, would reasonably be expected to have a material effect on, or otherwise be material to (A) a Term Lenders decision to participate in any such assignment or (B) the market price of such Term Loans. |
Exhibit L - 2
IN WITNESS WHEREOF, the undersigned has executed this Specified Discount Prepayment Notice as of the date first above written.
[NAME OF APPLICABLE BORROWER PARTY] | ||
By: | ||
Name: | ||
Title: |
Enclosure: Form of Specified Discount Prepayment Response
[Specified Discount Prepayment Notice]
EXHIBIT M
FORM OF SOLICITED DISCOUNTED PREPAYMENT OFFER
Date: , 20
To: [Bank of America, N.A.], as Auction Agent
Ladies and Gentlemen:
Reference is made to (a) the Credit Agreement dated as of March 28, 2014 (as amended, restated, amended and restated, refinanced, extended, supplemented and/or otherwise modified from time to time, the Credit Agreement), among American Tire Distributors Holdings, Inc., a Delaware corporation, as Holdings, American Tire Distributors, Inc., a Delaware corporation, as Borrower, the Guarantors from time to time party thereto, Bank of America, N.A., as Administrative Agent, and the Lenders and other parties from time to time party thereto, and (b) the Solicited Discounted Prepayment Notice, dated , 20 , from the applicable Borrower Party (the Solicited Discounted Prepayment Notice). Capitalized terms used herein and not otherwise defined herein shall have the meaning ascribed to such terms in the Solicited Discounted Prepayment Notice or, to the extent not defined therein, in the Credit Agreement.
To accept the offer set forth herein, you must submit an Acceptance and Prepayment Notice by or before no later than 5:00 p.m. New York time on the third Business Day following your receipt of this notice.
The undersigned Term Lender hereby gives you irrevocable notice, pursuant to Section 2.03(a)(iv)(D) of the Credit Agreement, that it is hereby offering to accept a Discounted Term Loan Prepayment on the following terms:
1. This Solicited Discounted Prepayment Offer is available only for prepayment on the [Term Loans][[ , 20 ]1 tranche[s] of the [ ]2 Class of Term Loans] held by the undersigned.
2. The maximum aggregate principal amount of the Discounted Term Loan Prepayment that may be made in connection with this offer shall not exceed (the Offered Amount):
[Term Loans - $[ ]]
[[ , 20 ]3 tranche[s] of the [ ]4 Class of Term Loans - $[ ]]
3. The percentage discount to par value at which such Discounted Term Loan Prepayment may be made is [[ ]% in respect of the Term Loans] [[ ]% in respect of the [ , 20 ]5 tranche[(s)] of the [ ]6 Class of Term Loans] (the Offered Discount).
1 | List multiple tranches if applicable. |
2 | List applicable Class(es) of Term Loans (e.g., Initial Term Loans, Incremental Term Loans, Other Term Loans, Extended Term Loans or Replacement Loans). |
3 | List multiple tranches if applicable. |
4 | List applicable Class(es) of Term Loans (e.g., Initial Term Loans, Other Term Loans, Extended Term Loans or Replacement Loans). |
5 | List multiple tranches if applicable. |
6 | List applicable Class(es) of Term Loans (e.g., Initial Term Loans, Incremental Term Loans, Other Term Loans, Extended Term Loans or Replacement Loans). |
Exhibit M - 1
The undersigned Lender hereby expressly and irrevocably consents and agrees to a prepayment of its [Term Loans] [[ , 20 ]7 tranche[s] of the [ ]8 Class of Term Loans] pursuant to Section 2.03(a)(iv)(D) of the Credit Agreement at a price equal to the Acceptable Discount and in an aggregate outstanding amount not to exceed such Term Lenders Offered Amount as such amount may be reduced in accordance with the Solicited Discount Proration, if any, and as otherwise determined in accordance with and subject to the requirements of the Credit Agreement.
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7 | List multiple tranches if applicable. |
8 | List applicable Class(es) of Term Loans (e.g., Initial Term Loans, Incremental Term Loans, Other Term Loans, Extended Term Loans or Replacement Loans). |
Exhibit M - 2
IN WITNESS WHEREOF, the undersigned has executed this Solicited Discounted Prepayment Offer as of the date first above written.
[NAME OF LENDER] | ||
By: | ||
Name: | ||
Title: |
[Solicited Discounted Prepayment Offer]
EXHIBIT N
FORM OF SPECIFIED DISCOUNT PREPAYMENT RESPONSE
Date: , 20
To: [Bank of America, N.A.], as Auction Agent
Ladies and Gentlemen:
Reference is made to (a) the Credit Agreement dated as of March 28, 2014 (as amended, restated, amended and restated, refinanced, extended, supplemented and/or otherwise modified from time to time, the Credit Agreement), among American Tire Distributors Holdings, Inc., a Delaware corporation, as Holdings, American Tire Distributors, Inc., a Delaware corporation, as Borrower, the Guarantors from time to time party thereto, Bank of America, N.A., as Administrative Agent, and the Lenders and other parties from time to time party thereto, and (b) the Specified Discount Prepayment Notice, dated , 20 , from the applicable Borrower Party (the Specified Discount Prepayment Notice). Capitalized terms used herein and not otherwise defined herein shall have the meaning ascribed to such terms in the Specified Discount Prepayment Notice or, to the extent not defined therein, in the Credit Agreement.
The undersigned Term Lender hereby gives you irrevocable notice, pursuant to Section 2.03(a)(iv)(B) of the Credit Agreement, that it is willing to accept a prepayment of the following [Term Loans] [[ , 20 ]1 tranche[s] of the [ ]2 Class of Term Loans - $[ ]] held by such Term Lender at the Specified Discount in an aggregate outstanding amount as follows:
[Term Loans - $[ ]]
[[ , 20 ]3 tranche[s] of the [ ]4 Class of Term Loans - $[ ]]
The undersigned Term Lender hereby expressly and irrevocably consents and agrees to a prepayment of its [Term Loans][[ , 20 ]5 tranche[s] the [ ]6 Class of Term Loans] pursuant to Section 2.03(a)(iv)(B) of the Credit Agreement at a price equal to the [applicable] Specified Discount in the aggregate outstanding amount not to exceed the amount set forth above, as such amount may be reduced in accordance with the Specified Discount Proration, and as otherwise determined in accordance with and subject to the requirements of the Credit Agreement.
[REMAINDER OF THE PAGE INTENTIONALLY LEFT BLANK]
1 | List multiple tranches if applicable. |
2 | List applicable Class(es) of Term Loans (e.g., Initial Term Loans, Incremental Term Loans, Other Term Loans, Extended Term Loans or Replacement Loans). |
3 | List multiple tranches if applicable. |
4 | List applicable Class(es) of Term Loans (e.g., Initial Term Loans, Incremental Term Loans, Other Term Loans, Extended Term Loans or Replacement Loans). |
5 | List multiple tranches if applicable. |
6 | List applicable Class(es) of Term Loans (e.g., Initial Term Loans, Incremental Term Loans, Other Term Loans, Extended Term Loans, or Replacement Loans). |
Exhibit N - 1
IN WITNESS WHEREOF, the undersigned has executed this Specified Discount Prepayment Response as of the date first above written.
[NAME OF LENDER] | ||
By: | ||
Name: | ||
Title: |
[Specified Discount Prepayment Response]
EXHIBIT O
FORM OF MORTGAGE
[Attached.]
Exhibit O - 1
EXHIBIT O
FIRST MORTGAGE, ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT AND FINANCING STATEMENT
(Collateral is or includes fixtures)
(To be filed in Real Property Records)
dated as of [As of Date]
by
[MORTGAGOR NAME],
as Mortgagor,
to
BANK OF AMERICA, N.A.,
as Term Collateral Agent for the benefit of the Secured Parties referred to herein, as Mortgagee
Property: |
|
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|
||||||
|
This Instrument was prepared by the Attorney named below
[in consultation with counsel in the State in which the Property is located]
and, when recorded, recorded counterparts should be returned to:
[Fried, Frank, Harris, Shriver and Jacobson LLP
One New York Plaza
New York, New York 10004
Attn: ]
THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS AND SECURES OBLIGATIONS CONTAINING PROVISIONS FOR CHANGES IN INTEREST RATES.
TABLE OF CONTENTS
Page | ||||||
ARTICLE I | ||||||
DEFINITIONS | ||||||
Section 1.01 |
Definitions | 1 | ||||
Section 1.02 |
Interpretation | 5 | ||||
ARTICLE II | ||||||
CONVEYANCE OF ENCUMBERED PROPERTY | ||||||
Section 2.01 |
Grant | 5 | ||||
ARTICLE III | ||||||
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE MORTGAGOR | ||||||
Section 3.01 |
Title | 6 | ||||
Section 3.02 |
[Reserved] | 6 | ||||
Section 3.03 |
[Reserved] | 6 | ||||
Section 3.04 |
[Reserved] | 6 | ||||
Section 3.05 |
[Reserved] | 6 | ||||
Section 3.06 |
[Reserved] | 6 | ||||
Section 3.07 |
Finance Documents | 6 | ||||
Section 3.08 |
Payment of Taxes, Liens and Charges | 7 | ||||
Section 3.09 |
Payment of Closing Costs | 7 | ||||
Section 3.10 |
[Reserved] | 8 | ||||
Section 3.11 |
Insurance | 8 | ||||
Section 3.12 |
Casualty; Restoration of Casualty Damage | 8 | ||||
Section 3.13 |
Condemnation/Eminent Domain | 8 | ||||
Section 3.14 |
Assignment of Leases and Rents | 8 | ||||
Section 3.15 |
Restrictions on Transfers and Encumbrances | 9 | ||||
Section 3.16 |
Security Agreement | 9 | ||||
Section 3.17 |
Filing and Recording | 10 | ||||
Section 3.18 |
Further Assurances | 10 | ||||
Section 3.19 |
Additions to Encumbered Property | 10 | ||||
Section 3.20 |
No Claims Against the Mortgagee | 11 | ||||
Section 3.21 |
Intentionally deleted | 11 | ||||
ARTICLE IV | ||||||
DEFAULTS AND REMEDIES | ||||||
Section 4.01 |
Events of Default | 11 | ||||
Section 4.02 |
Demand for Payment | 11 | ||||
Section 4.03 |
Rights to Take Possession, Operate and Apply Revenues | 11 | ||||
Section 4.04 |
Right to Cure the Mortgagors Failure to Perform | 12 | ||||
Section 4.05 |
Right to a Receiver | 12 | ||||
Section 4.06 |
Foreclosure and Sale | 13 | ||||
Section 4.07 |
Other Remedies | 13 | ||||
Section 4.08 |
Application of Sale of Proceeds and Rents | 14 | ||||
Section 4.09 |
The Mortgagor as Tenant Holding Over | 14 | ||||
Section 4.10 |
Waiver of Appraisement, Valuation, Stay, Extension and Redemption Laws | 14 | ||||
Section 4.11 |
Discontinuance of Proceedings | 15 | ||||
Section 4.12 |
Suits to Protect the Encumbered Property | 15 |
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Table of Contents (cont.)
