UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
Or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-37503
B. RILEY FINANCIAL, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 27-0223495 | |
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S.
Employer Identification No.) | |
21255 Burbank Boulevard, Suite 400 Woodland Hills, CA |
91367 | |
(Address of Principal Executive Offices) | (Zip Code) |
(818) 884-3737
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading
Symbol(s) |
Name of each exchange on which registered | ||
Common Stock, par value $0.0001 per share | RILY | Nasdaq Global Market | ||
Depositary Shares, each representing a 1/1000th fractional interest in a share of Series A Cumulative Perpetual Preferred Stock | RILYP | Nasdaq Global Market | ||
7.25% Senior Notes due 2027 | RILYG | Nasdaq Global Market | ||
7.50% Senior Notes due 2027 | RILYZ | Nasdaq Global Market | ||
6.50% Senior Notes due 2026 | RILYN | Nasdaq Global Market | ||
6.375% Senior Notes due 2025 | RILYM | Nasdaq Global Market | ||
6.75% Senior Notes due 2024 | RILYO | Nasdaq Global Market | ||
7.375% Senior Notes due 2023 | RILYH | Nasdaq Global Market | ||
6.875% Senior Notes due 2023 | RILYI | Nasdaq Global Market |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)
Large accelerated filer ☐ | Accelerated filer ☒ |
Non-accelerated filer ☐ | Smaller reporting company ☐ |
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 8, 2020, there were 25,827,322 shares of the registrant’s common stock, par value $0.0001 per share, outstanding.
B. Riley Financial, Inc.
Quarterly Report on Form 10-Q
For the Quarterly Period Ended March 31, 2020
Table of Contents
i
Condensed Consolidated Balance Sheets
(Dollars in thousands, except par value)
March 31, | December 31, | |||||||
2020 | 2019 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Assets: | ||||||||
Cash and cash equivalents | $ | 124,231 | $ | 104,268 | ||||
Restricted cash | 471 | 471 | ||||||
Due from clearing brokers | 10,879 | 23,818 | ||||||
Securities and other investments owned, at fair value | 287,786 | 408,213 | ||||||
Securities borrowed | 674,163 | 814,331 | ||||||
Accounts receivable, net | 46,450 | 46,624 | ||||||
Due from related parties | 4,391 | 5,832 | ||||||
Advances against customer contracts | 11,121 | 27,347 | ||||||
Loans receivable, at fair value (includes $216,302 from related parties at March 31, 2020) | 326,299 | 43,338 | ||||||
Loans receivable, at cost (includes $157,080 from related parties at December 31, 2019) | — | 225,848 | ||||||
Prepaid expenses and other assets | 114,686 | 81,808 | ||||||
Operating lease right-of-use assets | 46,213 | 47,809 | ||||||
Property and equipment, net | 12,223 | 12,727 | ||||||
Goodwill | 223,697 | 223,697 | ||||||
Other intangible assets, net | 212,500 | 220,525 | ||||||
Deferred income taxes | 35,786 | 31,522 | ||||||
Total assets | $ | 2,130,896 | $ | 2,318,178 | ||||
Liabilities and Equity | ||||||||
Liabilities: | ||||||||
Accounts payable | $ | 6,858 | $ | 4,477 | ||||
Accrued expenses and other liabilities | 103,452 | 130,714 | ||||||
Deferred revenue | 73,709 | 67,121 | ||||||
Due to related parties and partners | 1,061 | 1,750 | ||||||
Due to clearing brokers | 5,126 | — | ||||||
Securities sold not yet purchased | 14,298 | 41,820 | ||||||
Securities loaned | 670,859 | 810,495 | ||||||
Mandatorily redeemable noncontrolling interests | 4,508 | 4,616 | ||||||
Operating lease liabilities | 59,430 | 61,511 | ||||||
Notes payable | 714 | 38,167 | ||||||
Loan participations sold | 12,405 | 12,478 | ||||||
Term loan | 61,932 | 66,666 | ||||||
Senior notes payable | 853,523 | 688,112 | ||||||
Total liabilities | 1,867,875 | 1,927,927 | ||||||
Commitments and contingencies (Note 14) | ||||||||
B. Riley Financial, Inc. stockholders’ equity: | ||||||||
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; 2,531 and 2,349 issued and outstanding as of March 31, 2020 and December 31, 2019, respectively; liquidation preference of $63,273 and $58,723 as of March 31, 2020 and December 31, 2019, respectively. | — | — | ||||||
Common stock, $0.0001 par value; 100,000,000 shares authorized; 25,988,565 and 26,972,332 issued and outstanding as of March 31, 2020 and December 31, 2019, respectively. | 3 | 3 | ||||||
Additional paid-in capital | 308,472 | 323,109 | ||||||
(Accumulated deficit) retained earnings | (70,232 | ) | 39,536 | |||||
Accumulated other comprehensive loss | (3,208 | ) | (1,988 | ) | ||||
Total B. Riley Financial, Inc. stockholders’ equity | 235,035 | 360,660 | ||||||
Noncontrolling interests | 27,986 | 29,591 | ||||||
Total equity | 263,021 | 390,251 | ||||||
Total liabilities and equity | $ | 2,130,896 | $ | 2,318,178 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
Condensed Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands, except share data)
Three Months Ended | ||||||||
March 31, | ||||||||
2020 | 2019 | |||||||
Revenues: | ||||||||
Services and fees | $ | 159,381 | $ | 103,896 | ||||
Trading (losses) income and fair value adjustments on loans | (182,442 | ) | 25,867 | |||||
Interest income - Loans and securities lending | 21,851 | 11,420 | ||||||
Sale of goods | 1,004 | 945 | ||||||
Total revenues | (206 | ) | 142,128 | |||||
Operating expenses: | ||||||||
Direct cost of services | 19,952 | 14,116 | ||||||
Cost of goods sold | 769 | 1,119 | ||||||
Selling, general and administrative expenses | 87,744 | 94,964 | ||||||
Restructuring charge | — | 147 | ||||||
Impairment of tradenames | 4,000 | — | ||||||
Interest expense - Securities lending and loan participations sold | 8,473 | 6,804 | ||||||
Total operating expenses | 120,938 | 117,150 | ||||||
Operating (loss) income | (121,144 | ) | 24,978 | |||||
Other income (expense): | ||||||||
Interest income | 246 | 637 | ||||||
Loss from equity investments | (236 | ) | (3,762 | ) | ||||
Interest expense | (15,654 | ) | (10,770 | ) | ||||
(Loss) income before income taxes | (136,788 | ) | 11,083 | |||||
Benefit (provision) for income taxes | 37,539 | (3,104 | ) | |||||
Net (loss) income | (99,249 | ) | 7,979 | |||||
Net loss attributable to noncontrolling interests | (584 | ) | (44 | ) | ||||
Net (loss) income attributable to B. Riley Financial, Inc. | $ | (98,665 | ) | $ | 8,023 | |||
Preferred stock dividends | 1,055 | — | ||||||
Net (loss) income available to common shareholders | $ | (99,720 | ) | $ | 8,023 | |||
Basic (loss) income per common share | $ | (3.83 | ) | $ | 0.31 | |||
Diluted (loss) income per common share | $ | (3.83 | ) | $ | 0.30 | |||
Weighted average basic common shares outstanding | 26,028,613 | 26,217,215 | ||||||
Weighted average diluted common shares outstanding | 26,028,613 | 26,687,531 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
B. RILEY FINANCIAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive (Loss) Income
(Unaudited)
(Dollars in thousands)
Three Months Ended | ||||||||
March 31, | ||||||||
2020 | 2019 | |||||||
Net (loss) income | $ | (99,249 | ) | $ | 7,979 | |||
Other comprehensive (loss) income: | ||||||||
Change in cumulative translation adjustment | (1,220 | ) | 170 | |||||
Other comprehensive (loss) income, net of tax | (1,220 | ) | 170 | |||||
Total comprehensive (loss) income | (100,469 | ) | 8,149 | |||||
Comprehensive (loss) income attributable to noncontrolling interests | (584 | ) | (44 | ) | ||||
Comprehensive (loss) income attributable to B. Riley Financial, Inc. | $ | (99,885 | ) | $ | 8,193 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
B. RILEY FINANCIAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Equity
(Unaudited)
(Dollars in thousands, except share data)
Accumulated | ||||||||||||||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Paid-in | Retained | Comprehensive | Noncontrolling | Total | ||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Earnings | Loss | Interests | Equity | ||||||||||||||||||||||||||||
Balance, January 1, 2020 | 2,349 | $ | — | 26,972,332 | $ | 3 | $ | 323,109 | $ | 39,536 | $ | (1,988 | ) | $ | 29,591 | $ | 390,251 | |||||||||||||||||||
Preferred stock issued | 182 | — | — | — | 4,630 | — | — | — | 4,630 | |||||||||||||||||||||||||||
Vesting of restricted stock, net of shares withheld for employer taxes | — | — | 38,298 | — | (520 | ) | — | — | — | (520 | ) | |||||||||||||||||||||||||
Common stock repurchased and retired | — | — | (1,022,065 | ) | — | (24,068 | ) | — | — | — | (24,068 | ) | ||||||||||||||||||||||||
Share based payments | — | — | — | — | 5,321 | — | — | — | 5,321 | |||||||||||||||||||||||||||
Dividends on common stock ($0.35 per share) | — | — | — | — | — | (10,048 | ) | — | — | (10,048 | ) | |||||||||||||||||||||||||
Dividends on preferred stock ($429.69 per share) | — | — | — | — | — | (1,055 | ) | — | — | (1,055 | ) | |||||||||||||||||||||||||
Net loss | — | — | — | — | — | (98,665 | ) | — | (584 | ) | (99,249 | ) | ||||||||||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | — | — | (1,021 | ) | (1,021 | ) | |||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | — | (1,220 | ) | — | (1,220 | ) | |||||||||||||||||||||||||
Balance, March 31, 2020 | 2,531 | $ | — | 25,988,565 | $ | 3 | $ | 308,472 | $ | (70,232 | ) | $ | (3,208 | ) | $ | 27,986 | $ | 263,021 | ||||||||||||||||||
Balance, January 1, 2019 | — | $ | — | 26,603,355 | $ | 2 | $ | 258,638 | $ | 1,579 | $ | (2,161 | ) | $ | 602 | $ | 258,660 | |||||||||||||||||||
Vesting of restricted stock, net of shares withheld for employer taxes | — | — | 78,911 | — | (714 | ) | — | — | — | (714 | ) | |||||||||||||||||||||||||
Common stock repurchased and retired | — | — | (157,050 | ) | — | (2,650 | ) | — | — | — | (2,650 | ) | ||||||||||||||||||||||||
Share based payments | — | — | — | — | 2,614 | — | — | — | 2,614 | |||||||||||||||||||||||||||
Dividends on common stock ($0.08 per share) | — | — | — | — | — | (2,134 | ) | — | — | (2,134 | ) | |||||||||||||||||||||||||
Net income | — | — | — | — | — | 8,023 | — | (44 | ) | 7,979 | ||||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | — | 170 | — | 170 | |||||||||||||||||||||||||||
Balance, March 31, 2019 | — | $ | — | 26,525,216 | $ | 2 | $ | 257,888 | $ | 7,468 | $ | (1,991 | ) | $ | 558 | $ | 263,925 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
B. RILEY FINANCIAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
Three
Months Ended March 31, | ||||||||
2020 | 2019 | |||||||
Cash flows from operating activities: | ||||||||
Net (loss) income | $ | (99,249 | ) | $ | 7,979 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 4,956 | 4,913 | ||||||
Provision for doubtful accounts | 724 | 233 | ||||||
Share-based compensation | 5,322 | 2,614 | ||||||
Fair value adjustments, non-cash | 17,926 | 49 | ||||||
Non-cash interest and other | (2,827 | ) | 736 | |||||
Effect of foreign currency on operations | 179 | 130 | ||||||
Loss from equity investments | 236 | 3,762 | ||||||
Deferred income taxes | (4,254 | ) | (390 | ) | ||||
Impairment of intangibles and loss on disposal of fixed assets | 4,046 | 88 | ||||||
Gain on extinguishment of debt | (1,556 | ) | — | |||||
Income allocated for mandatorily redeemable noncontrolling interests | 175 | 169 | ||||||
Change in operating assets and liabilities: | ||||||||
Due from clearing brokers | 12,939 | 15,320 | ||||||
Securities and other investments owned | 125,061 | (15,274 | ) | |||||
Securities borrowed | 140,168 | 104,104 | ||||||
Accounts receivable and advances against customer contracts | 15,674 | (2,845 | ) | |||||
Prepaid expenses and other assets | (37,151 | ) | (3,706 | ) | ||||
Accounts payable, accrued expenses and other liabilities | (22,097 | ) | (1,251 | ) | ||||
Amounts due to/from related parties and partners | 752 | (1,236 | ) | |||||
Securities sold, not yet purchased | (27,522 | ) | (1,675 | ) | ||||
Deferred revenue | 6,589 | 893 | ||||||
Securities loaned | (139,636 | ) | (105,689 | ) | ||||
Net cash provided by operating activities | 455 | 8,924 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of loans receivable | (115,328 | ) | (20,154 | ) | ||||
Repayments of loans receivable | 42,128 | 5,500 | ||||||
Sale of loan receivable to related party | 1,800 | — | ||||||
Repayment of loan participations sold | (244 | ) | — | |||||
Purchases of property, equipment and other | (438 | ) | (1,746 | ) | ||||
Proceeds from sale of property, equipment and intangible assets | 1 | 12 | ||||||
Purchase of equity investments | — | (10,558 | ) | |||||
Dividends and distributions from equity investments | 589 | 433 | ||||||
Net cash used in investing activities | (71,492 | ) | (26,513 | ) | ||||
Cash flows from financing activities: | ||||||||
Repayment of asset based credit facility | (37,096 | ) | — | |||||
Repayment of notes payable | (357 | ) | (357 | ) | ||||
Proceeds from term loan | — | 10,000 | ||||||
Repayment of term loan | (4,810 | ) | — | |||||
Proceeds from issuance of senior notes | 171,078 | 4,987 | ||||||
Redemption of senior notes | (1,829 | ) | — | |||||
Payment of debt issuance costs | (2,724 | ) | (145 | ) | ||||
Payment of employment taxes on vesting of restricted stock | (505 | ) | (714 | ) | ||||
Common dividends paid | (9,609 | ) | (2,606 | ) | ||||
Preferred dividends paid | (1,055 | ) | — | |||||
Repurchase of common stock | (24,068 | ) | (2,650 | ) | ||||
Distribution to noncontrolling interests | (1,323 | ) | (274 | ) | ||||
Proceeds from issuance of preferred stock | 4,630 | — | ||||||
Net cash provided by financing activities | 92,332 | 8,241 | ||||||
Increase (decrease) in cash, cash equivalents and restricted cash | 21,295 | (9,348 | ) | |||||
Effect of foreign currency on cash, cash equivalents and restricted cash | (1,332 | ) | 23 | |||||
Net increase (decrease) in cash, cash equivalents and restricted cash | 19,963 | (9,325 | ) | |||||
Cash, cash equivalents and restricted cash, beginning of period | 104,739 | 180,278 | ||||||
Cash, cash equivalents and restricted cash, end of period | $ | 124,702 | $ | 170,953 | ||||
Supplemental disclosures: | ||||||||
Interest paid | $ | 21,785 | $ | 17,435 | ||||
Taxes paid | $ | 574 | $ | 192 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
B. RILEY FINANCIAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share data)
NOTE 1—ORGANIZATION AND NATURE OF BUSINESS OPERATIONS
B. Riley Financial, Inc. and its subsidiaries (collectively, the “Company”) provide investment banking and financial services to corporate, institutional and high net worth clients, and asset disposition, valuation and appraisal and capital advisory services to a wide range of retail, wholesale and industrial clients, as well as lenders, capital providers, private equity investors and professional services firms throughout the United States, Australia, Canada, and Europe and with the acquisitions of United Online, Inc. (“UOL” or “United Online”) on July 1, 2016 and magicJack VocalTec Ltd. (“magicJack”) on November 14, 2018, provide consumer Internet access and cloud communication services. The Company acquired a majority ownership interest in BR Brand Holding, LLC on October 28, 2019, which provides licensing of trademarks.
The Company operates in five operating segments: (i) Capital Markets, through which the Company provides investment banking, corporate finance, securities lending, restructuring, consulting, research, sales and trading and wealth management services to corporate, institutional and high net worth clients; (ii) Auction and Liquidation, through which the Company provides auction and liquidation services to help clients dispose of assets that include multi-location retail inventory, wholesale inventory, trade fixtures, machinery and equipment, intellectual property and real property; (iii) Valuation and Appraisal, through which the Company provides valuation and appraisal services to clients with independent appraisals in connection with asset based loans, acquisitions, divestitures and other business needs; (iv) Principal Investments - United Online and magicJack, through which the Company provides consumer Internet access and related subscription services from United Online and cloud communication services primarily through the magicJack devices; and (v) Brands, which is focused on generating revenue through the licensing of trademarks.
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation and Basis of Presentation
The condensed consolidated financial statements include the accounts of B. Riley Financial, Inc. and its wholly-owned and majority-owned subsidiaries. The condensed consolidated financial statements also include the accounts of (a) Great American Global Partners, LLC which is controlled by the Company as a result of its ownership of a 50% member interest, appointment of two of the three executive officers and significant influence over the funding of operations, and (b) GA Retail Investments, L.P. which is controlled by the Company as a result of its ownership of a 50% partnership interest, appointment of executive officers and significant influence over the operations. The condensed consolidated financial statements have been prepared by the Company, without audit, pursuant to interim financial reporting guidelines and the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. In the opinion of the Company’s management, all adjustments, consisting of only normal and recurring adjustments, necessary for a fair presentation of the financial position and the results of operations for the periods presented have been included. These condensed consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 10, 2020. The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the operating results to be expected for the full fiscal year or any future periods.
(b) Use of Estimates
The preparation of the condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and reported amounts of revenue and expense during the reporting period. Estimates are used when accounting for certain items such as valuation of securities and loan receivables, allowance for doubtful accounts, the fair value of intangible assets and goodwill, the fair value of mandatorily redeemable noncontrolling interests, fair value of share based arrangements, accounting for income tax valuation allowances, recovery of contract assets and sales returns and allowances. Estimates are based on historical experience, where applicable, and assumptions that management believes are reasonable under the circumstances. Due to the inherent uncertainty involved with estimates, actual results may differ.
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus (the “COVID-19 outbreak”). In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues to evolve. The impact of the COVID-19 outbreak on the Company’s results of operations, financial position and cash flows will depend on future developments, including the duration and spread of the outbreak and related advisories and restrictions. These developments and the impact of the COVID-19 outbreak on the financial markets and the overall economy are highly uncertain and cannot be predicted. If the financial markets and/or the overall economy are impacted for an extended period, the Company’s results of operations, financial position and cash flows may be materially adversely affected.
6
(c) Interest Expense — Securities Lending Activities and Loan Participations Sold
Interest expense from securities lending activities is included in operating expenses related to operations in the Capital Markets segment. Interest expense from securities lending activities is incurred from equity and fixed income securities that are loaned to the Company and totaled $7,921 and $6,804 for the three months ended March 31, 2020 and 2019, respectively. Loan participations sold as of March 31, 3020 totaled $12,405. Interest expense from loan participations sold totaled $552 for the three months ended March 31, 2020.
(d) Concentration of Risk
Revenues in the Capital Markets, Valuation and Appraisal and Principal Investments — United Online and magicJack segments are currently primarily generated in the United States. Revenues in the Auction and Liquidation segment are primarily generated in the United States, Australia, Canada and Europe. Revenues in the Brands segment are primarily generated in the United States and Canada.
The Company’s activities in the Auction and Liquidation segment are executed frequently with, and on behalf of, distressed customers and secured creditors. Concentrations of credit risk can be affected by changes in economic, industry, or geographical factors. The Company seeks to control its credit risk and potential risk concentration through risk management activities that limit the Company’s exposure to losses on any one specific liquidation services contract or concentration within any one specific industry. To mitigate the exposure to losses on any one specific liquidations services contract, the Company sometimes conducts operations with third parties through collaborative arrangements.