Page | ||||||
Section 4.13 |
Filing Proofs of Claim | 15 | ||||
Section 4.14 |
Possession by the Mortgagee | 15 | ||||
Section 4.15 |
Waiver | 15 | ||||
Section 4.16 |
Remedies Cumulative | 16 | ||||
ARTICLE V | ||||||
MISCELLANEOUS | ||||||
Section 5.01 |
Partial Invalidity | 16 | ||||
Section 5.02 |
Notices | 16 | ||||
Section 5.03 |
Successors and Assigns | 17 | ||||
Section 5.04 |
Satisfaction and Cancellation | 17 | ||||
Section 5.05 |
Other Finance Documents | 17 | ||||
Section 5.06 |
Subrogation | 18 | ||||
Section 5.07 |
Mortgagee Powers | 18 | ||||
Section 5.08 |
Enforceability of Mortgage | 18 | ||||
Section 5.09 |
Amendments | 18 | ||||
Section 5.10 |
Applicable Law | 18 | ||||
Section 5.11 |
Waiver of Jury Trial | 19 | ||||
Section 5.12 |
Intercreditor Agreements | 19 | ||||
Section 5.13 |
Local Law Provisions | 19 |
Exhibits:
Exhibit A Legal Description
Exhibit B Permitted Encumbrances
Schedules:
Schedule 3.01(1) Leases
FIRST MORTGAGE, ASSIGNMENT OF LEASES AND RENTS,
SECURITY AGREEMENT AND FINANCING STATEMENT
COLLATERAL IS OR INCLUDES FIXTURES
THIS FIRST MORTGAGE, ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FINANCING STATEMENT (as amended, restated, modified or supplemented from time to time, this Mortgage) is dated as of [As of Date] and is made by [MORTGAGOR NAME], a [State][Entity], as mortgagor, having an office at [Mortgagor Notice Address] (the Mortgagor), to BANK OF AMERICA, N.A., as collateral agent for the benefit of the Secured Parties (as defined in the Credit Agreement), having an office at 100 N. Tryon Street, Charlotte, North Carolina, 28255 (in such capacity, together with its successors, substitutes and assigns, the Mortgagee).
American Tire Distributors, Inc., a Delaware corporation (together with its successors and permitted assigns, the Borrower), has entered into a Credit Agreement dated as of [ ], 2014 (as amended, restated, modified or supplemented from time to time and including any agreement extending the maturity of, refinancing or otherwise amending, amending and restating or otherwise modifying or restructuring all or any portion of the obligations of the Borrower under such agreement or any successor agreement, the Credit Agreement) among the Borrower, American Tire Distributors Holdings, Inc. (Holdings), each Guarantor from time to time party thereto, Bank of America, N.A., as Administrative Agent, and the other lenders party thereto.
In connection with the Credit Agreement, the Borrower and certain subsidiaries of the Borrower have entered into that certain Security Agreement dated as of [ ], 2014 (as amended, restated, modified or supplemented from time to time the Security Agreement), pursuant to which Grantors (as defined therein) agreed to grant a continuing security interest to Mortgagee for the benefit of the Secured Parties in and to the Collateral (as defined in the Security Agreement) to secure the Finance Obligations (as defined below). The Mortgagor is one of the Grantors and will receive not insubstantial benefits from the credit accommodations made and to be made by the Secured Parties under the Finance Documents. If furtherance of the above, the Mortgagor has agreed to mortgage, grant a lien on and a grant a security interest in the Encumbered Property to secure the Finance Obligations.
Accordingly, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 Definitions. Terms used herein without definition which are defined in the introductory section thereof or in the Credit Agreement or the Equal Priority Intercreditor Agreement shall have the respective meanings set forth therein, as applicable. The following additional terms, as used herein, have the following meanings:
Crossing Lien Intercreditor Agreement means the Lien Subordination and Intercreditor Agreement, dated as of May 28, 2010 among the ABL Collateral Agent (as defined therein), the Notes Collateral Agent (as defined therein), the Borrower and each other party thereto (as amended, restated, modified or supplemented from time to time).
Discharge of Finance Obligations means, except to the extent otherwise provided in Section 2.07 of the Crossing Lien Intercreditor Agreement, (i) payment in full in cash of the principal of and interest (including interest accruing on or after the commencement of any Insolvency or Liquidation Proceeding, whether or not a claim for such interest is, or would be, allowed in such Insolvency or Liquidation Proceeding) and premium, if any, on all Indebtedness outstanding under the Finance Documents and termination of all commitments to lend or otherwise extend credit under the Finance Documents, (ii) payment in full in cash of all other Finance Obligations that are due and payable or otherwise accrued and owing at or prior to the time such principal and interest are paid (including legal fees and other expenses, costs or charges accruing on or after the commencement of any Insolvency or Liquidation Proceeding, whether or not a claim for such fees, expenses, costs or charges is, or would be, allowed
in such Insolvency or Liquidation Proceeding) and (iii) termination of all Secured Swap Obligations and the payment in full in cash of all matured obligations, and the cash collateralization (in an amount reasonably satisfactory to Mortgagee) of all unmatured obligations, under all Secured Swap Obligations.
Encumbered Property means (but excludes any and all Excluded Assets (as defined in the Credit Agreement):
(i) all of the Mortgagors right, title and interest in and to the parcel or parcels of land located in County, , as more particularly described on Exhibit A hereto (the Land), together with any after-acquired estate of the Mortgagor in the Land, and together with all rights appurtenant thereto, including without limitation, all strips and gores within or adjoining the Land, all estate, right, title, interest, claim or demand of the Mortgagor in the streets, roads, sidewalks, alleys and ways adjacent thereto (whether or not vacated and whether public or private and whether open or proposed), all easements over adjoining land granted by any easement agreements, covenants or restrictive agreements, all of the tenements, hereditaments, easements, reciprocal easement agreements, rights pursuant to any trackage agreement, rights to the use of common drive entries, rights-of-way and other rights, privileges and appurtenances thereunto belonging or in any way pertaining thereto, all reversions, remainders, dower and right of dower, curtesy and right of curtesy, all of the air space and right to use air space above such property, all transferable development rights arising therefrom or transferred thereto, all water and water rights and water rights applications (whether riparian, littoral, appropriative or otherwise, and whether or not appurtenant), all pumps, pumping plants, pipes, flumes and ditches thereunto appertaining, all rights and ditches for irrigation, all utility rights, sewer rights, and shares of stock evidencing the same, all oil, gas and other minerals and mineral substances (which term shall include all gypsum, anhydrite, coal, lignite, hydrocarbon or other fossil materials or substances, fissionable materials or substances and all other minerals of any kind or character, whether gaseous, liquid or hard minerals, whether similar or dissimilar to those named, whether now or hereafter found to exist and whether associated with the surface or mineral estate) in, on or under the Land or produced, saved or severed from the Land, all mineral, mining, gravel, oil, gas, hydrocarbon rights and other rights to produce or share in the production of anything related to such property, all drainage, crop, timber, agricultural, and horticultural rights with respect to such property, and all other appurtenances appurtenant to such property, including without limitation, any now or hereafter belonging or in any way appertaining thereto, and all claims or demands of the Mortgagor, either at law or in equity, in possession or expectancy, now or hereafter acquired, of, in or to the same (the Land and all of the foregoing being sometimes referred to herein collectively as the Real Estate);
(ii) all of the Mortgagors right, title and interest in and to all buildings, improvements, fixtures and other structures or improvements of any kind now or hereafter erected or located upon the Land, including, but not limited to, all building materials, water, sanitary and storm sewers, drainage, electricity, steam, gas, telephone and other utility facilities, parking areas, roads, driveways, walks and other site improvements, together in each case with and all additions and betterments thereto and all renewals, substitutions and replacements thereof, owned or to be owned by the Mortgagor or in which the Mortgagor has or shall acquire an interest, to the extent of the Mortgagors interest therein, now or hereafter erected or located upon the Land (collectively, the Improvements and, together with the Real Estate the Premises);
(iii) all of the Mortgagors right, title and interest in and to the following (collectively, the Personal Property):
(A) all personal property and fixtures of every kind and nature whatsoever which are now or hereafter located on, attached to, incorporated in (regardless of where located) or affixed to the Premises or the Improvements or used or useful in connection with the ownership, construction, maintenance, repair, reconstruction, alteration, addition, improvement, operation, mining, use or occupancy of the Premises or the Improvements, including, without limitation, all
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goods, inventory, construction materials, equipment, mining equipment, tools, tooling, furniture, furnishings, fittings, fixtures, supplies, computers and computer programs, carpeting, draperies, blinds, window treatments, racking and shelving systems, heating, lighting, plumbing, ventilating, air conditioning, refrigerating, incinerating and/or compacting plants, systems and equipment, elevators, escalators, appliances, stoves, ranges, refrigerators, vacuum, window washing and other cleaning and building service systems, call systems, sprinkler systems and other fire prevention and extinguishing apparatus and materials, cables, antennae, pipes, ducts, conduits, machinery, apparatus, motors, dynamos, engines, compressors, generators, boilers, stokers, furnaces, pumps, tanks, appliances, garbage systems and pest control systems and all of Mortgagors present and future goods, equipment and fixtures (as such terms are defined in the UCC) and other personal property, including without limitation any such personal property and fixtures which are leased, but expressly excluding any such leased personal property and fixtures whose further encumbrance is prohibited under the terms of its underlying lease, and all repairs, attachments, betterments, renewals, replacements, substitutions and accessions thereof and thereto;
(iv) to the extent assignable, all approvals, authorizations, building permits, certificates of occupancy, zoning variances, use permits, certifications, entitlements, exemptions, franchises, licenses, orders, variances, plat plan approvals, environmental approvals, air pollution permits and other authorizations to construct and to operate, sewer and waste discharge permits, national pollutant discharge elimination system permits, water permits, zoning and land use entitlements and all other permits, whether now existing or hereafter issued to or obtained by or on behalf of the Mortgagor, that relate to or concern in any way the Premises or the Improvements and are given or issued by any governmental or quasi-governmental authority, whether now existing or hereafter created (as the same may be amended, modified, renewed or extended from time to time, and including all substitutions and replacements therefor), all rights under and pursuant to all construction, service, engineering, consulting, management, access, supply, leasing, architectural and other similar contracts relating in any way to the design, construction, management, operation, occupancy and/or use of the Premises and Improvements, all rights under all purchase agreements, sales agreements, option contracts, land contracts and contracts for the sale of oil, gas and other minerals or any of them, that relate to or concern in any way the Premises or the Improvements, all abstracts of title, architectural, engineering or construction drawings, plans, specifications, operating manuals, computer programs, computer data, maps, surveys, soil tests, feasibility studies, appraisals, environmental studies, engineering reports and similar materials relating to any portion of or all of the Premises and Improvements, and all payment and performance bonds or warranties or guarantees relating to the Premises or the Improvements, all to the extent assignable (collectively, the Permits, Plans and Contracts);