The Company maintains cash in various federally insured banking institutions. The account balances at each institution periodically exceed the Federal Deposit Insurance Corporation’s (“FDIC”) insurance coverage, and as a result, there is a concentration of credit risk related to amounts in excess of FDIC insurance coverage. The Company has not experienced any losses in such accounts. The Company also has substantial cash balances from proceeds received from auctions and liquidation engagements that are distributed to parties in accordance with the collaborative arrangements.
(e) Advertising Expenses
The Company expenses advertising costs, which consist primarily of costs for printed materials, as incurred. Advertising costs totaled $841 and $362 for the three months ended March 31, 2020 and 2019, respectively. Advertising expense is included as a component of selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.
(f) Share-Based Compensation
The Company’s share-based payment awards principally consist of grants of restricted stock, restricted stock units and costs associated with the Company’s employee stock purchase plan. In accordance with the applicable accounting guidance, share-based payment awards are classified as either equity or liabilities. For equity-classified awards, the Company measures compensation cost for the grant of membership interests at fair value on the date of grant and recognizes compensation expense in the condensed consolidated statements of operations over the requisite service or performance period the award is expected to vest. The fair value of the liability-classified award will be subsequently remeasured at each reporting date through the settlement date. Change in fair value during the requisite service period will be recognized as compensation cost over that period.
In June 2018, the Company adopted the 2018 Employee Stock Purchase Plan (“Purchase Plan”) which allows eligible employees to purchase common stock through payroll deductions at a price that is 85% of the market value of the common stock on the last day of the offering period. In accordance with the provisions of ASC 718, Compensation — Stock Compensation (“ASC 718”), the Company is required to recognize compensation expense relating to shares offered under the Purchase Plan.
(g) Income Taxes
The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the condensed consolidated financial statements or tax returns. Deferred tax liabilities and assets are determined based on the difference between the financial statement basis and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company estimates the degree to which tax assets and credit carryforwards will result in a benefit based on expected profitability by tax jurisdiction. A valuation allowance for such tax assets and loss carryforwards is provided when it is determined to be more likely than not that the benefit of such deferred tax asset will not be realized in future periods. Tax benefits of operating loss carryforwards are evaluated on an ongoing basis, including a review of historical and projected future operating results, the eligible carryforward period, and other circumstances. If it becomes more likely than not that a tax asset will be used, the related valuation allowance on such assets would be reduced.
7
The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. Once this threshold has been met, the Company’s measurement of its expected tax benefits is recognized in its financial statements. The Company accrues interest on unrecognized tax benefits as a component of income tax expense. Penalties, if incurred, would be recognized as a component of income tax expense.
(h) Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
(i) Restricted Cash
As of March 31, 2020 and December 31, 2019, restricted cash balance of $471 related to one of the Company’s telecommunication suppliers.
(j) Securities Borrowed and Securities Loaned
Securities borrowed and securities loaned are recorded based upon the amount of cash advanced or received. Securities borrowed transactions facilitate the settlement process and require the Company to deposit cash or other collateral with the lender. With respect to securities loaned, the Company receives collateral in the form of cash. The amount of collateral required to be deposited for securities borrowed, or received for securities loaned, is an amount generally in excess of the market value of the applicable securities borrowed or loaned. The Company monitors the market value of the securities borrowed and loaned on a daily basis, with additional collateral obtained, or excess collateral recalled, when deemed appropriate.
The Company accounts for securities lending transactions in accordance with ASC “Topic 210: Balance Sheet,” which requires companies to report disclosures of offsetting assets and liabilities. The Company does not net securities borrowed and securities loaned and these items are presented on a gross basis in the condensed consolidated balance sheets.
(k) Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets. Property and equipment held under finance leases are amortized on a straight-line basis over the shorter of the lease term or estimated useful life of the asset. Depreciation and amortization expense on property and equipment was $932 and $1,536 for the three months ended March 31, 2020 and 2019, respectively.
(l) Loans Receivable
Loans receivable, at fair value are loans held for investment that are accounted for at fair value under the fair value option. The Company adopted ASU 2016-13 and its amendment ASU 2019-05 effective January 1, 2020. Pursuant to ASU 2016-13 and its amendment ASU 2019-05, the Company elected the irrevocable fair value option for all outstanding loans receivable that were measured at amortized cost as of December 31, 2019. As of March 31, 2020 and December 31, 2019, loans receivable, at fair value totaled $326,299 and $43,338, respectively, with various maturities through December 2024. As of March 31, 2020 and December 31, 2019, loans receivable, at fair value had principal balances totaling $339,630 and $32,691, respectively, with cost basis, net of unamortized costs, origination fees, premiums and discounts, totaling $333,466 and $32,578, respectively. During the three months ended March 31, 2020, the Company recorded unrealized losses of $17,926 on the loans receivable, at fair value, which is included in trading (losses) income and fair value adjustments on loans on the condensed consolidated statement of operations.
Loans receivable, at cost are measured at historical cost and reported at their outstanding principal balances net of any unearned income, charge-offs, unamortized deferred fees and costs on originated loans, and for purchased loans, net of any unamortized premiums or discounts. As of December 31, 2019, loans receivable at cost had a carrying value of $225,848.
Interest income on loans receivable is recognized based on the stated rate of the loan and the unpaid principal balance plus the amortization of any costs, origination fees, premiums and discounts and is included in interest income - loans and securities lending on the condensed consolidated statement of operations. Loan origination fees and certain direct origination costs are deferred and recognized as adjustments to interest income over the lives of the related loans. Unearned income, discounts and premiums are amortized to interest income using a level yield methodology.
8
(m) Securities and Other Investments Owned and Securities Sold Not Yet Purchased
Securities owned consist of marketable securities and investments in partnership interests and other securities recorded at fair value. Securities sold, but not yet purchased represents obligations of the Company to deliver the specified security at the contracted price and thereby create a liability to purchase the security in the market at prevailing prices. Changes in the value of these securities are reflected currently in the results of operations.
As of March 31, 2020 and December 31, 2019, the Company’s securities and other investments owned and securities sold not yet purchased at fair value consisted of the following securities:
March 31, | December 31, | |||||||
2020 | 2019 | |||||||
Securities and other investments owned: | ||||||||
Equity securities | $ | 234,867 | $ | 353,162 | ||||
Corporate bonds | 18,429 | 19,020 | ||||||
Other fixed income securities | 5,243 | 8,414 | ||||||
Partnership interests and other | 29,247 | 27,617 | ||||||
$ | 287,786 | $ | 408,213 | |||||
Securities sold not yet purchased: | ||||||||
Equity securities | $ | 124 | $ | 5,360 | ||||
Corporate bonds | 13,361 | 33,436 | ||||||
Other fixed income securities | 813 | 3,024 | ||||||
$ | 14,298 | $ | 41,820 |
(n) Fair Value Measurements
The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. 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. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) for identical instruments that are highly liquid, observable and actively traded in over-the-counter markets. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations whose inputs are observable and can be corroborated by market data. Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
The Company’s securities and other investments owned and securities sold and not yet purchased are comprised of common and preferred stocks and warrants, corporate bonds, and investments in partnerships. Investments in common stocks that are based on quoted prices in active markets are included in Level 1 of the fair value hierarchy. The Company also holds loans receivable valued at fair value, nonpublic common and preferred stocks and warrants for which there is little or no public market and fair value is determined by management on a consistent basis. For investments where little or no public market exists, management’s determination of fair value is based on the best available information which may incorporate management’s own assumptions and involves a significant degree of judgment, taking into consideration various factors including earnings history, financial condition, recent sales prices of the issuer’s securities and liquidity risks. These investments are included in Level 3 of the fair value hierarchy. Investments in partnership interests include investments in private equity partnerships that primarily invest in equity securities, bonds, and direct lending funds. The Company also invests in priority investment funds and the underlying securities held by these funds are primarily corporate and asset-backed fixed income securities and restrictions exist on the redemption of amounts invested by the Company. The Company’s partnership and investment fund interests are valued based on the Company’s proportionate share of the net assets of the partnerships and funds; the value for these investments are derived from the most recent statements received from the general partner or fund administrator. These partnership and investment fund interests are valued at net asset value (“NAV”) in accordance with ASC “Topic 820: Fair Value Measurements.”
The fair value of mandatorily redeemable noncontrolling interests is determined based on the issuance of similar interests for cash, references to industry comparables, and relied, in part, on information obtained from appraisal reports and internal valuation models.
9
The following tables present information on the financial assets and liabilities measured and recorded at fair value on a recurring basis as of March 31, 2020 and December 31, 2019.
Financial Assets and Liabilities Measured at Fair Value | ||||||||||||||||
on a Recurring Basis at March 31, 2020 Using | ||||||||||||||||
Quoted prices | ||||||||||||||||
Fair value at | in active markets for identical | Other observable | Significant unobservable | |||||||||||||
March 31, | assets | inputs | inputs | |||||||||||||
2020 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets: | ||||||||||||||||
Securities and other investments owned: | ||||||||||||||||
Equity securities | $ | 234,867 | $ | 139,751 | $ | — | $ | 95,116 | ||||||||
Corporate bonds | 18,429 | — | 18,429 | — | ||||||||||||
Other fixed income securities | 5,243 | — | 5,243 | — | ||||||||||||
Investment funds valued at net asset value(1) | 29,247 | |||||||||||||||
Total securities and other investments owned | 287,786 | 139,751 | 23,672 | 95,116 | ||||||||||||
Loans receivable, at fair value | 326,299 | — | — | 326,299 | ||||||||||||
Total assets measured at fair value | $ | 614,085 | $ | 139,751 | $ | 23,672 | $ | 421,415 | ||||||||
Liabilities: | ||||||||||||||||
Securities sold not yet purchased: | ||||||||||||||||
Equity securities | $ | 124 | $ | 124 | $ | — | $ | — | ||||||||
Corporate bonds | 13,361 | — | 13,361 | — | ||||||||||||
Other fixed income securities | 813 | — | 813 | — | ||||||||||||
Total securities sold not yet purchased | 14,298 | 124 | 14,174 | — | ||||||||||||
Mandatorily redeemable noncontrolling interests issued after November 5, 2003 | 4,508 | — | — | 4,508 | ||||||||||||
Total liabilities measured at fair value | $ | 18,806 | $ | 124 | $ | 14,174 | $ | 4,508 |
Financial Assets and Liabilities Measured at Fair Value | ||||||||||||||||
on a Recurring Basis at December 31, 2019 Using | ||||||||||||||||
Quoted prices | ||||||||||||||||
in active markets for | Other | Significant | ||||||||||||||
Fair value at December 31 | identical assets | observable inputs | unobservable inputs | |||||||||||||
2019 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets: | ||||||||||||||||
Securities and other investments owned: | ||||||||||||||||
Equity securities | $ | 353,162 | $ | 243,911 | $ | — | $ | 109,251 | ||||||||
Corporate bonds | 19,020 | — | 19,020 | — | ||||||||||||
Other fixed income securities | 8,414 | — | 8,414 | — | ||||||||||||
Investment funds valued at net asset value(1) | 27,617 | |||||||||||||||
Total securities and other investments owned | 408,213 | 243,911 | 27,434 | 109,251 | ||||||||||||
Loans receivable, at fair value | 43,338 | — | — | 43,338 | ||||||||||||
Total assets measured at fair value | $ | 451,551 | $ | 243,911 | $ | 27,434 | $ | 152,589 | ||||||||
Liabilities: | ||||||||||||||||
Securities sold not yet purchased: | ||||||||||||||||
Equity securities | $ | 5,360 | $ | 5,360 | $ | — | $ | — | ||||||||
Corporate bonds | 33,436 | — | 33,436 | — | ||||||||||||
Other fixed income securities | 3,024 | — | 3,024 | — | ||||||||||||
Total securities sold not yet purchased | 41,820 | 5,360 | 36,460 | — | ||||||||||||
Mandatorily redeemable noncontrolling interests issued after November 5, 2003 | 4,616 | — | — | 4,616 | ||||||||||||
Total liabilities measured at fair value | $ | 46,436 | $ | 5,360 | $ | 36,460 | $ | 4,616 |
(1) | Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy in accordance with ASC “Topic 820 Fair Value Measurements.” The fair value amounts presented in the tables above for investment funds valued at net asset value are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the condensed consolidated balance sheets. |
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As of March 31, 2020 and December 31, 2019, financial assets measured and reported at fair value on a recurring basis and classified within Level 3 were $421,415 and $152,589, respectively, or 19.8% and 6.6%, respectively, of the Company’s total assets. In determining the fair value for these Level 3 financial assets, the Company analyzes various financial, performance and market factors to estimate the value, including where applicable, over-the-counter market trading activity.
The following table summarizes the significant unobservable inputs in the fair value measurement of level 3 financial assets and liabilities by category of investment and valuation technique as of March 31, 2020:
Fair value at | ||||||||||||
March 31, | Weighted | |||||||||||
2020 | Valuation Technique | Unobservable Input | Range | Average | ||||||||
Assets: | ||||||||||||
Equity securities | $ | 95,116 | Market approach | Multiple of revenue | 2.2x - 4.9x | 3.7x | ||||||
Multiple of EBITDA | 6.0x - 10.0x | 6.6x | ||||||||||
Multiple of PV-10 | 0.28x | 0.28x | ||||||||||
Market price of related security | $0.63 - $1.02/share | $0.68 | ||||||||||
Discounted cash flow | Market interest rate | 33.1% | 33.1% | |||||||||
Option pricing model | Annualized volatility | 100.0% | 100% | |||||||||
Loans receivable at fair value | 326,299 | Discounted cash flow | Market interest rate | 9.9% -30.4% | 17.0% | |||||||
Market approach | Market price of related security | $0.63 - $0.77/share | $0.65 | |||||||||
Total level 3 assets measured at fair value | $ | 421,415 | ||||||||||
Liabilities: | ||||||||||||
Mandatorily redeemable noncontrolling interests issued after November 5, 2003 | $ | 4,508 | Market approach | Operating income multiple | 6.0x | 6.0x |
The changes in Level 3 fair value hierarchy during the three months ended March 31, 2020 and 2019 are as follows:
Level 3 | Level 3 Changes During the Period | Level 3 | ||||||||||||||||||||||
Balance at | Fair | Relating to | Purchases, | Transfer in | Balance at | |||||||||||||||||||
Beginning of | Value | Undistributed | Sales and | and/or out | End of | |||||||||||||||||||
Year | Adjustments | Earnings | Settlements | of Level 3 | Period | |||||||||||||||||||
Three Months Ended March 31, 2020 | ||||||||||||||||||||||||
Equity securities | $ | 109,251 | $ | (15,135 | ) | $ | — | $ | 1,000 | $ | — | $ | 95,116 | |||||||||||
Loans receivable at fair value | 43,338 | (17,926 | ) | 1,289 | 73,750 | 225,848 | 326,299 | |||||||||||||||||
Mandatorily redeemable noncontrolling interests issued after November 5, 2003 | 4,616 | — | (108 | ) | — | — | 4,508 | |||||||||||||||||
Three Months Ended March 31, 2019 | ||||||||||||||||||||||||
Equity securities | $ | 24,577 | $ | (18 | ) | $ | — | $ | (45 | ) | $ | — | $ | 24,514 | ||||||||||
Corporate bonds | — | — | — | — | 1,330 | 1,330 | ||||||||||||||||||
Loans receivable at fair value | 33,731 | 35 | 475 | (200 | ) | — | 34,041 | |||||||||||||||||
Mandatorily redeemable noncontrolling interests issued after November 5, 2003 | 4,633 | — | (104 | ) | — | — | 4,529 |
The Company adopted ASU 2016-13 and its amendment ASU 2019-05 effective January 1, 2020. Pursuant to ASU 2016-13 and its amendment ASU 2019-05, the Company elected the irrevocable fair value option for all outstanding loans receivable that were measured at amortized cost as of December 31, 2019. The loans receivable, at fair value are included in transfers into level 3 fair value assets in the above table. During the three months ended March 31, 2019, there was a transfer of one financial asset from level 1 to level 3 in the fair value hierarchy as a result of the asset’s principal market becoming inactive during the quarter.
The amount reported in the table above for the three months ended March 31, 2020 and 2019 includes the amount of undistributed earnings attributable to the noncontrolling interests that is distributed on a quarterly basis. The carrying amounts reported in the condensed consolidated financial statements for cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses and other liabilities approximate fair value based on the short-term maturity of these instruments.
As of March 31, 2020, the senior notes payable had a carrying amount of $853,523 and fair value of $666,428. The carrying amount of the term loan approximates fair value because the effective yield of such instrument is consistent with current market rates of interest for instruments of comparable credit risk.
During the three months ended March 31, 2020 and 2019, except for the impact of the intangible impairment charge as described in Note 7- Goodwill and Intangible Assets, there were no assets or liabilities measured at fair value on a non-recurring basis. The fair value of the indefinite-lived intangible assets was determined based on a discounted cash flow model using a rate of 14.0%. The indefinite-lived intangible assets are level 3 assets in the fair value hierarchy.
11
(o) Foreign Currency Translation
The Company transacts business in various foreign currencies. In countries where the functional currency of the underlying operations has been determined to be the local country’s currency, revenues and expenses of operations outside the United States are translated into United States dollars using average exchange rates while assets and liabilities of operations outside the United States are translated into United States dollars using period-end exchange rates. The effects of foreign currency translation adjustments are included in stockholders’ equity as a component of accumulated other comprehensive loss in the accompanying condensed consolidated balance sheets. Transaction gains (loss) were $949 and ($186) during the three months ended March 31, 2020 and 2019, respectively. These amounts are included in selling, general and administrative expenses in the Company’s condensed consolidated statements of operations.
(p) Common Stock Warrants
The Company issued 821,816 warrants to purchase common stock of the Company (the “Wunderlich Warrants”) in connection with the acquisition of Wunderlich Securities, Inc. (“Wunderlich”) on July 3, 2017. The Wunderlich Warrants entitle the holders of the warrants to acquire shares of the Company’s common stock from the Company at an exercise price of $17.50 per share, subject to, among other matters, the proper completion of an exercise notice and payment. The exercise price and the number of shares of Company common stock issuable upon exercise are subject to customary anti-dilution and adjustment provisions, which include stock splits, subdivisions or reclassifications of the Company’s common stock. The Wunderlich Warrants expire on July 3, 2022. On May 16, 2019, the Company repurchased 638,311 warrants for $2,777 ($4.35 per warrant). As of March 31, 2020, Wunderlich Warrants to purchase 183,505 shares of common stock were outstanding.
On October 28, 2019, the Company issued 200,000 warrants to purchase common stock of the Company (the “BR Brands Warrants”) in connection with the acquisition of a majority ownership interest in BR Brand Holdings LLC (“BR Brand”). The BR Brand Warrants entitle the holders of the warrants to acquire shares of the Company’s common stock from the Company at an exercise price of $26.24 per share. One-third of the BR Brand Warrants immediately vested and became exercisable upon issuance, and the remaining two-thirds of warrants will vest and become exercisable following the first and/or second anniversaries of the closing, subject to BR Brand’s (or another related joint venture with Bluestar Alliance LLC) satisfaction of specified financial performance targets. The BR Brand warrants expire three years after the last vesting event occurs.
Exercise | Expiration | Issued and Outstanding Warrants as of Beginning | Warrants | Warrants | Issued and Outstanding Warrants as of End of | |||||||||||||||||
Price | Date | of Period | Issued | Repurchased | Period | |||||||||||||||||
For the year ended December 31, 2019 | ||||||||||||||||||||||
Wunderlich Warrants | $ | 17.50 | July 3, 2022 | 821,816 | — | (638,311 | ) | 183,505 | ||||||||||||||
BR Brand Warrants | $ | 26.24 | October 28, 2024 | — | 200,000 | — | 200,000 | |||||||||||||||
Total | 821,816 | 200,000 | (638,311 | ) | 383,505 | |||||||||||||||||
For the three months ended March 31, 2020 | ||||||||||||||||||||||
Wunderlich Warrants | $ | 17.50 | July 3, 2022 | 183,505 | — | — | 183,505 | |||||||||||||||
BR Brand Warrants | $ | 26.24 | October 28, 2024 | 200,000 | — | — | 200,000 | |||||||||||||||
Total | 383,505 | — | — | 383,505 |
(q) Equity Investment
bebe stores, inc.