(v) to the extent assignable, the Mortgagors interest in and rights under all leases, occupancy agreements or licenses (under which the Mortgagor is landlord or licensor) and subleases (under which the Mortgagor is sublandlord), concession, franchise, management, mineral or other agreements relating to the use or occupancy of the Premises or the Improvements or any part thereof for any purpose, or the extraction or taking of any gas, oil, water or other minerals from the Premises, whether now or hereafter existing or entered into (including any use or occupancy arrangements created pursuant to Section 365(d) of the Bankruptcy Code or otherwise in connection with the commencement or continuance of any bankruptcy, reorganization, arrangement, insolvency, dissolution, receivership or similar proceedings, or any assignment for the benefit of creditors, in respect of any tenant or occupant of any portion of the Premises or the Improvements), and all guaranties thereof and all amendments, modifications, supplements, extensions or renewals thereof (collectively, the Leases), and all rents, issues, profits, revenues, charges, fees, receipts, royalties, proceeds from the sale of oil, gas and/or other minerals (whether gaseous, liquid or hard minerals, whether similar or dissimilar to those named and whether associated with the surface or mineral estate), accounts receivable, cash or security deposits and other deposits (subject to the prior right of the tenants making such deposits) and income, and other benefits now or hereafter derived from any portion of the Premises or the Improvements or the use or occupancy thereof (including any payments received pursuant to Section 502(b) of the Bankruptcy Code or otherwise in connection with the
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commencement or continuance of any bankruptcy, reorganization, arrangement, insolvency, dissolution, receivership or similar proceedings, or any assignment for the benefit of creditors, in respect of any tenant or other occupants of any portion of the Premises or the Improvements and all claims as a creditor in connection with any of the foregoing) and all payments of a similar nature, now or hereafter, including during any period of redemption, derived from the Premises or the Improvements or any other portion of the Encumbered Property and all proceeds from the cancellation, surrender, sale or other disposition of the Leases (collectively, the Rents);
(vi) all of the Mortgagors right, title and interest in and to all refunds or rebates of real and personal property taxes or charges in lieu of taxes, heretofore or now or hereafter assessed or levied against all or any of the Premises, the Improvements, the Personal Property, the Leases, the Rents and the Permits, Plans and Contracts, including interest thereon, and the right to receive the same, whether such refunds or rebates relate to fiscal periods before or during the term of this Mortgage;
(vii) all of the Mortgagors right, title and interest in and to all insurance policies and the proceeds thereof, now or hereafter in effect with respect to all or any of the Premises, the Improvements, the Personal Property, the Leases, the Rents and the Permits, Plans and Contracts, and all unearned premiums and premium refunds, accrued, accruing or to accrue under such insurance policies, and subject to the terms and provisions of the Credit Agreement all awards made for any taking of or damage to all or any of the Premises, the Improvements, the Personal Property, the Leases, the Rents and the Permits, Plans and Contracts by eminent domain, or by any purchase in lieu thereof, and all awards resulting from a change of grade of streets or for severance damages, and all other proceeds of the conversion, voluntary or involuntary, of all or any of the Premises, Improvements, the Personal Property, the Leases, the Rents and the Permits, Plans and Contracts, into cash or other liquidated claims, and all judgments, damages, awards, settlements and compensation (including interest thereon) heretofore or hereafter made to the present and all subsequent owners of the Premises, Improvements, the Personal Property, the Leases, the Rents and the Permits, Plans and Contracts, or any part thereof for any injury to or decrease in the value thereof for any reason; and
(viii) all accessions, additions or attachments to, and proceeds or products of, any of the foregoing.
Equal Priority Intercreditor Agreement means the Intercreditor and Collateral Agency Agreement dated as of May 28, 2010 among Borrower, Holdings and the Bank of New York Mellon Trust Company, N.A., as Collateral Agent and Trustee.
Event of Default means one or more Events of Default, as such term is defined in any Finance Document.
Finance Documents means the Credit Agreement and the other Term Documents (as defined in the Security Agreement).
Finance Obligations means, at any date, any and all Secured Obligations (as such term is defined in the Security Agreement) of any Finance Party under any Finance Document.
Finance Party means, the Borrower and each other Grantor (as defined in the Security Agreement) now or hereafter obligated to the Secured Parties under any Finance Document, and Finance Parties means any two or more of them, collectively.
Impositions shall mean all taxes, water rates, sewer rents, fees, assessments, levies, utility charges, insurance premiums payable on any insurance the Mortgagee is required to maintain hereunder, amounts required to be paid to obtain or renew permits and other similar charges (whether or not required by a governmental body) which are now or hereafter assessed, levied or imposed against the Encumbered Property (or any part thereof)
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or the Mortgagees interest therein and all water rates, sewer rents, ground rents, maintenance charges and other charges now or hereafter assessed, levied or imposed against the Encumbered Property (or any part thereof) or the Mortgagees interest therein or incurred in the ownership, operation, occupancy, maintenance and use of the Encumbered Property.
Insolvency or Liquidation Proceeding means (i) any voluntary or involuntary case or proceeding under the Bankruptcy Code or any other Debtor Relief Law with respect to any Finance Party, (ii) any other voluntary or involuntary insolvency, reorganization or bankruptcy case or proceeding or any receivership, liquidation, reorganization or other similar case or proceeding with respect to any Finance Party or with respect to a material portion of its assets, (iii) any liquidation, dissolution, reorganization or winding up of any Finance Party whether voluntary or involuntary and whether or not involving insolvency or bankruptcy or (iv) any assignment for the benefit of creditors or any other marshalling of assets and liabilities of any Finance Party.
Intercreditor Agreements means, collectively the Equal Priority Intercreditor Agreement and the Crossing Lien Intercreditor Agreement.
UCC means at any time the Uniform Commercial Code as the same may from time to time be in effect in the state where the Premises are located, provided that, if, by reason of mandatory provisions of law, the validity, perfection or the effect of perfection or non-perfection of any security interest granted herein is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the state where the Premises are located then, as to the validity or perfection of such security interest, UCC shall mean the Uniform Commercial Code in effect in such other jurisdiction for purposes of the provisions hereof relating to such validity or perfection or effect of perfection or non-perfection.
Section 1.02 Interpretation. As used in this Mortgage, the singular shall include the plural as the context requires and the following words and phrases shall have the following meanings: (i) including shall mean including but not limited to; (ii) provisions shall mean provisions, terms, covenants and/or conditions; (iii) lien shall mean lien, charge, encumbrance, security interest, mortgage, deed of trust; (iv) obligation shall mean obligation, duty, covenant and/or condition; and (v) any of the Encumbered Property shall mean the Encumbered Property or any part thereof or interest therein. Any act that the Mortgagee is permitted to perform hereunder may be performed at any time and from time to time by the Mortgagee or any person or entity designated by the Mortgagee. Any act which is prohibited to the Mortgagor hereunder is also prohibited to all lessees of any of the Encumbered Property. Each appointment of the Mortgagee as attorney-in-fact for the Mortgagor under this Mortgage is irrevocable, with power of substitution and coupled with an interest. Subject to the applicable provisions hereof, the Mortgagee has the right to refuse to grant its consent, approval or acceptance or to indicate its satisfaction, in its sole discretion, whenever such consent, approval, acceptance or satisfaction is required hereunder.
ARTICLE II
CONVEYANCE OF ENCUMBERED PROPERTY
Section 2.01 Grant. To secure the full and punctual payment of the Finance Obligations in accordance with the terms thereof (including the performance of all of the obligations of the Mortgagor hereunder), the Mortgagor hereby grants, bargains, sells, transfers, sets over, assigns and conveys as security, grants a security interest in, hypothecates, mortgages, pledges and sets over to the Mortgagee, the Encumbered Property, subject only to the Permitted Encumbrances.
TO HAVE AND HOLD the same, together with all privileges, hereditaments, easements and appurtenances thereunto belonging, to the Mortgagee and the Mortgagees successors and assigns to secure the Finance Obligations; provided, always, and this instrument is upon the express condition that should the Finance Obligations be paid according to the tenor and effect thereof when the same shall be due and payable and should the Mortgagor timely and fully discharge its obligations hereunder, this Mortgage and the estate hereby granted shall cease and become void.
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ARTICLE III
REPRESENTATIONS, WARRANTIES AND
COVENANTS OF THE MORTGAGOR
The Mortgagor agrees, covenants, represents and warrants as follows:
Section 3.01 Title.
(a) The Mortgagor has good and insurable fee simple title to the Land and the Improvements, subject to the Permitted Encumbrances. The Mortgagor has valid leasehold interests in, all of the other Encumbered Property. This Mortgage is and will remain a valid and enforceable first lien on, and security interest in, the Encumbered Property until payment and performance in full of the Finance Obligations, subject to no Liens other than the exceptions and encumbrances set forth in Exhibit B attached hereto and any Liens permitted pursuant to the Credit Agreement (collectively, the Permitted Encumbrances).
(b) Intentionally deleted.
(c) The Mortgagor will forever warrant, defend and preserve its title to the Encumbered Property, the rights of the Mortgagee therein under this Mortgage and the validity and priority of the lien of this Mortgage thereon against the claims of all persons and parties except those having rights under the Permitted Encumbrances to the extent of those rights until payment and performance in full of the Finance Obligations.
Section 3.02 [Reserved]
Section 3.03 [Reserved]
Section 3.04 [Reserved]
Section 3.05 [Reserved]
Section 3.06 [Reserved]
Section 3.07 Finance Documents.
(a) This Mortgage is given pursuant to the Credit Agreement and the other Finance Documents. Each and every term and provision of the Credit Agreement and the other Finance Documents (except for the governing law provisions thereof), including the rights, remedies, obligations, covenants, conditions, agreements, indemnities, representations and warranties of the parties thereto shall be considered as if a part of this Mortgage.
(b) If any remedy or right of the Mortgagee pursuant hereto is acted upon by the Mortgagee or if any actions or proceedings (including any bankruptcy, insolvency or reorganization proceedings) are commenced in which the Mortgagee is made a party and is obliged to defend or uphold or enforce this Mortgage or the rights of the Mortgagee hereunder or the terms of any Lease, the Mortgagor will pay all sums, including reasonable attorneys fees and disbursements, actually incurred (not as imposed by statute) by the Mortgagee related to the exercise of any remedy or right of the Mortgagee pursuant hereto or for the expense of any such action or proceeding together with all statutory or other costs, disbursements and allowances, plus interest thereon accruing from the date such cost is incurred (and payable five (5) business days from the date of written demand for payment thereof) until such sums are paid at the Default Rate, and such sums and the interest thereon shall, to the extent permissible by law, be a lien on the Encumbered Property prior to any right, title to, interest in or claim upon the Encumbered Property attaching or accruing subsequent to the recording of this Mortgage and shall be secured by this Mortgage to the extent permitted by applicable law.
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(c) Any payment of amounts due under this Mortgage not made on or before the due date for such payments shall accrue interest daily without notice from the due date until paid at the Default Rate, and such interest at the Default Rate shall be immediately due upon demand by the Mortgagee, and shall, to the extent permissible by law, be a lien on the Encumbered Property prior to any right, title to, interest in or claim upon the Encumbered Property attaching or accruing subsequent to the recording of this Mortgage and shall be secured by this Mortgage to the extent permitted by applicable law.
Section 3.08 Payment of Taxes, Liens and Charges.
(a) The Mortgagor will pay and discharge from time to time prior to the time when the same shall become delinquent, and before any interest or penalty accrues thereon or attaches thereto, all Impositions, imposed upon or assessed against the Encumbered Property or any part thereof or upon the Rents from the Encumbered Property or arising in respect of the occupancy, use or possession thereof.
(b) In the event of the passage of any state, Federal, municipal or other governmental law, order, rule or regulation subsequent to the date hereof (i) deducting from the value of real property for the purpose of taxation any lien or encumbrance thereon or in any manner changing or modifying the laws now in force governing the taxation of this Mortgage or debts secured by mortgages or deeds of trust (other than laws governing income, franchise and similar taxes generally) or the manner of collecting taxes thereon and (ii) imposing a tax to be paid by the Mortgagee, either directly or indirectly, on this Mortgage, or any other Finance Documents or to require an amount of taxes to be withheld or deducted therefrom, the Mortgagor will promptly notify the Mortgagee of such event. In such event the Mortgagor shall (i) agree to enter into such further instruments as may be reasonably necessary or desirable to obligate the Mortgagor to make any applicable additional payments, and (ii) the Mortgagor shall make all such additional payments.
(c) Mortgagor shall have the right to contest the amount or validity, in whole or in part, of any Impositions, or to seek a reduction in the valuation of the Encumbered Property, or any part thereof, as assessed for real estate or personal property tax purposes, by appropriate proceedings diligently conducted in good faith. Following the occurrence and during the continuance of an Event of Default, Mortgagor may commence such proceedings, however, only after payment of such Impositions, unless such payment would bar any such proceedings or interfere materially and adversely with the prosecution thereof, in which event Mortgagor may postpone or defer payment of such Impositions provided it gives Mortgagee timely notice of same. Upon such postponement or deferral, on Mortgagees demand, (i) Mortgagor shall provide security, for the duration of such proceedings (including any appeals), in such form and amount as shall, in Mortgagees reasonable judgment, assure the discharge of Mortgagors obligations hereunder and of any additional charge, penalty or expense incurred as a result of such proceedings; and (ii) if the Encumbered Property or any part thereof shall, in Mortgagees reasonable judgment, be in imminent danger of being forfeited or lost by reason of such postponement or deferral, Mortgagor shall immediately pay or cause to be paid the Impositions.
(d) If required by the Mortgagee during the continuance of an Event of Default, the Mortgagor shall pay the Mortgagee monthly, together with and in addition to the payments of principal of, premium, if any, and interest on any Finance Obligation, an amount determined by the Mortgagee to be necessary to enable the Mortgagee to pay all Impositions one month before it becomes due. If the total payments made to the Mortgagee pursuant to the preceding sentence are less than the amount required to pay any Imposition one month before it becomes due, the Mortgagor shall pay the Mortgagee, on demand, the amount necessary to make up such deficiency. If there is an excess of such payments, the excess will reduce subsequent payments required under this Section 3.08. To the extent permitted by applicable law, the Mortgagee shall not be required to pay interest on any sums held pursuant to this Section 3.08. If an Event of Default has occurred, the Mortgagee may at its option apply any amounts received pursuant to this Section 3.08 to the payment of the Finance Obligations in such order as the Mortgagee may elect.
Section 3.09 Payment of Closing Costs. The Mortgagor shall pay all reasonable costs in connection with, relating to or arising out of the preparation, execution and recording of this Mortgage, including title company premiums and charges, survey costs, recording fees and taxes, attorneys fees and disbursements, and all other similar expenses of every kind.
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Section 3.10 [Reserved]
Section 3.11 Insurance. The Mortgagor will keep the Encumbered Property insured against such risks in the manner required by the other Finance Documents.
Section 3.12 Casualty; Restoration of Casualty Damage. The Mortgagor shall give the Mortgagee prompt written notice of any fire or other casualty to all or any material portion of the Encumbered Property (a Casualty). In the event of a Casualty, the Net Cash Proceeds with respect to any such Casualty shall be paid and applied in accordance with the Finance Documents.
Section 3.13 Condemnation/Eminent Domain. The Mortgagor shall notify the Mortgagee promptly upon obtaining knowledge of any pending or threatened condemnation or taking of all or any material portion of the Encumbered Property (a Condemnation). In the event of a Condemnation, all Net Cash Proceeds shall be paid and applied in accordance with the Finance Documents.
Section 3.14 Assignment of Leases and Rents.
(a) The Mortgagor hereby irrevocably, unconditionally and absolutely grants, transfers and assigns to the Mortgagee all of its right, title and interest in and to all Leases, together with any and all extensions and renewals thereof for purposes of securing and discharging the Finance Obligations. The Mortgagor has not assigned or executed any assignment of, and will not assign or execute any assignment of, any Lease or its respective Rents to anyone other than to the Mortgagee, other than in connection with the ABL Collateral Documents.
(b) Following the occurrence and during the continuation of an Event of Default, without the Mortgagees prior written consent, which shall not be unreasonably withheld, conditioned or delayed, the Mortgagor will not (i) enter into, modify in any material respect, amend in any material respect, terminate or consent to the cancellation or surrender of any Lease if such entrance, modification, amendment, termination or consent would, in the reasonable judgment of the Mortgagee, be adverse in any material respect to the Secured Parties, the value of the Encumbered Property or the liens and security interests created by this Mortgage or (ii) except for an assignment or subletting which is expressly permitted under the terms of the Lease, consent to an assignment of any tenants interest in any Lease or to a subletting thereof covering a material portion of the Encumbered Property, except, in each case, as may be permitted by this Mortgage or the other Finance Documents.
(c) The Mortgagor has assigned and transferred to the Mortgagee all of the Mortgagors right, title and interest in and to the Rents now or hereafter arising, it being intended that this assignment establish, subject to Section 3.14(d) below, an absolute transfer and assignment of all Rents and all Leases to the Mortgagee and not merely to grant a security interest therein. Such assignment to the Mortgagee shall not be construed to bind the Mortgagee to the performance of any of the covenants, conditions or provisions contained in any Lease or otherwise impose any obligation upon the Mortgagee except that the Mortgagee shall be accountable for any Rents actually received pursuant to the aforesaid assignment. Notwithstanding the foregoing, the Mortgagor shall have the license and right, subject to automatic revocation as provided in Section 3.14(d) below, to operate and rent, lease or let all or any portion of the Encumbered Property and to collect all of the Rents. As provided in Section 3.14(d) below, the license granted by this Section 3.14(c) is subject to automatic revocation and thereafter the Mortgagee may, in the Mortgagors name and stead (with or without first taking possession of any of the Encumbered Property personally or by receiver as provided herein) operate the Encumbered Property and rent, lease or let all or any portion of any of the Encumbered Property to any party or parties at such rental and upon such terms as the Mortgagee shall, in its sole discretion, determine, and may collect and have the benefit of all of such Rents arising from or accruing at any time thereafter or that may thereafter become due.
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(d) As long as no Event of Default has occurred or is continuing, the license granted under Section 3.14(c) above shall be effective and the Mortgagee shall not exercise any of its rights under Section 3.14(c) above, and the Mortgagor shall receive and collect the Rents accruing under any Lease pursuant to the revocable license granted therein; but upon the occurrence and during the continuance of any Event of Default, the license granted under Section 3.14(c) above shall be deemed to be automatically revoked and shall terminate automatically without notice and the Mortgagee shall be entitled to all of the Rents without the necessity of the Mortgagees taking any action whatsoever, and the Rents shall thereupon be deemed to be cash collateral for all purposes, including without limitation for purposes of Section 363 of the Bankruptcy Code. Upon the occurrence and during the continuance of any Event of Default, the Mortgagee may receive and collect all Rents and enter upon the Premises and Improvements through its officers, agents, employees or attorneys for such purpose and for the operation and maintenance thereof. Upon the occurrence and during any continuance of an Event of Default, the Mortgagor hereby irrevocably authorizes and directs each tenant, if any, and each successor, if any, to the interest of any tenant under any Lease, respectively, to rely upon any notice of a claimed Event of Default sent by the Mortgagee to any such tenant or any of such tenants successors in interest, and thereafter to pay Rents to the Mortgagee without any obligation or right to inquire as to whether an Event of Default actually exists and even if notice to the contrary is received from the Mortgagor, who shall have no right or claim against any such tenant or successor in interest for any such Rents so paid to the Mortgagee. Each tenant or any of such tenants successors in interest from whom the Mortgagee or any officer, agent, attorney or employee of the Mortgagee shall have collected any Rents, shall be authorized to pay Rents to the Mortgagor only after such tenant or any of such tenants successors in interest shall have received written notice from the Mortgagee that the Event of Default is no longer continuing, which notice the Mortgagee shall be obligated to give if the Mortgagee determines in its reasonable discretion that such Event of Default is no longer continuing (or if ordered by a court or arbitrator with jurisdiction), unless and until a further notice of an Event of Default is given by the Mortgagee to such tenant or any of such tenants successors in interest.