At March 31, 2020, the Company had a 30.5% ownership interest in bebe stores, inc. (“bebe”). The equity ownership in bebe is accounted for under the equity method of accounting and is included in prepaid expenses and other assets in the condensed consolidated balance sheets.
National Holdings Corporation
On November 14, 2018, the Company entered into an agreement to acquire shares of National Holdings Corporation (“National Holdings”), a Nasdaq-listed issuer, from Fortress Biotech, Inc. for an aggregate purchase price totaling approximately $22.9 million. The transaction was completed in two tranches. In the first tranche, which was completed in the fourth quarter of 2018, the Company acquired shares representing 24% of the total outstanding shares of National Holdings. The second tranche was completed in the first quarter of 2019. As of March 31, 2020, the Company had purchased 6,159,550 shares of National Holdings’ common stock, representing 46.8% of National Holdings’ outstanding shares, at $3.25 per share. The carrying value for the National Holdings investment is included in prepaid expenses and other assets in the condensed consolidated balance sheets. The equity ownership in National Holdings is accounted for under the equity method of accounting.
12
As of March 31, 2020, the carrying values of the Company’s investments in bebe and National Holdings exceeded their fair values based on their quoted market prices. In light of these facts, the Company evaluated its investments in bebe and National Holdings for impairment. The Company utilized no bright- line tests in such evaluations. Based on the available facts and information regarding the operating results of both entities, the Company’s ability and intent to hold the investments until recovery, the relative amount of the declines, and the length of time that the fair values were less than the carrying values, the Company concluded that recognition of impairment losses in earnings was not required. However, the Company will continue to monitor these investments and it is possible that impairment losses will be recorded in earnings in future periods based on changes in facts and circumstances or intentions.
(r) Loan Participations Sold
As of March 31, 2020, the Company has sold investments (“Loan Participations Sold”) to third parties (“Participants”) that are accounted for as secured borrowings under ASC Topic 860, Transfers and Servicing. Under ASC Topic 860, a partial loan transfer does not qualify for sale accounting in order for sale treatment to be allowed. A participation or other partial loan transfer that meets the definition of a participating interest is classified as loan receivable and the portion transferred is recorded as a secured borrowing under loan participations sold in the condensed consolidated balance sheet. The Participants are entitled to payments made by the borrower of the related loan equal to the current Loan Participations Sold outstanding at the interest rates for the respective investment. In the event that the borrower defaults, the Participants have rights to payments from such borrower, but do not have recourse to the Company. The terms of the Loan Participations Sold are commensurate with the terms of the related loan.
As of March 31, 2020, the Company had entered into participation agreements for a total of $12,405. In addition, the interest income and interest expense related to the Loan Participations Sold resulted in interest income and interest expense which is presented gross on the condensed consolidated statement of operations.
(s) Supplemental Non-cash Disclosures
During the three months ended March 31, 2020, non-cash investing activities included $4,633 non-cash conversion of an equity method investment.
(t) Reclassifications
As of December 31, 2019, loans receivable recorded at fair value of $43,338 were previously included in securities and other investments owned, at fair value. These loans receivable amounts have been reclassified and reported in loans receivable, at fair value to conform to the 2020 presentation. During the three months ended March 31, 2019, trading income and fair value adjustments on loans of $25,867 was previously included in services and fees income in the capital markets segment. These trading income and fair value adjustments on loans amounts have been reclassified and reported in trading (loss) income and fair value adjustments on loans to conform to the 2020 presentation. During the three months ended March 31, 2019, interest income earned on loans of $2,090 was previously included in services and fees income in the capital markets segment. These interest income amounts have been reclassified and reported in interest income – loans and securities lending to conform to the 2020 presentation. During the three months ended March 31, 2019, expenses of $4,421, were previously included in direct cost of services in the valuation and appraisal segment. These expenses have been reclassified and reported in selling, general and administrative expenses to conform to the 2020 presentation.
(u) Variable Interest Entity
In 2018, the operations of GACP II, LP, a private debt investment limited partnership (the “Partnership”) commenced operations. The Company’s investment in the Partnership is a variable interest entity (“VIE”) since the unaffiliated limited partners do not have substantive kick- out or participating rights to remove the Company’s subsidiary that is the general partner managing the Partnership. The Company has determined that it is not the primary beneficiary due to the fact that its fee arrangements are considered at-market and thus not deemed to be variable interests, and it does not hold any other interests in the Partnership that are considered to be more than insignificant. The Company determines whether it is the primary beneficiary of a VIE at the time it becomes involved with a VIE and reconsiders that conclusion at each reporting date. In evaluating whether the Company is the primary beneficiary, the Company evaluates its economic interests in the entity held either directly by the Company or indirectly through related parties. The consolidation analysis can generally be performed qualitatively; however, if it is not readily apparent that the Company is not the primary beneficiary, a quantitative analysis may also be performed.
The carrying value of the Company’s investments in the VIE that was not consolidated is shown below.
March 31, 2020 | ||||
Partnership investments | $ | 14,751 | ||
Due from related party | 14 | |||
Maximum exposure to loss | $ | 14,765 |
13
(v) Recent Accounting Standards
Recently adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments − Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASC 326”). This standard requires an allowance to be recorded for all expected credit losses for certain financial assets. The new standard introduces an approach, based on expected losses, to estimate credit losses on certain types of financial instruments. In May 2019, the FASB issued ASU No. 2019-05, Financial Instruments − Credit Losses (Topic 326); Targeted Transition Relief,” which allows entities to irrevocably elect, upon adoption of ASU 2016-13, the fair value option on financial instruments that (1) were previously recorded at amortized cost and (2) are within the scope of ASC 326-20 if the instruments are eligible for the fair value option under ASC 825-10. ASU 2016-13 and ASU 2019-05 are effective for public companies for interim and annual period beginning December 15, 2019.
The Company adopted the new credit losses standard effective January 1, 2020. Pursuant to ASU 2016-13 and its amendment ASU 2019-05, the Company elected the irrevocable fair value option for all outstanding loans receivable that were previously measured at amortized cost. Under the fair value option, loans receivable are now measured at each reporting period based upon their exit value in an orderly transaction and unrealized gains or losses from changes in fair value are recorded in the consolidated statements of operations. These loans are no longer subject to evaluation for impairment through an allowance for loan loss as such losses will be captured through fair value changes. The impact of adopting ASC 326 was immaterial to the consolidated financial statements.
NOTE 3—ACQUISITIONS
Membership Interest Purchase Agreement with BR Brand Acquisition LLC
On October 11, 2019, the Company and B. Riley Brand Management LLC, an indirect wholly-owned subsidiary of the Company (the “B. Riley Member”), entered into a Membership Interest Purchase Agreement (the “MIPA”) with BR Brand Acquisition LLC (the “BR Brand Member”) and BR Brand, pursuant to which the B. Riley Member acquired a majority of the equity interest in BR Brand. The closing of the transactions in accordance with the MIPA (the “Closing”) occurred on October 28, 2019.
The B. Riley Member completed the Closing of a majority of the equity interest in BR Brand pursuant to the terms of the MIPA in exchange for (i) aggregate consideration of $116,500 in cash and (ii) warrant consideration of $990 from the issuance by the Company to Bluestar Alliance LLC (“Bluestar”), an affiliate of the BR Brand Member, of a warrant to purchase up to 200,000 shares of the Company’s common stock at an exercise price per share equal to $26.24. One-third of the shares of common stock issuable under the warrant immediately vested and became exercisable upon issuance at the Closing, and the remaining two-thirds of such shares of common stock will vest and become exercisable following the first and/or second anniversaries of the Closing, subject to BR Brand’s (or another related joint venture with Bluestar) satisfaction of specified financial performance targets. The fair value of the non-controlling interest in the amount of $29,373 was determined based on the relative fair value of the net assets acquired. The Company incurred $570 of transaction costs in connection with the acquisition.
In connection with the Closing, (i) the BR Brand Member has caused the transfer of certain trademarks, domain names, license agreements and related assets from existing brand owners to BR Brand and (ii) the Company, Bluestar and certain of their affiliates (including the B. Riley Member and the BR Brand Member) entered into an amended and restated operating agreement for BR Brand and certain other commercial agreements.
The Company evaluated the transaction under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, and Accounting Standards Update (“ASU”) 2017-01, Business Combinations: Clarifying the Definition of a Business. Based on this evaluation, the Company has determined that the acquisition did not meet the definition of a business and, therefore, has accounted for the transaction as an acquisition of assets. The fair value of the assets acquired, including transaction costs, have been reflected in the accompanying financial statements as follows:
Consideration paid by B. Riley: | ||||
Cash acquisition consideration | $ | 116,500 | ||
Transaction costs | 570 | |||
Total cash consideration | 117,070 | |||
Warrant consideration | 990 | |||
Total consideration | $ | 118,060 | ||
Tangible assets acquired and assumed: | ||||
Cash and cash equivalents | $ | 2,160 | ||
Accounts receivable | 1,751 | |||
Deferred revenue | (1,332 | ) | ||
Tradename | 136,176 | |||
Customer list | 8,678 | |||
Non-controlling interest | (29,373 | ) | ||
Total | $ | 118,060 |
14
NOTE 4— RESTRUCTURING CHARGE
The Company did not record any restructuring charges for the three months ended March 31, 2020. The Company recorded restructuring charges in the amount of $147 for the three months ended March 31, 2019.
The restructuring charge of $147 during the three months ended March 31, 2019 was primarily related to severance costs for magicJack employees from a reduction in workforce in the Principal Investments – United Online and magicJack segment.
The following tables summarize the changes in accrued restructuring charge during the three months ended March 31, 2020 and 2019:
Three Months Ended | ||||||||
March 31, | ||||||||
2020 | 2019 | |||||||
Balance, beginning of period | $ | 1,600 | 3,855 | |||||
Restructuring charge | — | 147 | ||||||
Cash paid | (316 | ) | (636 | ) | ||||
Non-cash items | — | 18 | ||||||
Balance, end of period | $ | 1,284 | $ | 3,384 |
The following tables summarize the restructuring activities by reportable segment during the three months ended March 31, 2019:
Three Months Ended March 31, 2019 | ||||||||||||||||
Principal | ||||||||||||||||
Investments - | ||||||||||||||||
United Online | ||||||||||||||||
Capital Markets | and magicJack | Corporate | Total | |||||||||||||
Restructuring charge: | ||||||||||||||||
Employee termination costs | $ | — | $ | 176 | $ | — | $ | 176 | ||||||||
Facility closure and consolidation charge (recovery) | (29 | ) | — | — | (29 | ) | ||||||||||
Total restructuring charge | $ | (29 | ) | $ | 176 | $ | — | $ | 147 |
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NOTE 5—SECURITIES LENDING
The following table presents the contractual gross and net securities borrowing and lending balances and the related offsetting amount as of March 31, 2020 and December 31, 2019:
Amounts not | ||||||||||||||||||||
offset in the | ||||||||||||||||||||
consolidated balance | ||||||||||||||||||||
Gross amounts | Net amounts | sheets but eligible for | ||||||||||||||||||
offset in the | included | offsetting | ||||||||||||||||||
Gross amounts | consolidated balance | in the consolidated | upon counterparty | |||||||||||||||||
recognized | sheets(1) | balance sheets | default(2) | Net amounts | ||||||||||||||||
As of March 31, 2020 | ||||||||||||||||||||
Securities borrowed | $ | 674,163 | $ | — | $ | 674,163 | $ | 674,163 | $ | — | ||||||||||
Securities loaned | $ | 670,859 | $ | — | $ | 670,859 | $ | 670,859 | $ | — | ||||||||||
As of December 31, 2019 | ||||||||||||||||||||
Securities borrowed | $ | 814,331 | $ | — | $ | 814,331 | $ | 814,331 | $ | — | ||||||||||
Securities loaned | $ | 810,495 | $ | — | $ | 810,495 | $ | 810,495 | $ | — |
(1) | Includes financial instruments subject to enforceable master netting provisions that are permitted to be offset to the extent an event of default has occurred. |
(2) | Includes the amount of cash collateral held/posted. |
NOTE 6—ACCOUNTS RECEIVABLE
The components of accounts receivable, net, include the following:
March 31, | December 31, | |||||||
2020 | 2019 | |||||||
Accounts receivable | $ | 34,500 | $ | 36,385 | ||||
Investment banking fees, commissions and other receivables | 9,607 | 8,043 | ||||||
Unbilled receivables | 4,581 | 3,710 | ||||||
Total accounts receivable | 48,688 | 48,138 | ||||||
Allowance for doubtful accounts | (2,238 | ) | (1,514 | ) | ||||
Accounts receivable, net | $ | 46,450 | $ | 46,624 |
Additions and changes to the allowance for doubtful accounts consist of the following:
Three Months Ended | ||||||||
March 31, | ||||||||
2020 | 2019 | |||||||
Balance, beginning of period | $ | 1,514 | 696 | |||||
Add: Additions to reserve | 1,141 | 233 | ||||||
Less: Write-offs | (417 | ) | (163 | ) | ||||
Less: Recovery | — | — | ||||||
Balance, end of period | $ | 2,238 | $ | 766 |
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NOTE 7—GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill was $223,697 at both March 31, 2020 and December 31, 2019.
Intangible assets consisted of the following:
As of March 31, 2020 | As of December 31, 2019 | |||||||||||||||||||||||||
Gross | Gross | |||||||||||||||||||||||||
Carrying | Accumulated | Intangibles | Carrying | Accumulated | Intangibles | |||||||||||||||||||||
Useful Life | Value | Amortization | Net | Value | Amortization | Net | ||||||||||||||||||||
Amortizable assets: | ||||||||||||||||||||||||||
Customer relationships | 2 to 16 Years | $ | 99,008 | $ | 30,528 | $ | 68,480 | $ | 99,008 | $ | 27,269 | $ | 71,739 | |||||||||||||
Domain names | 7 Years | 230 | 123 | 107 | 233 | 117 | 116 | |||||||||||||||||||
Advertising relationships | 8 Years | 100 | 47 | 53 | 100 | 44 | 56 | |||||||||||||||||||
Internally developed software and other intangibles | 0.5 to 5 Years | 11,765 | 5,456 | 6,309 | 11,765 | 4,843 | 6,922 | |||||||||||||||||||
Trademarks | 7 to 10 Years | 4,600 | 1,465 | 3,135 | 4,600 | 1,324 | 3,276 | |||||||||||||||||||
Total | 115,703 | 37,619 | 78,084 | 115,706 | 33,597 | 82,109 | ||||||||||||||||||||
Non-amortizable assets: | ||||||||||||||||||||||||||
Tradenames | 134,416 | — | 134,416 | 138,416 | — | 138,416 | ||||||||||||||||||||
Total intangible assets | $ | 250,119 | $ | 37,619 | $ | 212,500 | $ | 254,122 | $ | 33,597 | $ | 220,525 |
Amortization expense was $4,024 and $3,377 for the three months ended March 31, 2020 and 2019, respectively. At March 31, 2020, estimated future amortization expense was $11,689, $15,218, $14,564, $12,573 and $8,486 for the years ended December 31, 2020 (remaining nine months), 2021, 2022, 2023 and 2024, respectively. The estimated future amortization expense after December 31, 2024 was $15,553.
In the first quarter of 2020, in accordance with ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, the Company made a qualitative assessment of the impact of the COVID-19 outbreak on goodwill and other intangible assets. The Company determined that the COVID-19 outbreak was a triggering event for testing the indefinite-lived tradenames in the Brands segment and made a determination that the indefinite-lived tradenames in the Brands segment were impaired. In the three months ended March 31, 2020, the Company recognized an impairment charge of $4,000 for the indefinite-lived tradenames in the Brands segment. We will continue to monitor the impacts of the COVID-19 outbreak in future quarters. Changes in our forecasts could cause the book values of indefinite-lived tradenames to exceed fair values which may result in additional impairment charges in future periods.
NOTE 8—NOTES PAYABLE
Asset Based Credit Facility
On April 21, 2017, the Company amended its credit agreement (as amended, the “Credit Agreement”) governing its asset based credit facility with Wells Fargo Bank, National Association (“Wells Fargo Bank”) to increase the maximum borrowing limit from $100,000 to $200,000. Such amendment, among other things, also extended the expiration date of the credit facility from July 15, 2018 to April 21, 2022. The Credit Agreement continues to allow for borrowings under the separate credit agreement (a “UK Credit Agreement”) which was dated March 19, 2015 with an affiliate of Wells Fargo Bank which provides for the financing of transactions in the United Kingdom. Such facility allows the Company to borrow up to 50 million British Pounds. Any borrowings on the UK Credit Agreement reduce the availability on the asset based $200,000 credit facility. The UK Credit Agreement is cross collateralized and integrated in certain respects with the Credit Agreement. Cash advances and the issuance of letters of credit under the credit facility are made at the lender’s discretion. The letters of credit issued under this facility are furnished by the lender to third parties for the principal purpose of securing minimum guarantees under liquidation services contracts more fully described in Note 2(c). All outstanding loans, letters of credit, and interest are due on the expiration date which is generally within 180 days of funding. The credit facility is secured by the proceeds received for services rendered in connection with liquidation service contracts pursuant to which any outstanding loan or letters of credit are issued and the assets that are sold at liquidation related to such contract. The Company paid Wells Fargo Bank a closing fee in the amount of $500 in connection with the April 2017 amendment to the Credit Agreement. The interest rate for each revolving credit advance under the Credit Agreement is, subject to certain terms and conditions, equal to the LIBOR plus a margin of 2.25% to 3.25% depending on the type of advance and the percentage such advance represents of the related transaction for which such advance is provided. The credit facility also provides for success fees in the amount of 2.5% to 17.5% of the net profits, if any, earned on the liquidation engagements funded under the Credit Agreement as set forth therein. Interest expense totaled $277 and $481 for the three months ended March 31, 2020 and 2019, respectively. There was no outstanding balance on this credit facility at March 31, 2020. The outstanding balance on this credit facility was $37,096 at December 31, 2019. At March 31, 2020, there were no open letters of credit outstanding.
17
We are in compliance with all financial covenants in the asset based credit facility at March 31, 2020.
Other Notes Payable
Notes payable include notes payable to a clearing organization for one of the Company’s broker dealers. The notes payable accrue interest at the prime rate plus 2.0% (6.75% at March 31, 2020) payable annually, maturing January 31, 2022. At March 31, 2020 and December 31, 2019, the outstanding balance for the notes payable was $714 and $1,071, respectively. Interest expense was $15 and $23 for the three months ended March 31, 2020 and 2019, respectively.
NOTE 9—TERM LOAN
On December 19, 2018, BRPI Acquisition Co LLC (“BRPAC”), a Delaware limited liability company, UOL, and YMAX Corporation, Delaware corporations (collectively, the “Borrowers”), indirect wholly owned subsidiaries of the Company, in the capacity as borrowers, entered into a credit agreement (the “BRPAC Credit Agreement”) with the Banc of California, N.A. in the capacity as agent (the “Agent”) and lender and with the other lenders party thereto (the “Closing Date Lenders”). Certain of the Borrowers’ U.S. subsidiaries are guarantors of all obligations under the BRPAC Credit Agreement and are parties to the BRPAC Credit Agreement in such capacity (collectively, the “Secured Guarantors”; and together with the Borrowers, the “Credit Parties”). In addition, the Company and B. Riley Principal Investments, LLC, the parent corporation of BRPAC and a subsidiary of the Company, are guarantors of the obligations under the BRPAC Credit Agreement pursuant to standalone guaranty agreements pursuant to which the shares outstanding membership interests of BRPAC are pledged as collateral.
The obligations under the BRPAC Credit Agreement are secured by first-priority liens on, and first priority security interest in, substantially all of the assets of the Credit Parties, including a pledge of (a) 100% of the equity interests of the Credit Parties, (b) 65% of the equity interests in United Online Software Development (India) Private Limited, a private limited company organized under the laws of India; and (c) 65% of the equity interests in magicJack VocalTec LTD., a limited company organized under the laws of Israel. Such security interests are evidenced by pledge, security and other related agreements.