(e) The Mortgagee will not become a mortgagee in possession so long as it does not enter and take actual possession of the Encumbered Property. In addition, the Mortgagee shall not be responsible or liable for performing any of the obligations of the landlord under any Lease, for any waste by any tenants, or others, for any dangerous or defective conditions of any of the Encumbered Property, for negligence in the management, upkeep, repair or control of any of the Encumbered Property or any other act or omission by any other person, except in the event the Mortgagee takes possession of the Encumbered Property, but only for occurrences or non-occurrences arising or accruing subsequent to such taking of possession of the Encumbered Property.
(f) The Mortgagor shall furnish to the Mortgagee, within 30 days after a request by the Mortgagee to do so, a written statement containing the names of all tenants, subtenants and concessionaires of the Premises or Improvements, the terms of any Lease, the space occupied and the rentals or license fees payable thereunder.
(g) If an Event of Default occurs, and if there is any applicable law requiring the Mortgagee to take actual or constructive possession of the Premises (or some action equivalent thereto, such as securing the appointment of a receiver) in order for the Mortgagee to perfect or activate its rights and remedies as set forth herein, the Mortgagor hereby waives the benefits of any such laws to the maximum extent allowable.
Section 3.15 Restrictions on Transfers and Encumbrances. Except as permitted hereby or by the Finance Documents, the Mortgagor shall not directly or indirectly sell, convey, alienate, mortgage, pledge, encumber or create, consent to or suffer the creation of any lien or charge upon any interest in or any part of the Encumbered Property.
Section 3.16 Security Agreement. This Mortgage is both a mortgage and grant of real property and a grant of a security interest in personal property, and shall constitute and serve as a security agreement within the meaning of the UCC. The Mortgagor hereby grants unto the Mortgagee for the benefit of the
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Secured Parties a security interest in and to all the Encumbered Property described in this Mortgage that is not real property, and substantially contemporaneously with the recording of this Mortgage, the Mortgagor has filed or will file UCC financing statements, and will file continuation statements prior to the lapse thereof, at the appropriate offices in the state in which the Premises are located and otherwise may be required or advisable to perfect the security interest granted by this Mortgage in all the Encumbered Property that is not real property. The Mortgagor hereby appoints the Mortgagee as its true and lawful attorney-in-fact and agent, for the Mortgagor and in its name, place and stead, in any and all capacities, to execute any document and to file the same in the appropriate offices (to the extent it may lawfully do so), and to perform each and every act and thing requisite and necessary to be done to perfect the security interest hereby granted. The Mortgagee shall have all rights with respect to the part of the Encumbered Property that is the subject of a security interest afforded by the UCC in addition to, but not in limitation of, the other rights afforded the Mortgagee hereunder. The Mortgagor agrees, to the extent permitted by law, that: (i) all of the goods described within the definition of the word Personal Property are or are to become fixtures on the Land; (ii) this Mortgage upon recording or registration in the real estate records of the proper office shall constitute a financing statement filed as a fixture filing within the meaning of Section 9-502(c) of the UCC; (iii) the Mortgagor is the record owner of the Premises; and (iv) the addresses of Mortgagor and Mortgagee are as set forth in Section 5.02 of this Mortgage. Additionally, this Mortgage shall constitute a financing statement covering fixtures and/or minerals or the like (including oil and gas) and/or accounts resulting from the sale thereof at the wellhead or minehead and, as such, shall be filed for record in the real estate records of each county in which the Land, or any part thereof, is located.
Section 3.17 Filing and Recording. The Mortgagor will cause this Mortgage, any other security instrument creating a security interest in or evidencing the lien hereof upon the Encumbered Property and each instrument of further assurance to be filed, registered or recorded in such manner and in such places as may be required by any present or future law in order to publish notice of and to protect fully the liens and security interests of the Mortgagee hereby granted in and upon the Encumbered Property. The Mortgagor will pay all filing, registration or recording fees, and all expenses incidental to the execution and acknowledgment of this Mortgage, any mortgage supplemental hereto, any security instrument with respect to the Encumbered Property, and any instrument of further assurance and all Federal, state, county and municipal recording, documentary or intangible taxes and other taxes, duties, imposts, assessments and charges arising out of or in connection with the execution, delivery and recording of this Mortgage, any mortgage supplemental hereto, any security instrument with respect to the Encumbered Property or any instrument of further assurance.
Section 3.18 Further Assurances. Upon demand by the Mortgagee, the Mortgagor will, at the sole cost of the Mortgagor and without expense to the Mortgagee, do, execute, acknowledge and deliver all such further acts, deeds, conveyances, deeds of trust, assignments, notices of assignment, transfers and assurances as the Mortgagee shall from time to time reasonably require as necessary for the assuring, conveying, assigning, transferring and confirming unto the Mortgagee the property and rights hereby conveyed or assigned or intended now or hereafter so to be, or which the Mortgagor may be or may hereafter become bound to convey or assign to the Mortgagee, or for carrying out the intention or facilitating the performance of the terms of this Mortgage, or for filing, registering or recording this Mortgage, and on demand, the Mortgagor will also execute and deliver and hereby appoints the Mortgagee as its true and lawful attorney-in-fact and agent for the Mortgagor and in its name, place and stead, in any and all capacities, to execute and file to the extent it may lawfully do so, one or more financing statements, chattel mortgages or comparable security instruments reasonably required by the Mortgagee to evidence or perfect the liens and security interests hereby granted and to perform each and every act and thing requisite and necessary to be done to accomplish the same.
Section 3.19 Additions to Encumbered Property. All right, title and interest of the Mortgagor in and to all extensions, improvements, betterments, renewals, substitutes and replacements of, and all additions and appurtenances to, the Encumbered Property hereafter acquired by or released to the Mortgagor or constructed, assembled or placed by the Mortgagor upon the Premises or the Improvements, and all conversions of the security constituted thereby, immediately upon such acquisition, release, construction, assembling, placement or conversion, as the case may be, and in each such case without any further mortgage, conveyance, assignment or other act by the Mortgagor, shall become subject to the liens and security interests of this Mortgage as fully and
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completely and with the same effect as though now owned by the Mortgagor and specifically described in the grant of the Encumbered Property above, but at any and all times the Mortgagor will execute and deliver to the Mortgagee any and all such further assurances, mortgages, conveyances or assignments thereof as the Mortgagee may reasonably require for the purpose of expressly and specifically subjecting the same to the liens and security interests of this Mortgage.
Section 3.20 No Claims Against the Mortgagee. Nothing contained in this Mortgage shall constitute any consent or request by the Mortgagee, express or implied, for the performance of any labor or services or the furnishing of any materials or other property in respect of the Encumbered Property or any part thereof, nor as giving the Mortgagor any right, power or authority to contract for or permit the performance of any labor or services or the furnishing of any materials or other property in such fashion as would permit the making of any claim against the Mortgagee in respect thereof.
Section 3.21 Intentionally deleted.
ARTICLE IV
DEFAULTS AND REMEDIES
Section 4.01 Events of Default. It shall be an Event of Default under this Mortgage if any Event of Default shall exist under any Finance Document.
Section 4.02 Demand for Payment. Upon the occurrence and during the continuation of any Event of Default, in addition to any other rights and remedies the Mortgagee may have pursuant to the Finance Documents, or as provided at law or in equity, and without limitation, the Finance Obligations and all other amounts payable with respect to the Term Loans, the Credit Agreement, this Mortgage and all other Finance Documents shall become due and payable as provided therein. The Mortgagor shall pay to the Mortgagee within the time period set forth in the Finance Documents (or if no time period is specified therein, promptly after written demand by Mortgagee) all such amounts and such further amounts as shall be reasonably incurred (without regard to statutory presumption) to cover the costs and expenses of collection, including reasonable attorneys fees, disbursements and expenses incurred by the Mortgagee. The Mortgagor hereby waives notice of presentment, demand, protest, acceleration and notice of acceleration to the maximum extent permitted by applicable law. In case the Finance Parties shall fail forthwith to pay such amounts or any amounts due under the Finance Documents or any provision of this Mortgage within the time period set forth in the Finance Documents (or if no time period is specified therein, promptly after written demand by Mortgagee), the Mortgagee, in addition to any other rights or remedies provided herein or at law or equity, shall be entitled and empowered to institute an action or proceedings at law or in equity for the collection of the sums so due and unpaid, to prosecute any such action or proceedings to judgment or final decree, to enforce any such judgment or final decree against the Mortgagor and to collect, in any manner provided by law, all moneys adjudged or decreed to be payable.
Section 4.03 Rights to Take Possession, Operate and Apply Revenues.
(a) If an Event of Default shall occur and be continuing, the Mortgagor shall, upon demand of the Mortgagee, forthwith surrender to the Mortgagee actual possession of the Encumbered Property and, if and to the extent permitted by applicable law, the Mortgagee itself, or by such officers or agents as it may appoint, may then enter and take possession of all the Encumbered Property with or without the appointment of a receiver or an application therefor, exclude the Mortgagor and its agents and employees wholly therefrom, and have access to the books, papers and accounts of the Mortgagor.
(b) If the Mortgagor shall for any reason fail to surrender or deliver the Encumbered Property or any part thereof after such demand by the Mortgagee, the Mortgagee may obtain a judgment or decree conferring upon the Mortgagee the right to immediate possession or requiring the Mortgagor to deliver immediate possession of the Encumbered Property to the Mortgagee, to the entry of which judgment or decree the Mortgagor hereby specifically consents. The Mortgagor will pay to the Mortgagee, upon demand, all reasonable expenses of obtaining
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such judgment or decree, including compensation to the Mortgagees attorneys (for reasonable fees actually incurred (not as imposed by statute)) and agents with interest thereon at the Default Rate; and all such expenses and compensation shall, until paid, be secured by this Mortgage.