The BRPAC Credit Agreement contains certain covenants, including those limiting the Credit Parties’, and their subsidiaries’ ability to incur indebtedness, incur liens, sell or acquire assets or businesses, change the nature of their businesses, engage in transactions with related parties, make certain investments or pay dividends. In addition, the BRPAC Credit Agreement requires the Credit Parties to maintain certain financial ratios. The BRPAC Credit Agreement also contains customary representations and warranties, affirmative covenants and events of default, including payment defaults, breach of representations and warranties, covenant defaults and cross defaults. If an event of default occurs, the agent would be entitled to take various actions, including the acceleration of amounts due under the outstanding BRPAC Credit Agreement.
Under the BRPAC Credit Agreement, the Company borrowed $80,000 due December 19, 2023. Pursuant to the terms of the BRPAC Credit Agreement, the Company may request additional optional term loans in an aggregate principal amount of up to $10,000 at any time prior to the first anniversary of the agreement date (the “Option Loan”) with a final maturity date of December 19, 2023. On February 1, 2019, the Credit Parties, the Closing Date Lenders, the Agent and City National Bank, as a new lender (the “New Lender”), entered into the First Amendment to the Credit Agreement and Joinder (the “First Amendment”) pursuant to which, among other things, (i) New Lender became a party to the BRPAC Credit Agreement, (ii) the New Lender extended to Borrowers the Option Loan in the amount of $10,000, (iii) the aggregate outstanding principal amount of the term loans was increased from $80,000 to $90,000; and (iv) the amortization schedule under the BRPAC was amended as set forth in the First Amendment. Additionally, in connection with the Option Loan, the Borrowers executed a term note in favor of New Lender dated February 1, 2019 in the amount of $10,000. Borrowings under the BRPAC Credit Agreement bear interest at a rate equal to (a) the LIBOR rate for Eurodollar loans, plus (b) the applicable margin rate, which ranges from two and one-half percent (2.5%) to three percent (3.0%) per annum, based upon the Borrowers’ ratio of consolidated funded indebtedness to adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for the preceding four fiscal quarters or other applicable period. At March 31, 2020, the interest rate on the BRPAC Credit Agreement was at 3.74%. Interest payments are to be made each one, three or six months. Amounts outstanding under the BRPAC Credit Agreement are due in quarterly installments commencing on March 31, 2019 with any remaining amounts outstanding due at maturity. For the $80,000 loan, quarterly installments from March 31, 2020 to December 31, 2022 are in the amount of $4,244 per quarter and from March 31, 2023 to December 31, 2023 are $2,122 per quarter. For the $10,000 loan, quarterly installments from March 31, 2020 to December 31, 2022 are $566 per quarter and from March 31, 2023 to December 31, 2023 are $265 per quarter. As of March 31, 2020 and December 31, 2019, the outstanding balance on the term loan was $61,932 (net of unamortized debt issuance costs of $524) and $66,666 (net of unamortized debt issuance costs of $600), respectively. Interest expense on the term loan during the three months ended March 31, 2020 and 2019 was $829 (including amortization of deferred debt issuance costs of $76) and $1,278 (including amortization of deferred debt issuance costs of $88), respectively.
We are in compliance with all financial covenants in the BRPAC Credit Agreement at March 31, 2020.
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NOTE 10—SENIOR NOTES PAYABLE
Senior notes payable, net, are comprised of the following:
March 31, | December 31, | |||||||
2020 | 2019 | |||||||
7.50% Senior notes due May 31, 2027 | $ | 125,536 | $ | 117,954 | ||||
7.25% Senior notes due December 31, 2027 | 122,545 | 120,126 | ||||||
7.375% Senior notes due May 31, 2023 | 127,358 | 122,140 | ||||||
6.875% Senior notes due September 30, 2023 | 113,109 | 105,952 | ||||||
6.75% Senior notes due May 31, 2024 | 110,476 | 106,589 | ||||||
6.50% Senior notes due September 30, 2026 | 134,657 | 124,226 | ||||||
6.375% Senior notes due February 28, 2025 | 130,942 | — | ||||||
864,623 | 696,987 | |||||||
Less: Unamortized debt issuance costs | (11,100 | ) | (8,875 | ) | ||||
$ | 853,523 | $ | 688,112 |
During the three months ended March 31, 2020, the Company issued $38,828 of senior notes due with maturities dates ranging from May 2023 to December 2027 pursuant to At the Market Issuance Sales Agreements with B. Riley FBR, Inc. which governs the program of at-the-market sales of the Company’s senior notes. A series of prospectus supplements were filed by the Company with the SEC which allowed the Company to sell these senior notes.
On February 12, 2020, the Company issued $132,250 of senior notes due in February 2025 (“6.375% 2025 Notes”) pursuant to the prospectus supplement dated February 10, 2020. Interest on the 6.375% 2025 Notes is payable quarterly at 6.375%. The 6.375% 2025 Notes are unsecured and due and payable in full on February 28, 2025. In connection with the issuance of the 6.375% 2025 Notes, the Company received net proceeds of $129,233 (after underwriting commissions, fees and other issuance costs of $3,017).
During March 2020, the Company repurchased bonds with an aggregate face value of $3,443 for $1,829 resulting in a gain net of expenses and original issue discount of $1,556 during the three months ended March 31, 2020. As part of the repurchase, the Company paid $30 in interest accrued through the date of each respective repurchase.
At March 31, 2020 and December 31, 2019, the total senior notes outstanding was $853,523 (net of unamortized debt issue costs of $11,100) and $688,112 (net of unamortized debt issue costs of $8,875) with a weighted average interest rate of 6.94% and 7.05%, respectively. Interest on senior notes is payable on a quarterly basis. Interest expense on senior notes totaled $14,392 and $8,855 for the three months ended March 31, 2020 and 2019, respectively.
Sales Agreement Prospectus to Issue Up to $150,000 of Senior Notes
On February 14, 2020, the Company entered into a new At Market Issuance Sales Agreement (the “February 2020 Sales Agreement”) with B. Riley FBR, Inc. governing a program of at-the-market sales of certain of the Company’s senior notes. The most recent sales agreement prospectus was filed by the Company with the SEC on February 14, 2020 (the “February 2020 Sales Agreement Prospectus”). The Sales Agreement Prospectus allows the Company to sell up to $150,000 of certain of the Company’s senior notes pursuant to an effective Registration Statement on Form S-3. As of March 31, 2020, the Company had $148,415 remaining availability under the February 2020 Sales Agreement.
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NOTE 11—REVENUE FROM CONTRACTS WITH CUSTOMERS
Revenue from contracts with customers by reportable segment for the three months ended March 31, 2020 and 2019 is as follows:
Three Months Ended March 31, 2020 | ||||||||||||||||||||||||
Reportable Segment | ||||||||||||||||||||||||
Principal | ||||||||||||||||||||||||
Investments - | ||||||||||||||||||||||||
Capital | Auction and | Valuation and | United Online and | |||||||||||||||||||||
Markets | Liquidation | Appraisal | magicJack | Brands | Total | |||||||||||||||||||
Corporate finance, consulting and investment banking fees | $ | 67,382 | $ | — | $ | — | $ | — | $ | — | $ | 67,382 | ||||||||||||
Wealth and asset management fees | 20,320 | — | — | — | — | 20,320 | ||||||||||||||||||
Commissions, fees and reimbursed expenses | 14,470 | 16,178 | 8,788 | — | — | 39,436 | ||||||||||||||||||
Subscription services | — | — | — | 18,833 | — | 18,833 | ||||||||||||||||||
Service contract revenues | — | 4,483 | — | — | — | 4,483 | ||||||||||||||||||
Advertising, licensing and other | — | — | — | 3,889 | 3,801 | 7,690 | ||||||||||||||||||
Total revenues from contracts with customers | 102,172 | 20,661 | 8,788 | 22,722 | 3,801 | 158,144 | ||||||||||||||||||
Interest income - Loans and securities lending | 21,851 | — | — | — | — | 21,851 | ||||||||||||||||||
Trading losses on investments | (164,516 | ) | — | — | — | — | (164,516 | ) | ||||||||||||||||
Fair value adjustment on loans | (17,926 | ) | — | — | — | — | (17,926 | ) | ||||||||||||||||
Other | 2,241 | — | — | — | — | 2,241 | ||||||||||||||||||
Total revenues | $ | (56,178 | ) | $ | 20,661 | $ | 8,788 | $ | 22,722 | $ | 3,801 | $ | (206 | ) |
Three Months Ended March 31, 2019 | ||||||||||||||||||||||||
Reportable Segment | ||||||||||||||||||||||||
Principal | ||||||||||||||||||||||||
Investments - | ||||||||||||||||||||||||
Capital | Auction and | Valuation and | United Online and | |||||||||||||||||||||
Markets | Liquidation | Appraisal | magicJack | Brands | Total | |||||||||||||||||||
Corporate finance, consulting and investment banking fees | $ | 17,836 | $ | — | $ | — | $ | — | $ | — | $ | 17,836 | ||||||||||||
Wealth and asset management fees | 17,535 | — | — | — | — | 17,535 | ||||||||||||||||||
Commissions, fees and reimbursed expenses | 10,897 | 7,633 | 8,583 | — | — | 27,113 | ||||||||||||||||||
Subscription services | — | — | — | 22,398 | — | 22,398 | ||||||||||||||||||
Service contract revenues | — | 13,076 | — | — | — | 13,076 | ||||||||||||||||||
Advertising, licensing and other | — | — | — | 5,137 | — | 5,137 | ||||||||||||||||||
Total revenues from contracts with customers | 46,268 | 20,709 | 8,583 | 27,535 | — | 103,095 | ||||||||||||||||||
Interest income - Loans and securities lending | 11,420 | — | — | — | — | 11,420 | ||||||||||||||||||
Trading gains on investments | 25,916 | — | — | — | — | 25,916 | ||||||||||||||||||
Fair value adjustment on loans | (49 | ) | — | — | — | — | (49 | ) | ||||||||||||||||
Other | 1,746 | — | — | — | — | 1,746 | ||||||||||||||||||
Total revenues | $ | 85,301 | $ | 20,709 | $ | 8,583 | $ | 27,535 | $ | — | $ | 142,128 |
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Contract Balances
The timing of the Company’s revenue recognition may differ from the timing of payment by its customers. The Company records a receivable when revenue is recognized prior to payment and the Company has an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, the Company records deferred revenue until the performance obligations are satisfied. Receivables related to revenues from contracts with customers totaled $46,450 and $46,624 at March 31, 2020 and December 31, 2019, respectively. The Company had no significant impairments related to these receivables during the three months ended March 31, 2020. The Company’s deferred revenue primarily relates to retainer and milestone fees received from corporate finance and investment banking advisory engagements, asset management agreements, Valuation and Appraisal engagements and subscription services where the performance obligation has not yet been satisfied. Deferred revenue at March 31, 2020 and December 31, 2019 was $73,709 and $67,121, respectively. During the three months ended March 31, 2020 and 2019, the Company recognized revenue of $13,987 and $13,234 that was recorded as deferred revenue at the beginning of the respective year.
Contract Costs
Contract costs include: (1) costs to fulfill contracts associated with corporate finance and investment banking engagements are capitalized where the revenue is recognized at a point in time and the costs are determined to be recoverable; (2) costs to fulfill Auction and Liquidation services contracts where the Company guarantees a minimum recovery value for goods being sold at auction or liquidation where the revenue is recognized over time when the performance obligation is satisfied; and (3) commissions paid to obtain magicJack contracts which are recognized ratably over the contract term and third party support costs for magicJack and related equipment purchased by customers which are recognized ratably over the service period.
The capitalized costs to fulfill a contract were $460 and $450 at March 31, 2020 and December 31, 2019, respectively, and are recorded in prepaid expenses and other assets in the condensed consolidated balance sheets. For the three months ended March 31, 2020 and 2019, the Company recognized expenses of $72 and $601 related to capitalized costs to fulfill a contract, respectively. There were no significant impairment charges recognized in relation to these capitalized costs during the three months ended March 31, 2020 and 2019.
Remaining Performance Obligations and Revenue Recognized from Past Performance
The Company does not disclose information about remaining performance obligations pertaining to contracts that have an original expected duration of one year or less. The transaction price allocated to remaining unsatisfied or partially unsatisfied performance obligations with an original expected duration exceeding one year was not material at March 31, 2020. Corporate finance and investment banking fees and retail liquidation engagement fees that are contingent upon completion of a specific milestone and fees associated with certain distribution services are also excluded as the fees are considered variable and not included in the transaction price at March 31, 2020.
NOTE 12—INCOME TAXES
The Company’s effective income tax rate was a benefit of 27.4% and provision of 28.0% for the three months ended March 31, 2020 and 2019, respectively.
As of March 2020, the Company had federal net operating loss carryforwards of $53,932 and state net operating loss carryforwards of $64,088. The Company’s federal net operating loss carryforwards will expire in the tax years commencing in December 31, 2032 through December 31, 2037. The state net operating loss carryforwards will expire in the tax years commencing in December 31, 2029.
The Company establishes a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Tax benefits of operating loss, capital loss and tax credit carryforwards are evaluated on an ongoing basis, including a review of historical and projected future operating results, the eligible carryforward period, and other circumstances. The Company’s net operating losses are subject to annual limitations in accordance with Internal Revenue Code Section 382. Accordingly, the Company is limited to the amount of net operating loss that may be utilized in future taxable years depending on the Company’s actual taxable income. As of March 31, 2020, the Company believes that the existing net operating loss carryforwards will be utilized in future tax periods before the loss carryforwards expire and it is more-likely-than-not that future taxable earnings will be sufficient to realize its deferred tax assets and has not provided a valuation allowance. The Company does not believe that it is more likely than not that the Company will be able to utilize the benefits related to capital loss carryforwards and has provided a valuation allowance in the amount of $61,945 against these deferred tax assets.
The Company files income tax returns in the U.S., various state and local jurisdictions, and certain other foreign jurisdictions. The Company is currently under audit by certain federal, state and local, and foreign tax authorities. The audits are in varying stages of completion. The Company evaluates its tax positions and establishes liabilities for uncertain tax positions that may be challenged by tax authorities. Uncertain tax positions are reviewed on an ongoing basis and are adjusted in light of changing facts and circumstances, including progress of tax audits, case law developments and closing of statutes of limitations. Such adjustments are reflected in the provision for income taxes, as appropriate. The Company is currently open to audit under the statute of limitations by the Internal Revenue Service for the calendar years ended December 31, 2016 to 2019.
21
NOTE 13— EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income by the weighted-average number of shares outstanding during the period. Diluted earnings per share is calculated by dividing net income by the weighted-average number of common shares outstanding, after giving effect to all dilutive potential common shares outstanding during the period. Basic common shares outstanding exclude 387,365 common shares in 2020 and 387,365 common shares in 2019 that are held in escrow and subject to forfeiture. The common shares held in escrow includes 387,365 common shares that are subject to forfeiture to indemnify the Company for certain representations and warranties in connection with the acquisition of Wunderlich. The shares that remain in escrow are subject to forfeiture upon the final settlement of claims as more fully described in the related escrow instructions. Dilutive common shares outstanding includes contingently issuable shares that are currently in escrow and subject to release if the conditions for the final settlement of claims in accordance with the escrow instructions were satisfied at the end of the respective years. Securities that could potentially dilute basic net income per share in the future that were not included in the computation of diluted net income per share were 1,820,178 and 1,952,868 for the three months ended March 31, 2020 and 2019, respectively, because to do so would have been anti-dilutive.
Basic and diluted earnings per share were calculated as follows:
Three Months Ended | ||||||||
March 31, | ||||||||
2020 | 2019 | |||||||
Net (loss) income attributable to B. Riley Financial, Inc. | $ | (98,665 | ) | $ | 8,023 | |||
Preferred stock dividends | (1,055 | ) | — | |||||
Net (loss) income applicable to common shareholders | $ | (99,720 | ) | $ | 8,023 | |||
Weighted average common shares outstanding: | ||||||||
Basic | 26,028,613 | 26,217,215 | ||||||
Effect of dilutive potential common shares: | ||||||||
Restricted stock units and warrants | — | 352,938 | ||||||
Contingently issuable shares | — | 117,378 | ||||||
Diluted | 26,028,613 | 26,687,531 | ||||||
Basic income per common share | $ | (3.83 | ) | $ | 0.31 | |||
Diluted income per common share | $ | (3.83 | ) | $ | 0.30 |
NOTE 14—COMMITMENTS AND CONTINGENCIES
(a) Legal Matters
The Company is subject to certain legal and other claims that arise in the ordinary course of its business. In particular, the Company and its subsidiaries are named in and subject to various proceedings and claims arising primarily from the Company’s securities business activities, including lawsuits, arbitration claims, class actions, and regulatory matters. Some of these claims seek substantial compensatory, punitive, or indeterminate damages. The Company and its subsidiaries are also involved in other reviews, investigations, and proceedings by governmental and self-regulatory organizations regarding the Company’s business, which may result in adverse judgments, settlements, fines, penalties, injunctions, and other relief. In view of the number and diversity of claims against the Company, the number of jurisdictions in which litigation is pending, and the inherent difficulty of predicting the outcome of litigation and other claims, the Company cannot state with certainty what the eventual outcome of pending litigation or other claims will be. Notwithstanding this uncertainty, the Company does not believe that the results of these claims are likely to have a material effect on its financial position or results of operations.
On August 11, 2017, a putative class action lawsuit titled Freedman v. magicJack VocalTec Ltd. et al., Case 9-17-cv-80940, was filed against magicJack and its Board of Directors in the United States District Court for the Southern District of Florida (Case No: 9:17-cv-80940-RLR). Oral arguments were held on for January 17, 2020 and the Company is awaiting the court’s decision. The Company cannot estimate the amount of potential liability, if any, that could arise from this matter.
On January 5, 2017, complaints filed in November 2015 and May 2016 naming MLV & Co. (“MLV”), a broker-dealer subsidiary of FBR, as a defendant in putative class action lawsuits alleging claims under the Securities Act, in connection with the offerings of Miller Energy Resources, Inc. (“Miller”) have been consolidated. The Master Consolidated Complaint, styled Gaynor v. Miller et al., is pending in the United States District Court for the Eastern District of Tennessee, and, like its predecessor complaints, continues to allege claims under Sections 11 and 12 of the Securities Act against nine underwriters for alleged material misrepresentations and omissions in the registration statement and prospectuses issued in connection with six offerings (February 13, 2013; May 8, 2013; June 28, 2013; September 26, 2013; October 17, 2013 (as to MLV only) and August 21, 2014) with an alleged aggregate offering price of approximately $151,000. The Court ordered mediation before a federal magistrate took place on August 6, 2019, with no resolution. In December 2019, the Court remanded the case to state court.
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In July 2017, an arbitration claim was filed with FINRA by Dominick & Dickerman LLC and Michael Campbell against WSI and Gary Wunderlich with respect to the acquisition by Wunderlich Investment Company, Inc. (“WIC”) (the parent corporation of WSI) of certain assets of Dominick & Dominick LLC in 2015. The Claimants allege that respondents overvalued WIC so that the purchase price paid to the Claimants in shares of WIC stock was artificially inflated. On April 7, 2020, the arbitration panel issued an award against B. Riley Wealth Management, LLC (formerly, Wunderlich Securities, Inc.) and Gary Wunderlich holding each party jointly and severally liable for damages, costs and expenses in an aggregate amount of $11,400. The Company recorded a loss accrual in the consolidated financial statements during the three months ended March 31, 2020. The Company filed a petition to vacate the arbitration award in the U.S. District Court for the Southern District of New York on May 5, 2020.
In December 2015, magicJack received a Letter of Inquiry (the “2015 LOI”) from the Enforcement Bureau (the “Bureau”) of the Federal Communications Commission (“FCC”) in which the Bureau indicated that it was investigating whether magicJack was subject to the FCC’s rules applicable to interconnected VoIP providers. magicJack believes that it is not an interconnected VoIP provider under current regulations and is not subject to the FCC rules. Previously, magicJack received similar letters of inquiry in 2010 and 2013, neither of which resulted in any enforcement action. magicJack responded to the 2015 LOI in February 2016. magicJack is currently participating in discussions with the FCC regarding a potential settlement.
(b) Tax Contingencies
magicJack believes that it files all required tax returns and pays all required federal, state and municipal taxes (such as sales, excise, utility, and ad valorem taxes), fees and surcharges. magicJack is the subject of inquiries and examinations by various states and municipalities in the normal course of business. In accordance with generally accepted accounting principles, magicJack makes a provision for a liability for taxes when it is both probable that a liability has been incurred and the amount of the liability can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case. magicJack believes any possible claims are without merit and vigorously defends its rights. However, if a government entity were to prevail in any matter, it could have a material adverse effect on magicJack’s financial condition, results of operation and cash flows. In addition, it is at least reasonably possible that a potential loss may exist for tax contingencies in addition to the provisions taken by magicJack.
Historically, magicJack considered the requirements to collect sales taxes under the auspices of a 1991 Supreme Court case, Quill Corp. v. North Dakota, which established the precedent that a physical presence in the respective state is required for an entity to be subject to a state’s sales and use tax requirements. Accordingly, magicJack had concluded that it did not have nexus for sales tax in those states in which it had no physical presence (i.e., it had no employees regularly and systematically there and it had no property there). On June 21, 2018, via South Dakota v. Wayfair, Inc. (No. 17-494) (“Wayfair”) the U.S. Supreme Court reversed its prior ruling and eliminated the “physical presence” requirement. In consideration of the ruling, magicJack made the decision to start collecting sales tax on direct sales of its magicJack device and access right renewals in states that have adopted similar “Economic Nexus” laws. magicJack began registering for, collecting and remitting sales tax to identified jurisdictions during the third quarter of 2018. The Company will continue to monitor the situation and add additional states if deemed necessary. Though the South Dakota law is to be applied prospectively, it is not certain if other states may try to enact laws on a retrospective basis based on the Wayfair ruling, and the Company cannot estimate the likelihood of liability or the potential amount of assessments that could arise from prior periods if other states tried to apply the ruling on a retrospective basis.
In a letter dated September 12, 2019, the Company received notice that the State of California has selected the Company’s 2016 and 2017 California corporate income tax returns for examination. The Company has received the initial information document request and the first meeting with the auditor scheduled in March 2020 was rescheduled to a date to be determined due to COVID -19. The Company believes that the positions taken in its 2016 and 2017 California corporate income tax returns are reasonable and appropriate, however, the Company cannot be sure of the ultimate outcome of the examination and cannot estimate the likelihood of liability or the amount of potential assessments, if any, that could arise from the examination.
(c) Franchise Group Commitment Letter, Loan Participant Guaranty and CIBC Guarantee
Franchise Group Commitment Letter and Loan Participant Guaranty
Commitment Letter
On February 14, 2020, affiliates of Franchise Group, Inc. (collectively with all of its affiliates, “FRG”) entered into an ABL Credit Agreement (the “Franchise Credit Agreement”), with GACP Finance Co., LLC (“GACP Finance”) as administrative agent and collateral agent, and the lenders from time to time party thereto, pursuant to which the lenders provided an asset based credit facility to FRG in an aggregate principal amount of $100,000 In connection with the Franchise Credit Agreement, the Company entered into a commitment letter, dated as of February 14, 2020 (the “Commitment Letter”), pursuant to which the Company committed to provide a $100,000 asset based lending facility to FRG, on April 14, 2020 if, on or before such date, the obligations under the Franchise Credit Agreement are not refinanced in full. On May 1, 2020, the Company extended its commitment under the Commitment Letter until 30 days prior to the maturity date which is currently set forth in the Franchise Credit Agreement as September 30, 2020.
The Loan Participant Guaranty
On February 14, 2020, FRG, the lenders from time to time party thereto and GACP Finance as administrative agent, entered into a Credit Agreement (the “Term Loan Credit Agreement”), pursuant to which the lenders provided a term loan facility to FRG in an aggregate principal amount of $575,000.
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On February 19, 2020, the Company entered into a limited guaranty (the “Loan Participant Guaranty”) to one of the lenders under the Term Loan Credit Agreement (the “Loan Participant”) pursuant to which the Company guaranteed the payment when due of certain obligations, including principal, interest, and other amounts payable to the Loan Participant under the Term Loan Credit Agreement in an amount not to exceed $50,000 plus certain expenses of the Loan Participant and certain protective advances related to such guaranteed obligations (the “Loan Participant Guaranteed Obligations”). The Loan Participant may require payment of the Loan Participant Guaranteed Obligations by the Company upon the occurrence of certain guarantor events of default, including payment or bankruptcy events of default, in each case pursuant to the Term Loan Credit Agreement. The Loan Participant Guaranty remains in effect until the date that the Loan Participant Guaranteed Obligations have been paid in full.
The Loan Participant Guaranteed Obligations are unsecured obligations of the Company and rank equally in right of payment with all of the Company’s other existing and future unsecured and unsubordinated indebtedness. The Loan Participant Guaranteed Obligations are effectively subordinated in right of payment to all of the Company’s existing and future secured indebtedness and structurally subordinated to all existing and future indebtedness of the Company’s subsidiaries, including trade payables.
CIBC Guaranty
On February 14, 2020, the Company entered into a limited guaranty (the “CIBC Guaranty”) in favor of CIBC Bank USA (“CIBC”), pursuant to which the Company guaranteed the payment when due of certain obligations, including all principal, interest, and other amounts that shall be at any time payable by FRG under FRG’s credit agreement with CIBC and the lenders party thereto, dated as of May 16, 2019, as amended (the “CIBC Credit Agreement”) in an amount not to exceed $125,000 plus certain expenses of CIBC related to such guaranteed obligations (the “CIBC Guaranteed Obligations”). CIBC may require payment of the CIBC Guaranteed Obligations by the Company upon the occurrence of either (a) the failure of FRG to pay any principal of any loan or any reimbursement obligation in respect of any letter of credit disbursement or (b) the failure of FRG to pay any interest on any loan or on any reimbursement obligation in respect of any letter of credit disbursement within five business days of the date due, in each case pursuant to the CIBC Credit Agreement. The CIBC Guaranty remains in effect until the earlier of (a) the date that the CIBC Guaranteed Obligations have been paid in full or (b) June 30, 2020.
The CIBC Guaranteed Obligations are unsecured obligations of the Company and rank equally in right of payment with all of the Company’s other existing and future unsecured and unsubordinated indebtedness. The CIBC Guaranteed Obligations are effectively subordinated in right of payment to all of the Company’s existing and future secured indebtedness and structurally subordinated to all existing and future indebtedness of the Company’s subsidiaries, including trade payables.
NOTE 15—SHARE-BASED PAYMENTS
(a) Amended and Restated 2009 Stock Incentive Plan
Share- based compensation expense for restricted stock units under the Company’s Amended and Restated 2009 Stock Incentive Plan (the “Plan”) was $4,109 and $1,726 for the three months ended March 31, 2020 and 2019, respectively.
The restricted stock units generally vest over a period of one to three years based on continued service. Performance based restricted stock units generally vest based on both the employee’s continued service and the Company’s common stock price, as defined in the grant, achieving a set threshold during the three-year period following the grant. In determining the fair value of restricted stock units on the grant date, the fair value is adjusted for (a) estimated forfeitures, (b) expected dividends based on historical patterns and the Company’s anticipated dividend payments over the expected holding period and (c) the risk-free interest rate based on U.S. Treasuries for a maturity matching the expected holding period.
As of March 31, 2020, the expected remaining unrecognized share-based compensation expense of $15,238 will be expensed over a weighted average period of 1.3 years.
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A summary of equity incentive award activity for the three months ended March 31, 2020 was as follows:
Weighted | ||||||||
Average | ||||||||
Shares | Fair Value | |||||||
Nonvested at January 1, 2020 | 2,263,988 | $ | 12.35 | |||||
Granted | 5,575 | 24.54 | ||||||
Vested | (16,157 | ) | 19.30 | |||||
Nonvested at March 31, 2020 | 2,253,406 | $ | 12.33 |
The total fair value of shares vested during the three months ended March 31, 2020 was $312.
(b) Amended and Restated FBR & Co. 2006 Long-Term Stock Incentive Plan
In connection with the acquisition of FBR & Co. on June 1, 2017, the equity awards previously granted or available for issuance under the FBR & Co. 2006 Long-Term Stock Incentive Plan (the “FBR Stock Plan”) may be issued under the Plan. The share-based compensation expense in connection with the FBR Stock Plan restricted stock awards was $791 and $767 during the three months ended March 31, 2020 and 2019, respectively. As of March 31, 2020, the expected remaining unrecognized share-based compensation expense of $3,833 will be expensed over a weighted average period of 1.6 years.
A summary of equity incentive award activity for the three months ended March 31, 2020 was as follows:
Weighted | ||||||||
Average | ||||||||
Shares | Fair Value | |||||||
Nonvested at January 1, 2020 | 485,033 | $ | 18.33 | |||||
Vested | (41,963 | ) | 15.66 | |||||
Forfeited | (5,306 | ) | 19.18 | |||||
Nonvested at March 31, 2020 | 437,764 | $ | 18.57 |
The total fair value of shares vested under the FBR Stock Plan during the three months ended March 31, 2020 was $657.
(c) 2018 Employee Stock Purchase Plan
In connection with the Company’s Purchase Plan, share based compensation was $165 and $121 for the three months ended March 31, 2020 and 2019, respectively. At March 31, 2020, there were 592 shares reserved for issuance under the Purchase Plan.
NOTE 16—NET CAPITAL REQUIREMENTS
B. Riley FBR, MLV and B. Riley Wealth Management (“BRWM”), the Company’s broker-dealer subsidiaries, are registered with the SEC as broker-dealers and are members of the Financial Industry Regulatory Authority, Inc. (“FINRA”). The Company’s broker-dealer subsidiaries are subject to SEC Uniform Net Capital Rule (Rule 15c3-1) which requires the subsidiaries to maintain minimum net capital and that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1. As such, they are subject to the minimum net capital requirements promulgated by the SEC. As of March 31, 2020, B. Riley FBR had net capital of $103,271, which was $100,994 in excess of its required net capital of $2,277; MLV had net capital of $91, which was $50 in excess of its required net capital of $41; and BRWM had net capital of $5,569, which was $4,975 in excess of its required net capital of $594.
NOTE 17—RELATED PARTY TRANSACTIONS
At March 31, 2020, amounts due from related parties of $4,391 includes $32 from GACP I, L.P. (“GACP I”) and $14 from GACP II, L.P. (“GACP II”) for management fees and other operating expenses, $5 due from B. Riley Principal Merger Corp, a company that consummated its initial public offering on April 11, 2019, and our wholly owned subsidiary, B. Riley Principal Sponsor Co. LLC, is the Sponsor, and $4,340 due from John Ahn, President of Great American Partners, LLC, our indirect wholly owned subsidiary (“GACP”), pursuant to a Secured Line of Promissory Note connected with a Transfer Agreement as further discussed below. At March 31, 2020, amounts due to related parties includes $353 due to CA Global Partners (“CA Global”) for operating expenses related to wholesale and industrial liquidation engagements managed by CA Global on behalf of GA Global Ptrs, and is included in due to related parties and partners on the accompanying condensed balance sheets. During the three months ended March 31, 2020, the Company sold a portion of a loan receivable to GACP for $1,800. At March 31, 2020, the Company had sold loan participations to B. Riley Partners Opportunity Fund, a private equity fund managed by one of our subsidiaries, in the amount of $12,405, and recorded interest expense of $552 during the three months ended March 31, 2020 related to B. Riley Partners Opportunity Fund’s loan participations. Our executive officer’s and board of directors have a 69.8% financial interest, which includes a financial interest of Bryant Riley, our Co-Chief Executive Officer, of 48.8% in the B. Riley Partners Opportunity Fund at March 31, 2020. At December 31, 2019, amounts due from related parties of $5,832 included $145 from GACP I and $12 from GACP II for management fees and other operating expenses, $13 due from B. Riley Principal Merger Corp, and $3,846 due from John Ahn, pursuant to a Secured Line of Promissory Note connected with a Transfer Agreement as further discussed below. At December 31, 2019, the Company had outstanding loan to participations to B. Riley Partners Opportunity Fund in the amount of $12,478
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On April 1, 2019, the Company entered into a Transfer Agreement (the “Transfer Agreement”) with GACP II, a fund managed by GACP, and John Ahn, the President of GACP. The Transfer Agreement provides for among other things, the transfer to Mr. J. Ahn 55.56% of the Company’s limited partnership interest in GACP II (the “Transferred Interest”), which represents a capital commitment in the aggregate amount of $5,000. In connection with the Transfer Agreement, the Company provided Mr. J. Ahn with a non-recourse, secured line of credit in an aggregate amount of up to $5,003 pursuant to the terms of a Secured Line of Credit Promissory Note (the “Note”) dated April 1, 2019, to fund the purchase price of the Transferred Interest. We also entered into a Security Agreement with Mr. J. Ahn on April 1, 2019, which granted to the Company a security interest in the Transferred Interest to secure Mr. J. Ahn’s obligations under the Note. The Note is subject to an interest rate per annum of 7.00%. As of March 31, 2020, the principal and accrued interest on the Note were $4,291 (amount transferred as of March 31, 2020) and $49, respectively. For the three months ended March 31, 2020 interest earned on the Note was $74
The Company periodically participates in loans and financing arrangements in respect of companies in which the Company has an equity ownership and representation on the board of directors or equivalent body. The Company may also provide consulting services or investment banking services to raise capital for these companies. These transactions can be summarized as follows:
Sonim
The Company has a loan receivable due from Sonim Technologies, Inc. (“Sonim”) that is included in loans receivable at fair value with a fair value of $9,155 and $9,603 at March 31, 2020 and December 31, 2019, respectively. The principal amount due on the loan at March 31, 2020 was $10,170, interest is payable at 10.0% per annum with a maturity date of September 1, 2022. During the three months ended March 31, 2020, the Company received principal payments in the amount of $88. A portion of the loan receivable is convertible into common stock of Sonim at $8.87 per share depending on when the Company elects to exercise its’ option to convert the principal balance of the loan into common stock of Sonim.
The original loan was made in October 2017 in connection with the Company’s initial investment in common stock and preferred stock that was purchased from Sonim’s existing shareholders. In October 2017, the Company also entered into a management services agreement with Sonim to provide advisory and consulting services for management fees of up to $200 per year. The management services agreement was terminated in September 2019.
Babcock and Wilcox
The Company has a last-out term loan receivable due from Babcock & Wilcox Enterprises, Inc. (“B&W”) that is included in loans receivable, at fair value with a fair value of $104,998 at March 31, 2020. As of December 31, 2019, the last-out term loan was included in loans receivable, at cost with a carrying value of $109,147. The carrying value of the loan was comprised of the principal amount of $113,330 less original issue discount of $4,183 at December 31, 2019. Interest is payable monthly at the fixed rate of 12.0% per annum. The loan was made to B&W as part of various amendments to B&W’s existing credit agreement with other lenders not related to the Company. In connection with making the loan to B&W, in April 2019 the Company received warrants to purchase 1,666,667 shares of common stock of B&W with an exercise price of $0.01 per share. The option to exercise the warrants expires on April 5, 2022.
One of the Company’s wholly owned subsidiaries entered into a services agreement with B&W that provided for the President of the Company to serve as the Chief Executive Officer of B&W until November 30, 2020 (the “Executive Consulting Agreement”), unless terminated by either party with thirty days written notice. Under this agreement, fees for services provided are $750 per annum, paid monthly. In addition, subject to the achievement of certain performance objectives as determined by B&W’s compensation committee of the board, a bonus or bonuses may also be earned and payable to the Company.
On January 31, 2020, the Company provided B&W with $30,000 of additional last-out term loans pursuant to new amendments to B&W’s existing credit agreement discussed above. The additional last-out term loan receivable due from B&W is included in loans receivable, at fair value with a fair value of $27,603 at March 31, 2020. Pursuant to the new amendment, the Company also agreed upon a term sheet pursuant to which B&W would undertake a refinancing transaction on or prior to May 11, 2020 (the “Refinancing”) and B&W and the existing lenders would amend and restate the credit agreement. As part of the Refinancing, the size of the B&W’s board of directors may also be reduced to five members, with the Company retaining the ability to appoint two members. On January 31, 2020, the Company also entered into a letter agreement with B&W (the “Backstop Commitment Letter”) pursuant to which the Company agreed to fund any shortfall in the $200,000 of new debt or equity financing required as part of the terms of the Refinancing to the extent such amounts have not been raised from third parties on the same terms contemplated by the Refinancing. The Company, B&W and the lenders that are a party to B&W’s existing credit agreement are in negotiations to amend and restate B&W’s existing credit agreement, which would include, among other things, an extension of the maturity of amounts outstanding under the credit facility, the termination of the Backstop Commitment Letter, the commitment by an affiliate of the Company to provide up to $70,000 in additional term loan financing incrementally over the duration of the amended credit facility, and a limited guaranty by the Company of B&W’s obligations under the amended credit facility.
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Maven
The Company has loans receivable due from theMaven, Inc. (“Maven”) that are included in loans receivable, at fair value with a fair value of $25,572 and $21,150 at March 31, 2020 and December 31, 2019, respectively. The Company also has a loan receivable due from Maven that is included loans receivable, at fair value with a fair value of $44,323 March 31, 2020. As of December 31, 2019, the loan was included in loans receivable, at cost with a carrying value of $47,933. The loan receivable was comprised of the principal balance due in the amount of $49,921, less original issue discount of $1,988 at December 31, 2019. Interest on these loans is payable at rates of 12.0% to 15.0% per annum with maturity dates through June 2022.
Franchise Group
The Company has a loan receivable due from Vitamin Shoppe, a subsidiary of Franchise Group, Inc., (“Vitamin Shoppe”) that is included in loans receivable, at fair value with a fair value of $4,651 and $4,951 at March 31, 2020 and December 31, 2019, respectively. Interest is payable at 13.7% per annum with a maturity date of December 16, 2022. During the three months ended March 31, 2020, the Company recognized $7,160 of advisory fees from FRG in connection with FRG’s capital rasing and acquisition transactions.
The Company also entered into a Commitment Letter, Loan Participant Guaranty and CIBC Guarantee with FRG as disclosed above in Note 14 – Commitments and Contingencies.
NOTE 18—BUSINESS SEGMENTS
The Company’s business is classified into the Capital Markets segment, Auction and Liquidation segment, Valuation and Appraisal segment, Principal Investments — United Online and magicJack segment, and Brands segment. These reportable segments are all distinct businesses, each with a different marketing strategy and management structure.