(c) If an Event of Default shall occur and be continuing, the Mortgagee may hold, store, use, operate, manage and control the Encumbered Property, conduct the business thereof and, from time to time, (i) make all necessary, proper and reasonable maintenance, repairs, renewals, replacements, additions, betterments and improvements thereto and thereon, (ii) purchase or otherwise acquire additional fixtures, personalty and other property, (iii) insure or keep the Encumbered Property insured, (iv) manage and operate the Encumbered Property and exercise all the rights and powers of the Mortgagor to the same extent as the Mortgagor could in its own name or otherwise with respect to the same or (v) enter into any and all agreements with respect to the exercise by others of any of the powers herein granted to the Mortgagee, all as may from time to time be directed or determined by the Mortgagee to be in its best interest and the Mortgagor hereby appoints the Mortgagee as its true and lawful attorney-in-fact and agent, for the Mortgagor and in its name, place and stead, in any and all capacities, to perform any of the foregoing acts. Regardless of whether or not the Mortgagee has entered or taken possession, the Mortgagee may collect and receive all the Rents, issues, profits and revenues from the Encumbered Property, including those past due as well as those accruing thereafter, and, after deducting (i) all expenses of taking, holding, managing and operating the Encumbered Property (including compensation for the services of all persons employed for such purposes), (ii) the costs of all such maintenance, repairs, renewals, replacements, additions, betterments, improvements, purchases and acquisitions, (iii) the costs of insurance, (iv) such taxes, assessments and other similar charges as the Mortgagee may at its option pay, (v) other proper charges upon the Encumbered Property or any part thereof and (vi) the compensation, expenses and disbursements of the attorneys and agents of the Mortgagee, the Mortgagee shall apply the remainder of the moneys and proceeds so received first to the payment of the Mortgagee for the payment in full and satisfaction of the Finance Obligations, and second, if there is any surplus, to the Mortgagor, subject to the entitlement of others thereto under applicable law.
(d) Whenever, before any sale of the Encumbered Property under Section 4.06 hereof, Discharge of Finance Obligations shall have occurred, the Mortgagee will surrender possession of the Encumbered Property back to the Mortgagor, its successors or assigns. The same right of taking possession shall, however, arise again if any subsequent Event of Default shall occur and be continuing.
Section 4.04 Right to Cure the Mortgagors Failure to Perform. During the continuance of an Event of Default, without notice to Mortgagor, should the Mortgagor fail in the payment, performance or observance of any term, covenant or condition required by this Mortgage or any other Finance Document (with respect to the Encumbered Property), the Mortgagee may pay, perform or observe the same, and all payments made or costs or expenses incurred by the Mortgagee in connection therewith shall be secured hereby and shall be, without demand, immediately repaid by the Mortgagor to the Mortgagee with interest thereon at the Default Rate. The Mortgagee shall make the determination as to the necessity for any such actions and of the amounts to be paid. The Mortgagee is hereby empowered to enter and to authorize others to enter upon the Premises or the Improvements or any part thereof for the purpose of performing or observing any such defaulted term, covenant or condition without having any obligation to so perform or observe and without thereby becoming liable to the Mortgagor, to any person in possession holding under the Mortgagor or to any other person.
Section 4.05 Right to a Receiver. If an Event of Default shall occur and be continuing, the Mortgagee, upon application to a court of competent jurisdiction, shall be entitled as a matter of right to the appointment of a receiver to take possession of and to operate the Encumbered Property and to collect and apply the Rents. The Mortgagor hereby consents to such appointment and acknowledges and agrees that the Mortgagee shall be entitled to such appointment without notice and without regard for the adequacy of security for the Finance Obligations or the solvency of the Mortgagor or any party liable for the Finance Obligations. The receiver shall have all of the rights and powers permitted under the laws of the state wherein the Encumbered Property is located. The Mortgagor will pay to the Mortgagee upon demand all expenses, including receivers fees, attorneys fees and disbursements that are actually incurred (not as imposed by statute), costs and agents compensation incurred pursuant to the provisions of this Section 4.05; and all such expenses shall be secured by this Mortgage and shall be, without demand, immediately repaid by the Mortgagor to the Mortgagee with interest thereon at the Default Rate.
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Section 4.06 Foreclosure and Sale.
(a) If an Event of Default shall occur and be continuing, the Mortgagee may elect to sell the Encumbered Property or any part of the Encumbered Property by exercise of the power of foreclosure or of sale granted to the Mortgagee by applicable law, this Mortgage or any other Finance Document. In such case, the Mortgagee may commence a civil action to foreclose this Mortgage, in accordance with applicable law, to satisfy any Finance Obligation. The Mortgagee or an officer appointed by a judgment of foreclosure to sell the Encumbered Property, may sell all or such parts of the Encumbered Property as may be chosen by the Mortgagee at the time and place of sale fixed by it in a notice of sale, either as a whole or in separate lots, parcels or items as the Mortgagee shall deem expedient, and in such order as it may determine, at public auction to the highest bidder. The Mortgagee or an officer appointed by a judgment of foreclosure to sell the Encumbered Property may postpone any foreclosure or other sale of all or any portion of the Encumbered Property by public announcement at such time and place of sale, and from time to time as permitted by applicable law thereafter may postpone such sale by public announcement or subsequently noticed sale. Except as otherwise required by applicable law, without further notice, the Mortgagee or an officer appointed to sell the Encumbered Property may make such sale at the time fixed by the last postponement, or may, in its discretion, give a new notice of sale. Any person, including the Mortgagor or the Mortgagee or any designee or affiliate thereof, may purchase any portion of the Encumbered Property at such sale. If the Mortgagee, or any affiliate of the Mortgagee, is the highest bidder at any foreclosure sale, the Mortgagee may credit the Finance Obligations for the amount of the Mortgagees bid in lieu of a cash payment. Mortgagor authorizes and empowers the Mortgagee to execute and deliver to the purchaser or purchasers at any such foreclosure sale, good and sufficient deed(s) and/or bill(s) of sale of the Encumbered Property, or the part thereof foreclosed upon, all with covenants of general warranty binding on Mortgagor and Mortgagors successors and assigns.
(b) The Encumbered Property may be sold subject to unpaid taxes and the Permitted Encumbrances, and after deducting all the reasonable actual costs, fees and expenses of the Mortgagee, including, without limitation, costs of evidence of title in connection with the sale, the Mortgagee or an officer that makes any sale shall apply the proceeds of sale in the manner set forth in Section 4.08 hereof.
(c) Any foreclosure or other sale of less than the whole of the Encumbered Property or any defective or irregular sale made hereunder shall not exhaust the power of foreclosure or of sale provided for herein; and subsequent sales may be made hereunder until Discharge of Finance Obligations shall have occurred, or the entirety of the Encumbered Property has been sold.
(d) If an Event of Default shall occur and be continuing, the Mortgagee may instead of, or in addition to, exercising the rights described in Section 4.06(a) above and either with or without entry or taking possession as herein permitted, proceed by a suit or suits in law or in equity or by any other appropriate proceeding or remedy (i) to specifically enforce payment of some or all of the terms of the Finance Documents or the performance of any term, covenant, condition or agreement of this Mortgage or any other right or (ii) to pursue any other remedy available to it, at law or in equity, all as the Mortgagee shall determine most effectual for such purposes.
Section 4.07 Other Remedies.
(a) In case an Event of Default shall occur and be continuing, the Mortgagee may also exercise, to the extent not prohibited by applicable law, any or all of the remedies available to a secured party under the UCC, including, to the extent not prohibited by applicable law, the following:
(i) in the case of personal property, exercise those rights and remedies under the Security Agreement;
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(ii) to make such payments and do such acts as the Mortgagee may deem necessary to protect its security interest in the Personal Property including paying, purchasing, contesting or compromising any encumbrance, charge or lien that is prior or superior to the security interest granted hereunder, and, in exercising any such powers or authority, paying all expenses incurred in connection therewith; or
(iii) to enter upon any or all of the Premises or Improvements to exercise the Mortgagees rights hereunder.
(b) In connection with a sale of the Encumbered Property and the application of the proceeds of sale as provided in Section 4.08 of this Mortgage, the Mortgagee shall be entitled to enforce payment of and to receive up to the principal amount of the Finance Obligations, plus all other charges, payments and costs due under this Mortgage, and to recover a deficiency judgment for any portion of the aggregate principal amount of the Finance Obligations remaining unpaid, with interest.
Section 4.08 Application of Sale of Proceeds and Rents.
(a) After any foreclosure sale of all or any of the Encumbered Property, the Mortgagee shall receive the proceeds of sale, no purchaser shall be required to see to the application of the proceeds, and the Mortgagee shall apply the proceeds of the sale together with any Rents that may have been collected and any other sums that then may be held by the Mortgagee under this Mortgage as set forth in Article IV of the Equal Priority Intercreditor Agreement.
(b) It is understood that nothing contained in this Mortgage shall exculpate the Mortgagor as to, or otherwise limit the liability of the Mortgagor for, any deficiency between the amount of the proceeds of the Encumbered Property and the amount of the Finance Obligations, unless otherwise expressly provided in this Mortgage or any of the other Finance Documents.
Section 4.09 The Mortgagor as Tenant Holding Over. If the Mortgagor remains in possession of any of the Encumbered Property after any foreclosure sale by the Mortgagee, at the Mortgagees election the Mortgagor shall be deemed a tenant holding over and shall forthwith surrender possession to the purchaser or purchasers at such sale or be summarily dispossessed or evicted according to provisions of law applicable to tenants holding over.
Section 4.10 Waiver of Appraisement, Valuation, Stay, Extension and Redemption Laws.
(a) The Mortgagor will not object to any sale of the Encumbered Property made in accordance with the terms and conditions hereof, and for itself and all who may claim under it, the Mortgagor waives, to the extent that it lawfully may, all right to have the Encumbered Property marshaled or to have the Encumbered Property sold as separate estates, parcels, tracts or units in the event of any foreclosure of this Mortgage.
(b) To the full extent permitted by the law of the state wherein the Encumbered Property is located or other applicable law, neither the Mortgagor nor anyone claiming through or under it shall or will set up, claim or seek to take advantage of any appraisement, valuation, stay, extension, homestead-exemption or redemption laws now or hereafter in force in order to prevent or hinder the enforcement or foreclosure of this Mortgage, the absolute sale of the Encumbered Property or the final and absolute putting of the purchasers into possession thereof immediately after any sale; and the Mortgagor, for itself and all who may at any time claim through or under it, hereby waives to the full extent that it may lawfully do so, the benefit of all such laws and any and all right to have the assets covered by the security interest created hereby marshaled upon any foreclosure of this Mortgage.