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The following is a summary of certain financial data for each of the Company’s reportable segments:
Three Months Ended | ||||||||
March 31, | ||||||||
2020 | 2019 | |||||||
Capital Markets segment: | ||||||||
Revenues - Services and fees | $ | 104,413 | 48,014 | |||||
Trading (losses) income and fair value adjustments on loans | (182,442 | ) | 25,867 | |||||
Interest income - Loans and securities lending | 21,851 | 11,420 | ||||||
Total revenues | (56,178 | ) | 85,301 | |||||
Selling, general and administrative expenses | (54,711 | ) | (63,389 | ) | ||||
Restructuring recovery | — | 29 | ||||||
Interest expense - Securities lending and loan participations sold | (8,473 | ) | (6,804 | ) | ||||
Depreciation and amortization | (1,105 | ) | (1,276 | ) | ||||
Segment (loss) income | (120,467 | ) | 13,861 | |||||
Auction and Liquidation segment: | ||||||||
Revenues - Services and fees | 20,661 | 20,709 | ||||||
Direct cost of services | (14,816 | ) | (6,274 | ) | ||||
Cost of goods sold | (29 | ) | (14 | ) | ||||
Selling, general and administrative expenses | (1,526 | ) | (2,915 | ) | ||||
Depreciation and amortization | (1 | ) | (2 | ) | ||||
Segment income | 4,289 | 11,504 | ||||||
Valuation and Appraisal segment: | ||||||||
Revenues - Services and fees | 8,788 | 8,583 | ||||||
Selling, general and administrative expenses | (6,867 | ) | (7,187 | ) | ||||
Depreciation and amortization | (41 | ) | (33 | ) | ||||
Segment income | 1,880 | 1,363 | ||||||
Principal Investments - United Online and magicJack segment: | ||||||||
Revenues - Services and fees | 21,718 | 26,590 | ||||||
Revenues - Sale of goods | 1,004 | 945 | ||||||
Total revenues | 22,722 | 27,535 | ||||||
Direct cost of services | (5,136 | ) | (7,842 | ) | ||||
Cost of goods sold | (740 | ) | (1,105 | ) | ||||
Selling, general and administrative expenses | (5,463 | ) | (7,020 | ) | ||||
Depreciation and amortization | (2,879 | ) | (3,463 | ) | ||||
Restructuring charge | — | (176 | ) | |||||
Segment income | 8,504 | 7,929 | ||||||
Brands segment: | ||||||||
Revenues - Services and fees | 3,801 | — | ||||||
Selling, general and administrative expenses | (904 | ) | — | |||||
Depreciation and amortization | (714 | ) | — | |||||
Impairment of tradenames | (4,000 | ) | — | |||||
Segment loss | (1,817 | ) | — | |||||
Consolidated operating (loss) income from reportable segments | (107,611 | ) | 34,657 | |||||
Corporate and other expenses | (13,533 | ) | (9,679 | ) | ||||
Interest income | 246 | 637 | ||||||
Loss on equity investments | (236 | ) | (3,762 | ) | ||||
Interest expense | (15,654 | ) | (10,770 | ) | ||||
(Loss) income before income taxes | (136,788 | ) | 11,083 | |||||
Benefit (provision) for income taxes | 37,539 | (3,104 | ) | |||||
Net (loss) income | (99,249 | ) | 7,979 | |||||
Net loss attributable to noncontrolling interests | (584 | ) | (44 | ) | ||||
Net (loss) income attributable to B. Riley Financial, Inc. | (98,665 | ) | 8,023 | |||||
Preferred stock dividends | 1,055 | — | ||||||
Net (loss) income available to common shareholders | $ | (99,720 | ) | $ | 8,023 |
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The following table presents revenues by geographical area:
Three Months Ended | ||||||||
March 31, | ||||||||
2020 | 2019 | |||||||
Revenues: | ||||||||
Revenues - Services and fees: | ||||||||
North America | $ | 158,466 | $ | 103,820 | ||||
Australia | 664 | 15 | ||||||
Europe | 251 | 61 | ||||||
Total Revenues - Services and fees | $ | 159,381 | $ | 103,896 | ||||
Trading (losses) income and fair value adjustments on loans | $ | (182,442 | ) | $ | 25,867 | |||
North America | ||||||||
Revenues - Sale of goods | ||||||||
North America | $ | 1,004 | $ | 945 | ||||
Revenues - Interest income - Loans and securities lending: | ||||||||
North America | $ | 21,851 | $ | 11,420 | ||||
Total Revenues: | ||||||||
North America | $ | (1,121 | ) | $ | 142,052 | |||
Australia | 664 | 15 | ||||||
Europe | 251 | 61 | ||||||
Total Revenues | $ | (206 | ) | $ | 142,128 |
During the three months ended March 31, 2020 and 2019, long-lived assets, which consist of property and equipment and other assets, of $12,223 and $12,727, respectively, were located in North America.
Segment assets are not reported to, or used by, the Company’s Chief Operating Decision Maker to allocate resources to, or assess performance of, the segments and therefore, total segment assets have not been disclosed.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “future,” “intend,” “seek,” “likely,” “potential” or “continue,” the negative of such terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially.
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither we, nor any other person, assume responsibility for the accuracy and completeness of the forward-looking statements. We are under no obligation to update any of the forward-looking statements after the filing of this Quarterly Report to conform such statements to actual results or to changes in our expectations.
The following discussion of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes and other financial information appearing elsewhere in this Quarterly Report. Readers are also urged to carefully review and consider the various disclosures made by us which attempt to advise interested parties of the factors which affect our business, including without limitation the disclosures made in Item 1A of Part II of this Quarterly Report under the caption “Risk Factors.”
Risk factors that could cause actual results to differ materially from those contained in the forward-looking statements include but are not limited to risks related to: volatility in our revenues and results of operations; the unpredictable and ongoing impact of the COVID-19 pandemic; changing conditions in the financial markets; our ability to generate sufficient revenues to achieve and maintain profitability; our exposure to credit risk; the short term nature of our engagements; the accuracy of our estimates and valuations of inventory or assets in “guarantee” based engagements; competition in the asset management business; potential losses related to our auction or liquidation engagements; our dependence on communications, information and other systems and third parties; potential losses related to purchase transactions in our auction and liquidations business; the potential loss of financial institution clients; potential losses from or illiquidity of our proprietary investments; changing economic and market conditions; potential liability and harm to our reputation if we were to provide an inaccurate appraisal or valuation; potential mark-downs in inventory in connection with purchase transactions; failure to successfully compete in any of our segments; loss of key personnel; our ability to borrow under our credit facilities or at-the-market offering as necessary; failure to comply with the terms of our credit agreements or senior notes; our ability to meet future capital requirements; our ability to realize the benefits of our completed acquisitions, including our ability to achieve anticipated opportunities and operating cost savings, and accretion to reported earnings estimated to result from completed and proposed acquisitions in the time frame expected by management or at all; the diversion of management time on acquisition- related issues; the failure of our brand investment portfolio licensees to pay us royalties; and the intense competition to which our brand investment portfolio is subject. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Except as otherwise required by the context, references in this Quarterly Report to the “Company,” “B. Riley,” “B. Riley Financial,” “we,” “us” or “our” refer to the combined business of B. Riley Financial, Inc. and all of its subsidiaries.
Overview
General
B. Riley Financial, Inc. (NASDAQ: RILY) and its subsidiaries provide collaborative financial services and solutions through several operating subsidiaries including:
● | B. Riley FBR, Inc. (“B. Riley FBR”) is a leading, full service investment bank providing financial advisory, corporate finance, research, securities lending and sales and trading services to corporate, institutional and high net worth individual clients. B. Riley FBR was formed in November 2017 through the merger of B. Riley & Co, LLC and FBR Capital Markets & Co., which the Company acquired in June 2017; the name of the combined broker dealer was subsequently changed to B. Riley FBR, Inc. |
● | B. Riley Wealth Management, Inc. (“B. Riley Wealth Management”) provides comprehensive wealth management and brokerage services to individuals and families, corporations and non-profit organizations, including qualified retirement plans, trusts, foundations and endowments. B. Riley Wealth Management was formerly Wunderlich Securities, Inc., which the Company acquired on July 3, 2017 and changed the name in June 2018. |
● | B. Riley Capital Management, LLC, a Securities and Exchange Commission (“SEC”) registered investment advisor, which includes: |
o | B. Riley Asset Management, an advisor to certain private funds and to institutional and high net worth investors; |
o | Great American Capital Partners, LLC (“GACP”), the general partner of two private funds, GACP I, L.P. and GACP II, L.P., both direct lending funds that provide senior secured loans and second lien secured loan facilities to middle market public and private U.S. companies. |
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● | GlassRatner Advisory & Capital Group LLC (“GlassRatner”), a specialty financial advisory services firm that provides consulting services to shareholders, creditors and companies, including due diligence, fraud investigations, corporate litigation support, crisis management and bankruptcy services. We acquired GlassRatner on August 1, 2018. GlassRatner strengthens B. Riley’s diverse platform and compliments the restructuring services provided by B. Riley FBR. |
● | Great American Group, LLC(“Great American Group”), a leading provider of asset disposition and auction solutions to a wide range of retail and industrial clients. |
● | Great American Group Advisory and Valuation Services, LLC, a leading provider of appraisal and valuation services for asset based lenders, private equity firms and corporate clients. |
We also pursue a strategy of investing in or acquiring companies which we believe have attractive investment return characteristics. We acquired United Online, Inc. (“UOL” or “United Online”) on July 1, 2016 and magicJack VocalTec Ltd. (“magicJack”) on November 14, 2018 as part of our principal investment strategy.
● | UOL is a communications company that offers consumer subscription services and products, consisting of Internet access services and devices under the NetZero and Juno brands primarily sold in the United States. |
● | magicJack is a Voice over IP (“VoIP”) cloud-based technology and services communications provider. |
BR Brand, in which the company owns a majority interest, provides licensing of a brand investment portfolio. BR Brand owns the assets and intellectual property related to licenses of six brands: Catherine Malandrino, English Laundry, Joan Vass, Kensie Girl, Limited Too and Nanette Lepore.
We are headquartered in Los Angeles with offices in major cities throughout the United States including New York, Chicago, Boston, Dallas, Memphis, Metro Washington D.C and West Palm Beach.
For financial reporting purposes we classify our businesses into five operating segments: (i) Capital Markets, (ii) Auction and Liquidation, (iii) Valuation and Appraisal, (iv) Principal Investments – United Online and magicJack and (v) Brands.
Capital Markets Segment. Our Capital Markets segment provides a full array of investment banking, corporate finance, consulting, financial advisory, research, securities lending, wealth management and sales and trading services to corporate, institutional and high net worth clients. Our corporate finance and investment banking services include merger and acquisitions as well as restructuring advisory services to public and private companies, initial and secondary public offerings, and institutional private placements. In addition, we trade equity securities as a principal for our account, including investments in funds managed by our subsidiaries. Our Capital Markets segment also includes our asset management businesses that manage various private and public funds for institutional and individual investors.
Auction and Liquidation Segment. Our Auction and Liquidation segment utilizes our significant industry experience, a scalable network of independent contractors and industry-specific advisors to tailor our services to the specific needs of a multitude of clients, logistical challenges and distressed circumstances. Furthermore, our scale and pool of resources allow us to offer our services across North American as well as parts of Europe, Asia and Australia. Our Auction and Liquidation segment operates through two main divisions, retail store liquidations and wholesale and industrial assets dispositions. Our wholesale and industrial assets dispositions division operates through limited liability companies that are controlled by us.
Valuation and Appraisal Segment. Our Valuation and Appraisal segment provides Valuation and Appraisal services to financial institutions, lenders, private equity firms and other providers of capital. These services primarily include the valuation of assets (i) for purposes of determining and monitoring the value of collateral securing financial transactions and loan arrangements and (ii) in connection with potential business combinations. Our Valuation and Appraisal segment operates through limited liability companies that are majority owned by us.
Principal Investments - United Online and magicJack Segment. Our Principal Investments - United Online and magicJack segment consists of businesses which have been acquired primarily for attractive investment return characteristics. Currently, this segment includes UOL, through which we provide consumer Internet access, and magicJack, through which we provide VoIP communication and related product and subscription services.
Brands Segment. Our Brands segment consists of our brand investment portfolio that is focused on generating revenue through the licensing of trademarks and is held by BR Brand.
Recent Developments
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus (the “COVID-19 outbreak”). In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues to evolve. The impact of the COVID-19 outbreak on our results of operations, financial position and cash flows will depend on future developments, including the duration and spread of the outbreak and related advisories and restrictions. These developments and the impact of the COVID-19 outbreak on the financial markets and the overall economy are highly uncertain and cannot be predicted. If the financial markets and/or the overall economy are impacted for an extended period, our results of operations, financial position and cash flows may be materially adversely affected.
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Results of Operations
The following period to period comparisons of our financial results are not necessarily indicative of future results.
Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019
Condensed Consolidated Statements of Operations
(Dollars in thousands)
Three Months Ended | ||||||||||||
March 31, 2020 | March 31, 2019 | Change | ||||||||||
Revenues: | ||||||||||||
Services and fees | $ | 159,381 | $ | 103,896 | $ | 55,485 | ||||||
Trading (losses) income and fair value adjustments on loans | (182,442 | ) | 25,867 | (208,309 | ) | |||||||
Interest income - Loans and securities lending | 21,851 | 11,420 | 10,431 | |||||||||
Sale of goods | 1,004 | 945 | 59 | |||||||||
Total revenues | (206 | ) | 142,128 | (142,334 | ) | |||||||
Operating expenses: | ||||||||||||
Direct cost of services | 19,952 | 14,116 | 5,836 | |||||||||
Cost of goods sold | 769 | 1,119 | (350 | ) | ||||||||
Selling, general and administrative expenses | 87,744 | 94,964 | (7,220 | ) | ||||||||
Restructuring charge | — | 147 | (147 | ) | ||||||||
Impairment of tradenames | 4,000 | — | 4,000 | |||||||||
Interest expense - Securities lending and loan participations sold | 8,473 | 6,804 | 1,669 | |||||||||
Total operating expenses | 120,938 | 117,150 | 3,788 | |||||||||
Operating (loss) income | (121,144 | ) | 24,978 | (146,122 | ) | |||||||
Other income (expense): | ||||||||||||
Interest income | 246 | 637 | (391 | ) | ||||||||
Loss from equity investments | (236 | ) | (3,762 | ) | 3,526 | |||||||
Interest expense | (15,654 | ) | (10,770 | ) | (4,884 | ) | ||||||
(Loss) income before income taxes | (136,788 | ) | 11,083 | (147,871 | ) | |||||||
Benefit (provision) for income taxes | 37,539 | (3,104 | ) | 40,643 | ||||||||
Net (loss) income | (99,249 | ) | 7,979 | (107,228 | ) | |||||||
Net loss attributable to noncontrolling interests | (584 | ) | (44 | ) | (540 | ) | ||||||
Net (loss) income attributable to B. Riley Financial, Inc. | (98,665 | ) | 8,023 | (106,688 | ) | |||||||
Preferred stock dividends | 1,055 | — | 1,055 | |||||||||
Net (loss) income available to common shareholders | $ | (99,720 | ) | $ | 8,023 | $ | (107,743 | ) |
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Revenues
The table below and the discussion that follows are based on how we analyze our business.
Three Months Ended | ||||||||||||||||
March 31, 2020 | March 31, 2019 | Change | ||||||||||||||
Amount | Amount | Amount | % | |||||||||||||
Revenues - Services and fees: | ||||||||||||||||
Capital Markets segment | $ | 104,413 | $ | 48,014 | $ | 56,399 | 117.5 | % | ||||||||
Auction and Liquidation segment | 20,661 | 20,709 | (48 | ) | -0.2 | % | ||||||||||
Valuation and Appraisal segment | 8,788 | 8,583 | 205 | 2.4 | % | |||||||||||
Principal Investments - United Online and magicJack segment | 21,718 | 26,590 | (4,872 | ) | -18.3 | % | ||||||||||
Brands | 3,801 | — | 3,801 | 100.0 | % | |||||||||||
Subtotal | 159,381 | 103,896 | 55,485 | 53.4 | % | |||||||||||
Revenues - Sale of goods: | ||||||||||||||||
Principal Investments - United Online and magicJack segment | 1,004 | 945 | 59 | 6.2 | % | |||||||||||
Subtotal | 1,004 | 945 | 59 | 6.2 | % | |||||||||||
Trading (losses) income and fair value adjustments on loans | ||||||||||||||||
Capital Markets segment | (182,442 | ) | 25,867 | (208,309 | ) | -805.3 | % | |||||||||
Subtotal | (182,442 | ) | 25,867 | (208,309 | ) | -805.3 | % | |||||||||
Interest income - Loans and securities lending: | ||||||||||||||||
Capital Markets segment | 21,851 | 11,420 | 10,431 | 91.3 | % | |||||||||||
Total revenues | $ | (206 | ) | $ | 142,128 | $ | (142,334 | ) | -100.1 | % |
Total revenues decreased approximately $142.3 million to ($0.2 million) during the three months ended March 31, 2020 from $142.1 million during the three months ended March 31, 2019. The decrease in revenues during the three months ended March 31, 2020 was primarily due to a decrease in revenue from trading losses and fair value adjustments on loans of $208.3 million, partially offset by increases in revenue from services and fees of $55.5 million and interest income - loans and securities lending of $10.4 million. The increase in revenue from services and fees of $55.5 million in the three months ended March 31, 2020 was primarily due to increases in revenue of $56.4 million in the Capital Markets segment, $0.2 million in the Valuation and Appraisal segment and $3.8 million in the Brands segment partially offset by a decrease of revenue of $4.9 million in the Principal Investments — United Online and magicJack segment.
Revenues from services and fees in the Capital Markets segment increased $56.4 million, to $104.4 million during the three months ended March 31, 2020 from $48.0 million during the three months ended March 31, 2019. The increase in revenues was primarily due to an increase in revenue of $49.5 million from corporate finance, consulting and investment banking fees, an increase in commissions of $3.6 million and an increase in asset management fees of $2.8 million.
Revenues from services and fees in the Auction and Liquidation segment remained at $20.7 million during the three months ended March 31, 2020 and 2019.
Revenues from services and fees in the Valuation and Appraisal segment increased $0.2 million to $8.8 million during the three months ended March 31, 2020 from $8.6 million during the three months ended March 31, 2019. The increase in revenues in the Valuation and Appraisal segment is primarily due to an increase in revenues for appraisal engagements where we perform valuations for the monitoring of collateral for financial institutions, lenders, and private equity investors.
Revenues from services and fees in the Principal Investments - United Online and magicJack segment decreased $4.9 million to $21.7 million during the three months ended March 31, 2020 from $26.6 million during the three months ended March 31, 2019. The decrease in revenues from services and fees is a result of a decrease in subscription services of $3.6 million and a decrease in advertising licensing and other of $1.3 million. Management expects revenues from the Principal Investments - United Online and magicJack segment to continue to decline year over year.
Revenues from services and fees in the Brands segment were $3.8 million for the three months ended March 31, 2020. We established the Brands segment in 2019 following the acquisition of a majority interest in BR Brands on October 28, 2019. The primary source of revenue included in this segment is the licensing of trademarks.
Trading income and fair value adjustments on loans decreased to a loss of $182.4 million for the three months ended March 31, 2020 from a gain of $25.9 million for the three months ended March 31, 2019. The $182.4 million loss for the three months ended March 31, 2020 includes realized and unrealized amounts earned on investments made in our proprietary trading account of $164.5 million and unrealized amounts on our loans receivable at fair value of $17.9 million.
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Interest income – loans and securities lending increased $10.4 million, to $21.9 million during the three months ended March 31, 2020 from $11.4 million during the three months ended March 31, 2019. Interest income from securities lending was $10.1 million and $9.3 million during the three months ended March 31, 2020 and 2019, respectively. Interest income from loans was $11.7 million and $2.1 million during the three months ended March 31, 2020 and 2019, respectively. The increase in interest income on loans was primarily due to the increase in lending activities in our Capital Markets segment which included an increase in loans receivable to $326.3 million at March 31, 2020 from $87.5 million at March 31, 2019.
Sale of Goods, Cost of Goods Sold and Gross Margin
Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | |||||||||||||||||||||||
Principal | Principal | |||||||||||||||||||||||
Investments - | Investments - | |||||||||||||||||||||||
Auction | United | Auction | United | |||||||||||||||||||||
and Liquidation | Online and magicJack | and Liquidation | Online and magicJack | |||||||||||||||||||||
Segment | Segment | Total | Segment | Segment | Total | |||||||||||||||||||
Revenues - Sale of Goods | $ | — | $ | 1,004 | $ | 1,004 | $ | — | $ | 945 | $ | 945 | ||||||||||||
Cost of goods sold | 29 | 740 | 769 | 14 | 1,105 | 1,119 | ||||||||||||||||||
Gross margin on sale of goods | $ | (29 | ) | $ | 264 | $ | 235 | $ | (14 | ) | $ | (160 | ) | $ | (174 | ) | ||||||||
Gross margin percentage | (100.0 | %) | 26.3 | % | 23.4 | % | (100.0 | %) | (16.9 | %) | (18.4 | %) |
Revenues from the sale of goods increased $0.1 million, to $1.0 million during the three months ended March 31, 2020 from $0.9 million during the three months ended March 31, 2019. The increase in revenues from sale of goods were attributable to $0.1 million of sales of magicJack devices that are sold in connection with VoIP services. Cost of goods sold for the three months ended March 31, 2020 was $0.8 million, resulting in a gross margin of 23.4%.