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Section 4.11 Discontinuance of Proceedings. In case the Mortgagee shall proceed to enforce any right, power or remedy under this Mortgage by foreclosure, entry or otherwise, and such proceedings shall be discontinued or abandoned for any reason, or shall be determined adversely to the Mortgagee, then and in every such case the Mortgagor and the Mortgagee shall be restored to their former positions and rights hereunder, and all rights, powers and remedies of the Mortgagee shall continue as if no such proceeding had been taken.
Section 4.12 Suits to Protect the Encumbered Property. The Mortgagee shall have power (i) to institute and maintain suits and proceedings to prevent any impairment of the Encumbered Property by any acts which may be unlawful or in violation of this Mortgage, (ii) to preserve or protect its interest in the Encumbered Property and in the Rents arising therefrom and (iii) to restrain the enforcement of or compliance with any legislation or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid if the enforcement of or compliance with such enactment, rule or order would impair the security or be prejudicial to the interest of the Mortgagee hereunder.
Section 4.13 Filing Proofs of Claim. In case of any receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment, composition or other proceedings affecting the Mortgagor, the Mortgagee shall, to the extent permitted by applicable law, be entitled to file such proofs of claim and other documents as may be necessary or advisable in order to have the claims of the Mortgagee allowed in such proceedings for the Finance Obligations secured by this Mortgage at the date of the institution of such proceedings and for any interest accrued, late charges and additional interest or other amounts due or that may become due and payable hereunder after such date.
Section 4.14 Possession by the Mortgagee. Notwithstanding the appointment of any receiver, liquidator or trustee of the Mortgagor, any of its property or the Encumbered Property, the Mortgagee shall be entitled, to the extent not prohibited by applicable law, to remain in possession and control of all parts of the Encumbered Property now or hereafter granted under this Mortgage in accordance with the terms hereof and applicable law.
Section 4.15 Waiver.
(a) No delay or failure by the Mortgagee to exercise any right, power or remedy accruing upon any Event of Default shall exhaust or impair any such right, power or remedy or be construed to be a waiver of any such Event of Default or acquiescence therein unless otherwise expressly consented to in writing by the Mortgagee; and every right, power and remedy given by this Mortgage to the Mortgagee may be exercised from time to time and as often as may be deemed expedient by the Mortgagee. No consent or waiver by the Mortgagee to or of any Event of Default by the Mortgagor in the performance of the Finance Obligations shall be deemed or construed to be a consent or waiver to or of any other Event of Default in the performance of the same or any other Finance Obligations by the Mortgagor hereunder. No failure on the part of the Mortgagee to complain of any act or failure to act or to declare an Event of Default, irrespective of how long such failure continues, shall constitute a waiver by the Mortgagee of its rights hereunder or impair any rights, powers or remedies consequent on any future Event of Default by the Mortgagor.
(b) Even if the Mortgagee (i) grants some forbearance or an extension of time for the payment of any sums secured hereby, (ii) takes other or additional security for the payment of any sums secured hereby, (iii) waives or does not exercise some right granted herein or under the Finance Documents, (iv) releases a part of the Encumbered Property from this Mortgage, (v) agrees to change some of the terms, covenants, conditions or agreements of any of the Finance Documents, (vi) consents to the filing of a map, plat or replat affecting the Premises, (vii) consents to the granting of an easement or other right affecting the Premises or (viii) makes or consents to an agreement subordinating the Mortgagees lien on the Encumbered Property hereunder; no such act or omission shall preclude the Mortgagee from exercising any other right, power or privilege herein granted or intended to be granted in the event of any Event of Default then made or of any subsequent Event of Default; nor, except as otherwise expressly provided in an instrument executed by the Mortgagee, shall this Mortgage be altered thereby. In the event of the sale or transfer by operation of law or otherwise of all or part of the Encumbered
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Property, the Mortgagee is hereby authorized and empowered to deal with any vendee or transferee with reference to the Encumbered Property secured hereby, or with reference to any of the terms, covenants, conditions or agreements hereof, as fully and to the same extent as it might deal with the original parties hereto and without in any way releasing or discharging any liabilities, obligations or undertakings.
Section 4.16 Remedies Cumulative. No right, power or remedy conferred upon or reserved to the Mortgagee by this Mortgage is intended to be exclusive of any other right, power or remedy, and each and every such right, power and remedy shall be cumulative and concurrent and in addition to any other right, power and remedy given hereunder or now or hereafter existing at law or in equity or by statute.
ARTICLE V
MISCELLANEOUS
Section 5.01 Partial Invalidity. If any provision hereof or of any of the other Finance Documents is invalid or unenforceable in any jurisdiction or under any circumstances, the other provisions hereof or of those Finance Documents shall remain in full force and effect in such jurisdiction and the remaining provisions hereof will be liberally construed in favor of the Mortgagee in order to carry out the provisions hereof and of such other Finance Documents. The invalidity of any provision of this Mortgage in any jurisdiction or under any circumstances will not affect the validity or enforceability of any such provision in any other jurisdiction or under any other circumstances. If any lien, encumbrance or security interest evidenced or created by this Mortgage is invalid or unenforceable, in whole or in part, as to any part of the Finance Obligations, or is invalid or unenforceable, in whole or in part, as to any part of the Encumbered Property, such portion, if any, of the Finance Obligations as is not secured by all of the Encumbered Property hereunder shall be paid prior to the payment of the portion of the Finance Obligations and shall, unless prohibited by applicable laws or unless Mortgagee, in its sole and absolute discretion, otherwise elects, be deemed to have been first paid on and applied to payment in full of the unsecured or partially secured portion of the Finance Obligations, and the remainder to the secured portion of the Finance Obligations.
Section 5.02 Notices. Unless otherwise specified herein, all notices, demands, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile transmission or similar writing) and shall be given to such party (i) at its address set forth below or (ii) such other facsimile number or telex number such other address, facsimile number or telex number as the party entitled to such notice shall have specified by at least ten days prior notice given to the other parties in the manner provided herein.
(a) | To the Mortgagee: |
Bank of America, N.A.
Mail Code: IL4-135-05-41
135 S. LaSalle Street
Chicago, Illinois 60603
Attention: Christine Trotter
Telecopier: (877) 207-0702
with a copy to:
Viktor Okasmaa
Fried, Frank, Harris, Shriver & Jacobson LLP.
One New York Plaza
New York, NY 10004
E-Mail: viktor.okasmaa@friedfrank.com
Telephone: (212) 859-8472
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(b) | To the Mortgagor: |
[Mortgagor Name]
[Mortgagor Notice Address]
Attn:
with a copy to:
[contact]
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, NY 10017-3954
E-Mail:
Telephone:
Each such notice, demand, request and other communication shall be effective (i) effective (i) if given by telex, when such telex is transmitted to the telex number specified in this Section 5.02 and the appropriate answerback is received, (ii) if given by facsimile transmission, when transmitted to the facsimile number specified in this Section and confirmation of receipt is received, (iii) if given by mail, 48 hours after such communication is deposited, certified mail, return receipt requested, in the mails with appropriate first class postage prepaid, addressed as aforesaid or (iv) if given by other means, when delivered at the address specified in this Section 5.02 deemed to have been given upon the earlier of (i) delivery at the appropriate address specified above, whether in person, by express courier or by mail, or (ii) two days after the postmark date of mailing. Rejection or other refusal to accept or the inability to deliver because of a changed address of which no notice was given shall not invalidate the effectiveness of any notice, demand, request or other communication.
Section 5.03 Successors and Assigns. The Mortgagee shall have the right to assign or transfer its rights under this Mortgage without limitation. Any assignee or transferee shall be entitled to all the benefits afforded the Mortgagee under this Mortgage.
Section 5.04 Satisfaction and Cancellation.
(a) The conveyance to the Mortgagee of the Encumbered Property as security and for the benefit of the Mortgagee created and consummated by this Mortgage shall be null and void when Discharge of Finance Obligations has occurred.
(b) In connection with any termination or release pursuant to paragraph (a) to the extent applicable, this Mortgage shall be marked satisfied by the Mortgagee, and this Mortgage may be cancelled of record at the request and at the expense of the Mortgagor. The Mortgagee shall execute any documents reasonably requested by the Mortgagor to accomplish the foregoing or to accomplish any release contemplated by this Section 5.04, and the Mortgagor will pay all costs and expenses, including attorneys fees and disbursements actually incurred (not as imposed by statute) by the Mortgagee in connection with the preparation and execution of such documents.
Section 5.05 Other Finance Documents. The Mortgagor acknowledges that in addition to this Mortgage, other Finance Documents secure the Finance Obligations. The Mortgagor agrees that the lien of this Mortgage shall be absolute and unconditional and shall not in any manner be affected or impaired by any acts or omissions whatsoever of the Mortgagee and, without limiting the generality of the foregoing, the lien hereof shall not be impaired by any acceptance by the Mortgagee of any security for or guarantees of any of the Finance Obligations hereby secured, or by any failure, neglect or omission on the part of the Mortgagee to realize upon or protect any Finance Obligation hereby secured or any collateral security therefor including the other Finance Documents. The lien hereof shall not in any manner be impaired or affected by any release (except as to the property released), sale, pledge, surrender, compromise, settlement, renewal, extension, indulgence, alteration, changing, modification or disposition of any of the Finance Obligations or of any of the collateral security therefor,
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including the other Finance Documents or of any guarantee thereof, and the Mortgagee may at its discretion foreclose, exercise any power of sale, or exercise any other remedy available to it under any or all of the other Finance Documents without first exercising or enforcing any of its rights and remedies hereunder. Such exercise of the Mortgagees rights and remedies under any or all of the other Finance Documents shall not in any manner impair the Finance Obligations or the lien of this Mortgage and any exercise of the rights or remedies of the Mortgagee hereunder shall not impair the lien of any of the other Finance Documents or any of the Mortgagees rights and remedies thereunder. The undersigned specifically consents and agrees that the Mortgagee may exercise its rights and remedies hereunder and under the other Finance Documents separately or concurrently and in any order that it may deem appropriate, and the undersigned waives any rights of subrogation. In the event of a conflict between the terms and provisions of this Mortgage and any other Finance Document, both documents shall be read together and construed, to the fullest extent possible, to be in concert with each other. In the event of a conflict that cannot be resolved, the terms and provisions of the Credit Agreement or the Security Agreement shall control and govern irrespective of the provisions of this Mortgage.