Operating Expenses
Direct Cost of Services. Direct cost of services and direct cost of services measured as a percentage of revenues – services and fees by segment during the three months ended March 31, 2020 and 2019 are as follows:
Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | |||||||||||||||||||||||
Principal | Principal | |||||||||||||||||||||||
Investments - | Investments - | |||||||||||||||||||||||
Auction | United | Auction | United | |||||||||||||||||||||
and Liquidation | Online and magicJack | and Liquidation | Online and magicJack | |||||||||||||||||||||
Segment | Segment | Total | Segment | Segment | Total | |||||||||||||||||||
Revenues - Services and fees | $ | 20,661 | 21,718 | $ | 20,709 | $ | 26,590 | |||||||||||||||||
Direct cost of services | 14,816 | 5,136 | $ | 19,952 | 6,274 | 7,842 | $ | 14,116 | ||||||||||||||||
Gross margin on services and fees | $ | 5,845 | $ | 16,582 | $ | 14,435 | $ | 18,748 | ||||||||||||||||
Gross margin percentage | 28.3 | % | 76.4 | % | 69.7 | % | 70.5 | % |
Total direct costs increased $5.8 million, to $20.0 million during the three months ended March 31, 2020 from $14.1 million during the three months ended March 31, 2019. Direct costs of services increased by $8.5 million in the Auction and Liquidation segment partially offset by a decrease of $2.7 million in the Principal Investments — United Online and magicJack segment. The increase in direct costs in the Auction and Liquidation segment was primarily due to mix of engagement types performed during the three months ended March 31, 2020 as compared to the three months ended March 31, 2019. The decrease in direct costs in the Principal Investments — United Online and magicJack segment was primarily as a result of the sale of a division of magicJack in the second quarter of 2019.
Auction and Liquidation
Gross margin in the Auction and Liquidation segment for services and fees decreased to 28.3% of revenues during the three months ended March 31, 2020, as compared to 69.7% of revenues during the three months ended March 31, 2020. The decrease in margin in the Auction and Liquidation segment is due to the mix of engagement types between guarantee and commission and fees engagements performed during the three months ended March 31, 2020 as compared to the prior year period.
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Principal Investments—United Online and magicJack
Gross margins in the Principal Investments — United Online and magicJack segment increased to 76.4% of revenues during the three months ended March 31, 2020, as compared to 70.5% of revenues during the three months ended March 31, 2020. The increase in margin in the Principal Investments — United Online and magicJack segment is primarily due to the sale of a division of magicJack in the second quarter of 2019.
Selling, General and Administrative Expenses. Selling, general and administrative expenses during the three months ended March 31, 2020 and 2019 were comprised of the following:
Selling, General and Administrative Expenses
Three Months Ended | Three Months Ended | |||||||||||||||||||||||
March 31, 2020 | March 31, 2019 | Change | ||||||||||||||||||||||
Amount | % | Amount | % | Amount | % | |||||||||||||||||||
Capital Markets segment | $ | 55,816 | 63.7 | % | $ | 64,665 | 68.1 | % | $ | (8,849 | ) | (13.7 | %) | |||||||||||
Auction and Liquidation segment | 1,527 | 1.7 | % | 2,917 | 3.1 | % | (1,390 | ) | (47.7 | %) | ||||||||||||||
Valuation and Appraisal segment | 6,908 | 7.9 | % | 7,220 | 7.6 | % | (312 | ) | (4.3 | %) | ||||||||||||||
Principal Investments - United Online and magicJack segment | 8,342 | 9.5 | % | 10,483 | 11.0 | % | (2,141 | ) | (20.4 | %) | ||||||||||||||
Brands segment | 1,618 | 1.8 | % | — | 0.0 | % | 1,618 | 100.0 | % | |||||||||||||||
Corporate and Other segment | 13,533 | 15.4 | % | 9,679 | 10.2 | % | 3,854 | 39.8 | % | |||||||||||||||
Total selling, general & administrative expenses | $ | 87,744 | 100.0 | % | $ | 94,964 | 100.0 | % | $ | (7,220 | ) | (7.6 | %) |
Total selling, general and administrative expenses decreased approximately $7.2 million to $87.7 million during the three months ended March 31, 2020 from $95.0 million for the three months ended March 31, 2019. The decrease of approximately $7.2 million in selling, general and administrative expenses was due to a decrease of $8.8 million in the Capital Markets segment, a decrease of $1.4 million in the Auction and Liquidation segment, a decrease of $0.3 million in the Valuation and Appraisal segment, a decrease of $2.1 million in the Principal Investments — United Online and magicJack segment, partially offset by an increase of $1.6 million in the Brands segment and an increase of $3.9 million in the Corporate and Other segment.
Capital Markets
Selling, general and administrative expenses in the Capital Markets segment decreased by $8.8 million to $55.8 million during the three months ended March 31, 2020 from $64.7 million during the three months ended March 31, 2019. The decrease was primarily due to a decrease of $25.8 million in consulting expenses partially offset by increases of $15.1 million in payroll and related expenses.
Auction and Liquidation
Selling, general and administrative expenses in the Auction and Liquidation segment decreased by $1.4 million to $1.5 million during the three months ended March 31, 2020 from $2.9 million during the three months ended March 31, 2019. The decrease in selling, general and administrative expenses in the Auction and Liquidation segment was primarily due to a decrease of $1.2 million in payroll and related expenses.
Valuation and Appraisal
Selling, general and administrative expenses in the Valuation and Appraisal segment decreased by $0.3 million to $6.9 million during the three months ended March 31, 2020 from $7.2 million during the three months ended March 31, 2019. The decrease in selling, general and administrative expenses in the Valuation and Appraisal segment was primarily due to a decrease of $0.4 million in payroll and related expenses.
Principal Investments — United Online and magicJack
Selling, general and administrative expenses in the Principal Investments — United Online and magicJack segment decreased $2.1 million to $8.3 million for the three months ended March 31, 2020 from $10.5 million for the three months ended March 31, 2019. The decrease in selling, general and administrative expenses in the Principal Investments — United Online and magicJack segment is primarily due to a decrease of $0.8 million in payroll and related expenses and $0.5 million in legal expenses.
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Brands
Selling, general and administrative expenses in the Brands segment was $1.6 million for the three months ended March 31, 2020. We established the Brands segment in 2019 following the acquisition of a majority equity interest in BR Brands on October 28, 2019.
Corporate and Other
Selling, general and administrative expenses for the Corporate and Other segment increased approximately $3.8 million to $13.5 million during the three months ended March 31, 2020 from $9.7 million for the three months ended March 31, 2019. The increase of expenses in the Corporate and Other segment for the three months ended March 31, 2020 was primarily due to recording a pre-acquisition litigation claim related to one of our acquired subsidiaries of $10.2 million in other expenses partially offset by a gain of $1.6 million on extinguishment of debt from the repurchase of senior notes and a decrease of $5.5 million in professional fees.
Impairment of tradenames. Due to the impact of the COVID-19 outbreak on economic activity and market volatility, we tested our intangible assets as of March 31, 2020 and made the determination that the indefinite-lived tradenames in the Brands segment were impaired. In the three months ended March 31, 2020, the Company recognized impairment of $4.0 million on the indefinite-lived tradenames.
Other Income (Expense). Other income included interest income of $0.2 million during the three months ended March 31, 2020 and $0.6 million during the three months ended March 31, 2019. Interest expense was $15.7 million during the three months ended March 31, 2020 compared to $10.8 million during the three months ended March 31, 2019. The increase in interest expense during the three months ended March 31, 2020 was primarily due to an increase in interest expense of $5.5 million from the issuance of senior notes due in 2021, 2023, 2024, 2025, 2026 and 2027, partially offset by a decrease in interest expense of $0.4 million from the term loan dated December 2018 and a decrease in interest expense on our asset based credit facility and other of $0.2 million. Other income in the three months ended March 31, 2020 included a loss on equity investments of $0.2 million income on equity investments compared to $3.8 million in the prior year period.
(Loss) Income Before Income Taxes. Loss before income taxes was $136.8 million during the three months ended March 31, 2020 compared to income before income taxes of $11.1 million during the three months ended March 31, 2019. The decrease in income before income taxes was primarily due to a decrease in revenues of approximately $142.3 million, an increase in interest expense of $4.9 million, an increase in operating expenses of $3.8 million and a decrease in interest income of $0.4 million, partially offset by a decrease in loss from equity investments of $3.5 million, as discussed above.
Benefit (Provision) for Income Taxes. Benefit from income taxes was $37.5 million during the three months ended March 31, 2020 compared to provision for income taxes of $3.1 million during the three months ended March 31, 2019. The effective income tax rate was a benefit of 27.4% for the three months ended March 31, 2020 as compared to a provision of 28.0% for the three months ended March 31, 2019.
Net Loss Attributable to Noncontrolling Interest. Net income attributable to noncontrolling interests represents the proportionate share of net income generated by BR Brand, 20% of the membership interest of which we do not own and Great American Global Partners, LLC, 50% of the membership interest of which we do not own. The net loss attributable to noncontrolling interests was $0.6 million during the three months ended March 31, 2020 compared to $44 thousand during the three months ended March 31, 2019.
Net (Loss) Income Attributable to the Company. Net loss attributable to the Company for the three months ended March 31, 2020 was $98.7 million, from net income attributable to the Company of $8.0 million for the three months ended March 31, 2019. The decrease in net income attributable to the Company during the three months ended March 31, 2020 as compared to the same period in 2019 was primarily due to a decrease in operating income of $146.1 million, an increase in interest expense of $4.9 million and a decrease in interest income of $0.4 million and an increase in loss attributable to noncontrolling interest of $0.5 million, partially offset by an increase in benefit from income taxes of $40.6 million and a decrease in loss from equity investments of $3.5 million.
Preferred Stock Dividends. On October 7, 2019, the Company closed its public offering of Depositary Shares, each representing 1/1000th of a share of 6.875% Series A Cumulative Perpetual Preferred Stock, par value $0.0001 per share. Holders of Series A Preferred Stock, when and as authorized by the board of directors of the Company, are entitled to cumulative cash dividends at the rate of 6.875% per annum of the $25,000 liquidation preference ($25.00 per Depositary Share) per year (equivalent to $1,718.75 or $1.71875 per Depositary Share). Dividends will be payable quarterly in arrears, on or about the last day of January, April, July and October. On January 9, 2020, the Company declared a cash dividend representing $0.4296875 per Depositary Share, which was paid on January 31, 2020 to holders of record as of the close of business on January 21, 2020.
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Net (Loss) Income Available to Common Shareholders. Net loss available to common shareholders for the three months ended March 31, 2020 was $99.7 million, from net income available to common shareholders of $8.0 million for the three months ended March 31, 2019. The increase in net loss available to common shareholders during the three months ended March 31, 2020 as compared to the same period in 2019 was primarily due to a decrease in operating income of $146.1 million, an increase in interest expense of $4.9 million, a decrease in interest income of $0.4 million and an increase in loss attributable to noncontrolling interest of $0.5 million and an increase in preferred stock dividends of $1.1 million, partially offset by an increase in benefit from income taxes of $40.6 million and a decrease in loss from equity investments of $3.5 million.
Liquidity and Capital Resources
Our operations are funded through a combination of existing cash on hand, cash generated from operations, borrowings under our senior notes payable, term loan and credit facility, and special purposes financing arrangements.
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus (the “COVID-19 outbreak”). In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues to evolve. The impact of the COVID-19 outbreak on the Company’s results of operations, financial position and cash flows will depend on future developments, including the duration and spread of the outbreak and related advisories and restrictions. These developments and the impact of the COVID-19 outbreak on the financial markets and the overall economy are highly uncertain and cannot be predicted. If the financial markets and/or the overall economy are impacted for an extended period, the Company’s results of operations, financial position and cash flows may be materially adversely affected.
During the three months ended March 31, 2020 and 2019, we generated net loss of $99.2 million and net income of $8.0 million, respectively. Our cash flows and profitability are impacted by the number and size of retail liquidation and capital markets engagements performed on a quarterly and annual basis.
As of March 31, 2020, we had $124.2 million of unrestricted cash and cash equivalents, $0.5 million of restricted cash, $287.8 million of securities and other investments held at fair value, $326.3 million of loans receivable, and $939.7 million of borrowings outstanding. The borrowings outstanding of $939.7 million at March 31, 2020 included (a) $125.5 million of borrowings from the issuance of the 7.50% 2027 Notes, (b) $122.5 million of borrowings from the issuance of the 7.25% 2027 Notes, (c) $127.4 million of borrowings from the issuance of the 7.375% 2023 Notes, (d) $113.1 million of borrowings from the issuance of the 6.875% 2023 Notes, (e) $110.5 million of borrowings from the issuance of the 6.75% 2024 Notes, (f) $134.7 million of borrowings from the issuance of the 6.50% 2026 Notes, (g) $130.9 million of borrowings from the issuance of the 6.375% 2025 Notes, (h) $61.9 million term loan borrowed pursuant to the BRPAC Credit Agreement discussed below, (i) $0.7 million of notes payable, and (j) $12.4 million of loan participations sold. We believe that our current cash and cash equivalents, securities and other investments owned, funds available under our asset based credit facility, and cash expected to be generated from operating activities will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months from issuance date of the accompanying financial statements. We continue to monitor our financial performance to ensure sufficient liquidity to fund operations and execute on our business plan.
From time to time, we may decide to pay dividends which will be dependent upon our financial condition and results of operations. On May 8, 2020, we declared a quarterly dividend of $0.25 per share which will be paid on or about June 10, 2020 to stockholders of record as of June 1, 2020. During the year ended December 31, 2019, we paid cash dividends on our common stock of $41.1 million. On March 3, 2020, the Board of Directors announced an increase to the regular quarterly dividend from $0.175 per share to $0.25 per share. While it is the Board’s current intention to make regular dividend payments of $0.25 per share each quarter and special dividend payments dependent upon exceptional circumstances from time to time, our Board of Directors may reduce or discontinue the payment of dividends at any time for any reason it deems relevant. The declaration and payment of any future dividends or repurchases of our common stock will be made at the discretion of our Board of Directors and will be dependent upon our financial condition, results of operations, cash flows, capital expenditures, and other factors that may be deemed relevant by our Board of Directors.
A summary of our common stock dividend activity for the three months ended March 31, 2020 and the year ended December 31, 2019 was as follows:
Regular | Special | Total | ||||||||||||||
Stockholder | Dividend | Dividend | Dividend | |||||||||||||
Date Declared | Date Paid | Record Date | Amount | Amount | Amount | |||||||||||
March 3, 2020 | March 31, 2020 | March 17, 2020 | $ | 0.25 | $ | 0.10 | $ | 0.35 | ||||||||
October 30, 2019 | November 26, 2019 | November 14, 2019 | 0.175 | 0.475 | 0.650 | |||||||||||
August 1, 2019 | August 29, 2019 | August 15, 2019 | 0.175 | 0.325 | 0.500 | |||||||||||
May 1, 2019 | May 29, 2019 | May 15, 2019 | 0.08 | 0.18 | 0.26 | |||||||||||
March 5, 2019 | March 26, 2019 | March 19, 2019 | 0.08 | 0.00 | 0.08 |
Holders of Series A Preferred Stock, when and as authorized by the board of directors of the Company, are entitled to cumulative cash dividends at the rate of 6.875% per annum of the $25,000 liquidation preference ($25.00 per Depositary Share) per year (equivalent to $1,718.75 or $1.71875 per Depositary Share). Dividends will be payable quarterly in arrears, on or about the last day of January, April, July and October. As of March 31, 2020, dividends in arrears in respect of the Depositary Shares were $725. On January 9, 2020, the Company declared a cash dividend $0.4296875 per Depositary Share, which was paid on January 31, 2020 to holders of record as of the close of business on January 21, 2020. On April 13, 2020, the Company declared a cash dividend $0.4296875 per Depositary Share, which was paid on April 30, 2020 to holders of record as of the close of business on April 23, 2020.
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Our principal sources of liquidity to finance our business are our existing cash on hand, cash generated from operations, borrowings under our senior notes payable, term loan and credit facility, issuances of common and preferred stock and special purpose financing arrangements.
Cash Flow Summary
Three Months Ended | ||||||||
March 31, | ||||||||
2020 | 2019 | |||||||
(Dollars in thousands) | ||||||||
Net cash provided by (used in): | ||||||||
Operating activities | $ | 455 | $ | 8,924 | ||||
Investing activities | (71,492 | ) | (26,513 | ) | ||||
Financing activities | 92,332 | 8,241 | ||||||
Effect of foreign currency on cash | (1,332 | ) | 23 | |||||
Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 19,963 | $ | (9,325 | ) |
Cash provided by in operating activities was $0.5 million during the three months ended March 31, 2020 compared to $8.9 million during the three months ended March 31, 2019. Cash provided by operating activities for the three months ended March 31, 2020 included net loss of $99.2 million adjusted for noncash items of $24.9 million and changes in operating assets and liabilities of $74.8 million. Noncash items of $24.9 million include (a) depreciation and amortization of $5.0 million, (b) share-based compensation of $5.3 million, (c) loss on equity investments of $0.2 million, (d) fair value adjustments of $17.9 million, (e) provision for doubtful accounts of $0.7 million, (f) income allocated for mandatorily redeemable noncontrolling interests of $0.2 million, (g) other noncash interest and other of $2.8 million, (h) deferred income taxes of $4.3 million, (i) impairment of intangibles and loss on disposal of fixed assets of $4.0 million and (j) gain on extinguishment of debt of $1.6 million.
Cash used in investing activities was $71.5 million during the three months ended March 31, 2020 compared to cash used in investing activities of $26.5 million for the three months ended March 31, 2019. During the three months ended March 31, 2020, cash used in investing activities consisted of cash used for loans receivable of $115.3 million, repayments of loan participations sold of $0.2 million and cash used for purchases of property and equipment of $0.4 million, offset by cash received from loans receivable repayment of $42.1 million, sale of a loan receivable to a related party of $1.8 million, and dividends from equity investments of $0.6 million. During the three months ended March 31, 2019, cash used in investing activities consisted of cash used for loans receivable of $20.2 million, cash used for equity investments of $10.6 million and cash used for purchases of property and equipment of $1.7 million, cash received from loans receivable repayment of $5.5 million and dividends from equity investments of $0.4 million.
Cash provided by financing activities was $92.3 million during the three months ended March 31, 2020 compared to cash provided by financing activities of $8.2 million during the three months ended March 31, 2019. During the three months ended March 31, 2020, cash provided by financing activities primarily consisted of $171.1 million proceeds from issuance of senior notes and $4.6 million proceeds from issuance of preferred stock, offset by (a) $37.1 million used to repay our asset based credit facility, (b) $24.1 million used to repurchase our common stock, (c) $9.6 million used to pay dividends on our common shares, (d) $4.8 million use for repayment on our term loan, (e) $1.8 million used to repurchase our senior notes, (f) $2.7 million used to pay debt issuance costs, (g) $1.3 million distribution to noncontrolling interests, (h) $1.1 million used to pay dividends on our preferred shares (i) $0.5 million used for payment of employment taxes on vesting of restricted stock and (j) $0.4 million used to repay our other notes payable. During the three months ended March 31, 2019, cash provided by financing activities primarily consisted of $10.0 million proceeds from our term loan, $5.0 million proceeds from issuance of senior notes, offset by (a) $2.6 million used to buyback our common stocks, (b) $2.6 million used to pay cash dividends on our common stocks, (c) $0.7 million used for payment of employment taxes on vesting of restricted stock (d) $0.4 million used for repayment of notes payable, approximately $0.2 million used for debt issuance costs and (e) $0.3 million distribution to noncontrolling interests.