Section 5.06 Subrogation. This Mortgage is made with full substitution and subrogation of Mortgagee in and to all covenants and warranties by others heretofore given or made in respect of the Encumbered Property or any part thereof. To the extent that proceeds of the Finance Obligations are used to pay any outstanding lien, charge or prior encumbrance against the Encumbered Property, such proceeds have been or will be advanced by Mortgagee at Mortgagors request, and Mortgagee shall be subrogated to any and all rights and liens held by any owner or holder of such outstanding liens, charges and prior encumbrances, irrespective of whether those liens, charges or encumbrances are released.
Section 5.07 Mortgagee Powers. Without affecting the liability of any other Person liable for the payment of any obligations herein mentioned and without affecting the lien or charge of this Mortgage upon any portion of the Encumbered Property not then or theretofore released as security for the full amount of all unpaid Finance Obligations, from time to time, regardless of consideration and without notice to or consent by the holder of any subordinate lien, encumbrance, right, title or interest in or to the Encumbered Property, the Mortgagee may in accordance with the express terms and provisions of the Finance Documents (i) release any persons liable for or on any Finance Obligation, (ii) extend the maturity or alter any of the terms of any Finance Obligation, (iii) modify the interest rate payable on the principal balance of the Finance Obligations, (iv) grant other indulgences, (v) release or reconvey, or cause to be released or reconveyed at any time at the Mortgagees option any parcel, portion or all of the Encumbered Property, (vi) take or release any other or additional security for any obligations herein mentioned or (vii) make compositions or other arrangements with debtors in relation thereto.
Section 5.08 Enforceability of Mortgage. This Mortgage is deemed to be and may be enforced from time to time as an assignment, chattel mortgage, contract, mortgage, deed to secure debt, deed of trust, financing statement, real estate mortgage or security agreement, and from time to time as any one or more thereof, as is appropriate under applicable laws. A carbon, photographic or other reproduction of this Mortgage or any financing statement in connection herewith shall be sufficient as a financing statement for any and all purposes.
Section 5.09 Amendments. Any provision of this Agreement may be amended, modified or waived if, but only if, such amendment or waiver is in writing and is signed by the Mortgagor and the Mortgagee. No failure by the Mortgagee to exercise, and no delay by the Mortgagee in exercising, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.
Section 5.10 Applicable Law. THIS MORTGAGE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE WHERE THE LAND IS LOCATED.
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Section 5.11 Waiver of Jury Trial. EACH OF THE MORTGAGOR AND THE MORTGAGEE (BY THE MORTGAGEES ACCEPTANCE OF THIS MORTGAGE AND IN CONSIDERATION OF THE DELIVERY OF THE OTHER FINANCE DOCUMENTS) HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND FOREVER WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS MORTGAGE, OR THE OTHER FINANCE DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY EACH OF THE MORTGAGOR AND THE MORTGAGEE, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. EACH OF THE MORTGAGEE AND THE MORTGAGOR IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY THE OTHER PARTY.
Section 5.12 Intercreditor Agreements. This Mortgage and any lien created herein are subject to the lien priority and other provisions set forth in the Intercreditor Agreements.
Section 5.13 Local Law Provisions. By virtue of the fact that the Premises are located in the State of [ ], the provisions set forth below shall be applicable to this Mortgage, and to the extent applicable, shall modify, affect and supplement the other provisions hereof. [To be added as necessary by Local Counsel.]
[Remainder of page intentionally left blank.
Signature page follows.]
- 19 -
IN WITNESS WHEREOF, this Mortgage has been duly authorized and has been executed and delivered, under seal, to the Mortgagee by the Mortgagor on the date first above written.
[MORTGAGOR NAME] | ||
By: |
| |
Name: | ||
Title: |
S-1
[LOCAL COUNSEL TO AFFIX APPROPRIATE NOTARIAL ACKNOWLEDGMENT
FOR STATE IN WHICH LAND IS LOCATED.]
S-2
Exhibit A
Legal Description
[To be attached]
A-1
Exhibit B
Permitted Encumbrances
[To be attached]
B-1
Schedule 3.01(j)
Leases
[To be attached]
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the use in this Registration Statement on Form S-1/A of ATD Corporation of our report dated June 16, 2014 relating to the financial statements and financial statement schedule of ATD Corporation, which appears in such Registration Statement. We also consent to the reference to us under the heading Experts in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Charlotte, North Carolina
September 11, 2014
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the use in this Registration Statement on Form S-1/A of ATD Corporation of our reports dated February 28, 2014, except with respect to Note 15 as to which the date is June 16, 2014, and our report dated April 30, 2013, except with respect to Note 14 as to which the date is June 16, 2014, relating to the financial statements of TTT Holdings, Inc., which appear in such Registration Statement. We also consent to the reference to us under the heading Experts in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Columbus, OH
September 11, 2014
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in this Registration Statement on Form S-1 of our report dated December 19, 2013 relating to the consolidated financial statements of The Hercules Tire & Rubber Company and Subsidiaries as of and for the years ended October 31, 2013 and 2012, and the consolidated schedule of adjusted EBITDA for the years ended October 31, 2013 and 2012, which appear in such Registration Statement. We also consent to the reference to us under the heading Experts in such Registration Statement.
/s/ Plante & Moran, PLLC
Auburn Hills, Michigan
September 11, 2014
Exhibit 23.4
Consent of Independent Auditors
We consent to the use in this Amendment No. 3 to Registration Statement No. 333-196816 of our report dated April 25, 2013 related to the consolidated financial statements of Regional Tire Distributors Inc. as of and for the years ended January 31, 2013 and 2012 appearing in the prospectus, which is part of this Registration Statement, and to the reference to us under the heading Experts in such prospectus.
/s/ Deloitte LLP
Chartered Professional Accountants, Chartered Accountants
Licensed Public Accountants
September 11, 2014
Burlington, Canada
Exhibit 23.5
Consent of Independent Registered Public Accounting Firm
We hereby consent to the use in this Amended Registration Statement on Form S-1 of our report dated January 7, 2013, relating to the financial statements of Triwest Trading (Canada) Ltd., which appears in such Amended Registration Statement. We also consent to the reference to us under the heading Experts in such Amended Registration Statement.
/S/ KBH |
Chartered Accountants |
Edmonton, Alberta
September 10, 2014
Exhibit 23.6
Collins Barrow Edmonton LLP 2380 Commerce Place 10155 102 Street N.W. Edmonton, Alberta T5J 4G8 Canada
T. 780.428.1522 F. 780.425.8189
www.collinsbarrow.com |
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in the Registration Statement on Form S-1A of ATD Corporation of our report dated June 20, 2014, except with respect to Note 14 (footnotes (a), (c), and (d)) which the date is August 18, 2014, relating to the financial statements of Trail Tire Distributors Ltd. as of and for the two years ended February 28, 2014 and February 28, 2013 which appears in such Registration Statement. We also consent to the reference to us under the heading Experts in such Registration Statement.
Collins Barrow Edmonton LLP
Chartered Accountants
September 11, 2014
This office is independently owned and operated by Collins Barrow Edmonton LLP The Collins Barrow trademarks are used under License. |
Exhibit 23.7
Collins Barrow Edmonton LLP | ||||
2380 Commerce Place | ||||
10155 102 Street N.W. | ||||
Edmonton, Alberta | ||||
T5J 4G8 Canada | ||||
T. 780.428.1522 | ||||
F. 780.425.8189 | ||||
www.collinsbarrow.com |
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in the Registration Statement on Form S-1A of ATD Corporation of our report dated June 20, 2014, except with respect to Note 12 (footnotes (a) and (c)) which the date is August 18, 2014, relating to the financial statements of Extreme Wheel Distributors Ltd. as of and for the two years ended February 28, 2014 and February 28, 2013 which appears in such Registration Statement. We also consent to the reference to us under the heading Experts in such Registration Statement.
Collins Barrow Edmonton LLP
Chartered Accountants
September 11, 2014
This office is independently owned and operated by Collins Barrow Edmonton LLP The Collins Barrow trademarks are used under License. |
Exhibit 23.8
Collins Barrow Edmonton LLP 2380 Commerce Place 10155 102 Street N.W. Edmonton, Alberta T5J 4G8 Canada
T. 780.428.1522 F. 780.425.8189
www.collinsbarrow.com |
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in the Registration Statement on Form S-1A of ATD Corporation of our report dated June 25, 2014, except with respect to Note 12 (footnotes (a) and (d)) which the date is August 18, 2014 and Note 13 which the date is September 11, 2014 relating to the financial statements of Kirks Tire Ltd. as of and for the three years ended January 31, 2014, January 31, 2013 and January 31, 2012 which appears in such Registration Statement. We also consent to the reference to us under the heading Experts in such Registration Statement.
Collins Barrow Edmonton LLP
Chartered Accountants
September 11, 2014
This office is independently owned and operated by Collins Barrow Edmonton LLP The Collins Barrow trademarks are used under License. |
Exhibit 23.9
Collins Barrow Edmonton LLP 2380 Commerce Place 10155 102 Street N.W. Edmonton, Alberta T5J 4G8 Canada
T. 780.428.1522 F. 780.425.8189
www.collinsbarrow.com |
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in the Registration Statement on Form S-1A of ATD Corporation of our report dated June 25, 2014, except with respect to Note 14 (footnotes (a) and (d)) which the date is August 18, 2014, relating to the financial statements of Regional Tire Distributors (Calgary) Inc. as of and for the three years ended February 28, 2014, February 28, 2013 and February 29, 2012 which appears in such Registration Statement. We also consent to the reference to us under the heading Experts in such Registration Statement.
Collins Barrow Edmonton LLP
Chartered Accountants
September 11, 2014
This office is independently owned and operated by Collins Barrow Edmonton LLP The Collins Barrow trademarks are used under License. |
Exhibit 23.10
|
||||
Collins Barrow Edmonton LLP 2380 Commerce Place 10155 102 Street N.W. Edmonton, Alberta T5J 4G8 Canada
T. 780.428.1522 F. 780.425.8189
www.collinsbarrow.com |
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in the Registration Statement on Form S-1A of ATD Corporation of our report dated June 25, 2014, except with respect to Note 11 (footnotes (b), (c) and (d)) which are as of July 25, 2014 and Notes 11 (footnotes (a) and (e)) and 12 which the date is August 18, 2014, relating to the financial statements of Regional Tire Distributors (Edmonton) Inc. as of and for the three years ended February 28, 2014, February 28, 2013 and February 29, 2012 which appears in such Registration Statement. We also consent to the reference to us under the heading Experts in such Registration Statement.
Collins Barrow Edmonton LLP
Chartered Accountants
September 11, 2014
This office is independently owned and operated by Collins Barrow Edmonton LLP The Collins Barrow trademarks are used under License. |
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