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Credit Agreements
On April 21, 2017, we amended the asset based credit facility agreement (as amended, the “Credit Agreement”) with Wells Fargo Bank to increase the maximum borrowing limit from $100.0 million to $200.0 million. Such amendment, among other things, also extended the expiration date of the credit facility from July 15, 2018 to April 21, 2022. The Credit Agreement continues to allow for borrowings under the separate credit agreement (a “UK Credit Agreement”) which was dated March 19, 2015 with an affiliate of Wells Fargo Bank which provides for the financing of transactions in the United Kingdom with borrowings up to 50.0 million British Pounds. Any borrowing on the UK Credit Agreement reduce the availability of the asset based $200.0 million credit facility. The UK Credit Agreement is cross collateralized and integrated in certain respects with the Credit Agreement. The Credit Agreement continues to include the addition of our Canadian subsidiary, from the October 5, 2016 amendment to the Credit Agreement, to facilitate borrowings to fund retail liquidation transactions in Canada. From time to time, we utilize this credit facility to fund costs and expenses incurred in connection with liquidation engagements. We also utilize this credit facility in order to issue letters of credit in connection with liquidation engagements conducted on a guaranteed basis. Subject to certain limitations and offsets, we are permitted to borrow up to $200.0 million under the credit facility, less the aggregate principal amount borrowed under the UK Credit Agreement (if in effect). Borrowings under the credit facility are only made at the discretion of the lender and are generally required to be repaid within 180 days. The interest rate for each revolving credit advance under the related credit agreement is, subject to certain terms and conditions, equal to the LIBOR plus a margin of 2.25% to 3.25% depending on the type of advance and the percentage such advance represents of the related transaction for which such advance is provided. The credit facility is secured by the proceeds received for services rendered in connection with the liquidation service contracts pursuant to which any outstanding loan or letters of credit are issued and the assets that are sold at liquidation related to such contract, if any. The credit facility also provides for success fees in the amount of 2.5% to 17.5% of the net profits, if any, earned on liquidation engagements that are financed under the credit facility as set forth in the related credit agreement. We typically seek borrowings on an engagement-by- engagement basis. The credit agreement governing the credit facility contains certain covenants, including covenants that limit or restrict our ability to incur liens, incur indebtedness, make investments, dispose of assets, make certain restricted payments, merge or consolidate and enter into certain transactions with affiliates. There was no outstanding balance on this credit facility at March 31, 2020. The outstanding balance on this credit facility was $37.1 million at December 31, 2019. At March 31, 2020, there were no open letters of credit outstanding.
On December 19, 2018, BRPI Acquisition Co LLC (“BRPAC”), a Delaware limited liability company, UOL, and YMAX Corporation, Delaware corporations (collectively, the “Borrowers”), indirect wholly owned subsidiaries of the Company, in the capacity of borrowers, entered into a credit agreement with the Banc of California, N.A. in the capacity as agent and lender and with the other lenders party thereto (the “BRPAC Credit Agreement”). Under the BRPAC Credit Agreement, we borrowed $80.0 million due December 19, 2023. Pursuant to the terms of the BRPAC Credit Agreement, we may request additional optional term loans in an aggregate principal amount of up to $10.0 million at any time prior to the first anniversary of the agreement date. On February 1, 2019, the Borrowers entered into the First Amendment to Credit Agreement and Joinder with City National Bank as a new lender in which the new lender extended to Borrowers the additional $10.0 million as further discussed in Note 9 to the accompanying financial statements. The borrowings under the BRPAC Credit Agreement bear interest equal to the LIBOR plus a margin of 2.50% to 3.00% depending on the Borrowers’ consolidated total funded debt ratio as defined in the BRPAC Credit Agreement.
Borrowings under the BRPAC Credit Agreement are due in quarterly installments commencing on March 31, 2019 with any remaining amounts outstanding due at maturity. For the $80.0 million loan, quarterly installments from March 31, 2020 to December 31, 2022 are $4.2 million per quarter and from March 31, 2023 to December 31, 2023, the quarterly installments are $2.1 million per quarter. For the $10.0 million loan, quarterly installments from March 31, 2020 to December 31, 2022 are $0.6 million per quarter and from March 31, 2023 to December 31, 2023, the quarterly installments are $0.3 million per quarter. At March 31, 2020 and December 31, 2019, the outstanding balance of the term loan was $61.9 million (net of unamortized debt issuance costs of $0.5 million) and $66.7 million (net of unamortized debt issuance costs of $0.6 million), respectively.
Senior Note Offerings
During the three months ended March 31, 2020, we issued $38.8 million of senior notes due with maturities dates ranging from May 2023 to December 2027 pursuant to At the Market Issuance Sales Agreements with B. Riley FBR, Inc. which governs the program of at-the-market sales of our senior notes. We filed a series of prospectus supplements with the SEC which allowed us to sell these senior notes.
On February 12, 2020, we issued $132.3 million of senior notes due in February 2025 (“6.375% 2025 Notes”) pursuant to the prospectus supplement dated February 10, 2020. Interest on the 6.375% 2025 Notes is payable quarterly at 6.375%. The 6.375% 2025 Notes are unsecured and due and payable in full on February 28, 2025. In connection with the issuance of the 6.375% 2025 Notes, we received net proceeds of $129.2 million (after underwriting commissions, fees and other issuance costs of $3.0 million).
During March 2020, we repurchased bonds with an aggregate face value of $3.4 million for $1.8 million resulting in a gain net of expenses of $1.6 million as of March 31, 2020. As part of the repurchase, we paid $30 thousand in interest accrued through the date of each respective repurchase.
At March 31, 2020 and December 31, 2019, the total senior notes outstanding was $853.5 million (net of unamortized debt issue costs of $11.1 million) and $688.1 million (net of unamortized debt issue costs of $8.9 million) with a weighted average interest rate of 6.94% and 7.05%, respectively. Interest on senior notes is payable on a quarterly basis. Interest expense on senior notes totaled $14.3 million and $8.9 million for the three months ended March 31, 2020 and 2019, respectively.
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On February 14, 2020, we entered into a new At Market Issuance Sales Agreement (the “February 2020 Sales Agreement”) with B. Riley FBR, Inc. governing a program of at-the-market sales of certain of our senior notes. The most recent sales agreement prospectus was filed by us with the SEC on February 14, 2020 (the “February 2020 Sales Agreement Prospectus”). The Sales Agreement Prospectus allows us to sell up to $150.0 million of certain of our senior notes pursuant to an effective Registration Statement on Form S-3. As of March 31, 2020, we had $148.4 million remaining availability under the February 2020 Sales Agreement.
Off Balance Sheet Arrangements
As part of our investment banking and financial services activities, from time to time we enter into guaranties of debt, commitments of other entities, and similar transactions that may be considered off-balance sheet arrangements.
B&W Credit Agreement and Backstop
On January 31, 2020, the Company provided Babcock & Wilcox Enterprises, Inc. (“B&W”) $30 million of additional Tranche A-4 last out term loans pursuant to Amendment No. 20 (“Amendment No. 20”) to the Credit Agreement, dated May 11, 2015 (as amended to date, the “B&W Credit Agreement”) with Bank of America, N.A., as administrative agent and lender, and the other lenders party thereto. The Company is a lender with respect to B&W’s existing last out term loans under the Credit Agreement. Kenneth Young, our President, is the Chief Executive Officer of B&W. Pursuant to Amendment No. 20, B&W and the lenders, including the Company, also agreed upon a term sheet pursuant to which B&W would undertake a refinancing transaction on or prior to May 11, 2020 (the “Refinancing”) and B&W and the lenders, including the Company, would amend and restate the Credit Agreement on the terms specified therein. As part of the Refinancing, the size of B&W’s board of directors may also be reduced to 5 members, with the Company retaining the ability to appoint 2 members. On January 31, 2020, B&W also entered into a letter agreement with the Company (the “Backstop Commitment Letter”) pursuant to which the Company agreed to fund any shortfall in the $200 million of new debt or equity financing required as part of the terms of the Refinancing to the extent such amounts have not been raised from third parties on the same terms contemplated by the Refinancing. The Company, B&W and the lenders that are a party to B&W’s existing credit agreement are in negotiations to amend and restate B&W’s existing credit agreement, which would include, among other things, an extension of the maturity of amounts outstanding under the credit facility, the termination of the Backstop Commitment Letter, the commitment by an affiliate of the Company to provide up to $70.0 million in additional term loan financing incrementally over the duration of the amended credit facility, and a limited guaranty by the Company of B&W’s obligations under the amended credit facility.
Franchise Group Commitment Letter and Loan Participant Guaranty
Commitment Letter
On February 14, 2020, affiliates of Franchise Group, Inc. (collectively with all of its affiliates, “FRG”) entered into an ABL Credit Agreement (the “Franchise Credit Agreement”), with GACP Finance Co., LLC (“GACP Finance”) as administrative agent and collateral agent, and the lenders from time to time party thereto, pursuant to which the lenders provided an asset based credit facility to FRG in an aggregate principal amount of $100.0 million. In connection with the Franchise Credit Agreement, the Company entered into a commitment letter, dated as of February 14, 2020 (the “Commitment Letter”), pursuant to which the Company committed to provide a $100.0 million asset based lending facility to FRG, on April 14, 2020 if, on or before such date, the obligations under the Franchise Credit Agreement are not refinanced in full. On May 1, 2020, we extended our commitment under the Commitment Letter until 30 days prior to the maturity date which is currently set forth in the Franchise Credit Agreement as September 30, 2020.
The Loan Participant Guaranty
On February 14, 2020 FRG, the lenders from time to time party thereto and GACP Finance as administrative agent, entered into a Credit Agreement (the “Term Loan Credit Agreement”), pursuant to which the lenders provided a term loan facility to FRG in an aggregate principal amount of $575.0 million.
On February 19, 2020, the Company entered into a limited guaranty (the “Loan Participant Guaranty”) to one of the lenders under the Term Loan Credit Agreement (the “Loan Participant”) pursuant to which the Company guaranteed the payment when due of certain obligations, including principal, interest, and other amounts payable to the Loan Participant under the Term Loan Credit Agreement in an amount not to exceed $50.0 million plus certain expenses of the Loan Participant and certain protective advances related to such guaranteed obligations (the “Loan Participant Guaranteed Obligations”). The Loan Participant may require payment of the Loan Participant Guaranteed Obligations by the Company upon the occurrence of certain guarantor events of default, including payment or bankruptcy events of default, in each case pursuant to the Term Loan Credit Agreement. The Loan Participant Guaranty remains in effect until the date that the Loan Participant Guaranteed Obligations have been paid in full.
The Loan Participant Guaranteed Obligations are unsecured obligations of the Company and rank equally in right of payment with all of the Company’s other existing and future unsecured and unsubordinated indebtedness. The Loan Participant Guaranteed Obligations are effectively subordinated in right of payment to all of the Company’s existing and future secured indebtedness and structurally subordinated to all existing and future indebtedness of the Company’s subsidiaries, including trade payables.
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CIBC Guaranty
On February 14, 2020, the Company entered into a limited guaranty (the “CIBC Guaranty”) in favor of CIBC Bank USA (“CIBC”), pursuant to which the Company guaranteed the payment when due of certain obligations, including all principal, interest, and other amounts that shall be at any time payable by FRG under FRG’s credit agreement with CIBC and the lenders party thereto, dated as of May 16, 2019, as amended (the “CIBC Credit Agreement”) in an amount not to exceed $125.0 million plus certain expenses of CIBC related to such guaranteed obligations (the “CIBC Guaranteed Obligations”). CIBC may require payment of the CIBC Guaranteed Obligations by the Company upon the occurrence of either (a) the failure of FRG to pay any principal of any loan or any reimbursement obligation in respect of any letter of credit disbursement or (b) the failure of FRG to pay any interest on any loan or on any reimbursement obligation in respect of any letter of credit disbursement within five business days of the date due, in each case pursuant to the CIBC Credit Agreement. The CIBC Guaranty remains in effect until the earlier of (a) the date that the CIBC Guaranteed Obligations have been paid in full and (b) June 30, 2020.
The CIBC Guaranteed Obligations are unsecured obligations of the Company and rank equally in right of payment with all of the Company’s other existing and future unsecured and unsubordinated indebtedness. The CIBC Guaranteed Obligations are effectively subordinated in right of payment to all of the Company’s existing and future secured indebtedness and structurally subordinated to all existing and future indebtedness of the Company’s subsidiaries, including trade payables.
Except as disclosed above, we have no material obligations, assets or liabilities which would be considered off-balance sheet arrangements and do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, established for the purpose of facilitating off-balance sheet arrangements.
Contractual Obligations
In February 2020, we issued $132.3 million of our 6.375% 2025 Notes, which are due and payable in full on February 28, 2025. As a result, our total senior notes payable increased to $1,117.0 million as of March 31, 2020 and our senior notes payable due in more than 5 years increased to $560.5 million. Additionally, our total contractual obligations increased to $1,295.8 million and our total payments due in more than 5 years increased to $585.2 million. There were no other material changes to our contractual obligations from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.
Recent Accounting Standards
See Note 2(v) to the accompanying financial statements for recent accounting pronouncements we have not yet adopted and recently adopted.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
B. Riley’s primary exposure to market risk consists of risk related to changes in interest rates. B. Riley has not used derivative financial instruments for speculation or trading purposes.
Interest Rate Risk
Our primary exposure to market risk consists of risk related to changes in interest rates. We utilize borrowings under our senior notes payable and credit facilities to fund costs and expenses incurred in connection with our acquisitions and retail liquidation engagements. Borrowings under our senior notes payable are at fixed interest rates and borrowings under our credit facilities bear interest at a floating rate of interest. We invest in loans receivable that primarily bear interest at floating rates of interest.
The primary objective of our investment activities is to preserve capital for the purpose of funding operations while at the same time maximizing the income we receive from investments without significantly increasing risk. To achieve these objectives, our investments allow us to maintain a portfolio of cash equivalents, short-term investments through a variety of securities owned that primarily includes common stocks, corporate bonds and investments in partnership interests, and loans receivable. Our cash and cash equivalents through March 31, 2020 included amounts in bank checking and liquid money market accounts. We may be exposed to interest rate risk through trading activities in convertible and fixed income securities as well as U.S. Treasury securities, however, based on our daily monitoring of this risk, we believe we currently have limited exposure to interest rate risk in these activities.
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Foreign Currency Risk
The majority of our operating activities are conducted in U.S. dollars. Revenues generated from our foreign subsidiaries totaled $0.9 million for the three months ended March 31, 2020 or 0.6% of our services and fees revenues of $159.3 million during the three months ended March 31, 2020. The financial statements of our foreign subsidiaries are translated into U.S. dollars at period-end rates, with the exception of revenues, costs and expenses, which are translated at average rates during the reporting period. We include gains and losses resulting from foreign currency transactions in income, while we exclude those resulting from translation of financial statements from income and include them as a component of accumulated other comprehensive loss. Transaction gains (losses), which were included in our condensed consolidated statements of operations, amounted to a gain of $0.9 million and a gain of $0.2 million during the three months ended March 31, 2020 and 2019, respectively. We may be exposed to foreign currency risk; however, our operating results during the three months ended March 31, 2020 included less than $1.0 million of revenues from our foreign subsidiaries and a 10% appreciation of the U.S. dollar relative to the local currency exchange rates would result in less than $0.1 million increase in our operating income and a 10% depreciation of the U.S. dollar relative to the local currency exchange rates would have resulted in a net decrease in our operating income of less than $0.1 million for the three months ended March 31, 2020.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain a system of disclosure controls and procedures (as defined in the Rules 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that is designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Co-Chief Executive Officers and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Under the supervision and with the participation of our management, including our Co-Chief Executive Officers and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act. Based upon the foregoing evaluation, our Co-Chief Executive Officers and our Chief Financial Officer concluded that as of March 31, 2020 our disclosure controls and procedures were not effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There have been no changes to our internal control over financial reporting during the fiscal quarter covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Remediation
Management has been implementing and continues to implement measures designed to ensure that the control deficiency contributing to the material weakness as of December 31, 2019 is remediated, such that the controls are designed, implemented, and operating effectively. The remediation actions include: (i) creating a related party oversight function and (ii) enhancing the related party policies and procedures with a specific focus on related party disclosures.
While we believe that these actions will be sufficient to remediate the material weakness, it will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of this material weakness will be completed prior to the end of fiscal 2020.
Inherent Limitation on Effectiveness of Controls
Our management, including our Co-Chief Executive Officers and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well- designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of the effectiveness of controls to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
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The Company is subject to certain legal and other claims that arise in the ordinary course of its business. In particular, the Company and its subsidiaries are named in and subject to various proceedings and claims arising primarily from the Company’s securities business activities, including lawsuits, arbitration claims, class actions, and regulatory matters. Some of these claims seek substantial compensatory, punitive, or indeterminate damages. The Company and its subsidiaries are also involved in other reviews, investigations, and proceedings by governmental and self-regulatory organizations regarding the Company’s business, which may result in adverse judgments, settlements, fines, penalties, injunctions, and other relief. In view of the number and diversity of claims against the Company, the number of jurisdictions in which litigation is pending, and the inherent difficulty of predicting the outcome of litigation and other claims, the Company cannot state with certainty what the eventual outcome of pending litigation or other claims will be. Notwithstanding this uncertainty, the Company does not believe that the results of these claims are likely to have a material effect on its financial position or results of operations.
On August 11, 2017, a putative class action lawsuit titled Freedman v. magicJack VocalTec Ltd. et al., Case 9-17-cv-80940, was filed against magicJack and its Board of Directors in the United States District Court for the Southern District of Florida (Case No: 9:17-cv-80940-RLR). Oral arguments were held on for January 17, 2020 and the Company is awaiting the court’s decision. The Company cannot estimate the amount of potential liability, if any, that could arise from this matter.
On January 5, 2017, complaints filed in November 2015 and May 2016 naming MLV & Co. (“MLV”), a broker-dealer subsidiary of FBR, as a defendant in putative class action lawsuits alleging claims under the Securities Act, in connection with the offerings of Miller Energy Resources, Inc. (“Miller”) have been consolidated. The Master Consolidated Complaint, styled Gaynor v. Miller et al., is pending in the United States District Court for the Eastern District of Tennessee, and, like its predecessor complaints, continues to allege claims under Sections 11 and 12 of the Securities Act against nine underwriters for alleged material misrepresentations and omissions in the registration statement and prospectuses issued in connection with six offerings (February 13, 2013; May 8, 2013; June 28, 2013; September 26, 2013; October 17, 2013 (as to MLV only) and August 21, 2014) with an alleged aggregate offering price of approximately $151.0 million. Court ordered mediation before a federal magistrate took place on August 6, 2019, with no resolution. In December 2019, the Court remanded the case to state court.
In July 2017, an arbitration claim was filed with FINRA by Dominick & Dickerman LLC and Michael Campbell against WSI and Gary Wunderlich with respect to the acquisition by Wunderlich Investment Company, Inc. (“WIC”) (the parent corporation of WSI) of certain assets of Dominick & Dominick LLC in 2015. The Claimants allege that respondents overvalued WIC so that the purchase price paid to the Claimants in shares of WIC stock was artificially inflated. On April 7, 2020, the arbitration panel issued an award against B. Riley Wealth Management, LLC (formerly, Wunderlich Securities, Inc.) and Gary Wunderlich holding each party jointly and severally liable for damages, costs and expenses in an aggregate amount of $11.4 million. The Company recorded a loss accrual in the consolidated financial statements during the three months ended March 31, 2020. The Company filed a petition to vacate the arbitration award in the U.S. District Court for the Southern District of New York on May 5, 2020.
In December 2015, magicJack received a Letter of Inquiry (the “2015 LOI”) from the Enforcement Bureau (the “Bureau”) of the Federal Communications Commission (“FCC”) in which the Bureau indicated that it was investigating whether magicJack was subject to the FCC’s rules applicable to interconnected VoIP providers. magicJack believes that it is not an interconnected VoIP provider under current regulations and is not subject to the FCC rules. Previously, magicJack received similar letters of inquiry in 2010 and 2013, neither of which resulted in any enforcement action. magicJack responded to the 2015 LOI in February 2016. magicJack is currently participating in discussions with the FCC regarding a potential settlement.
Given the nature of our operations and services we provide, a wide range of factors could materially affect our operations and profitability. Changes in competitive, market and economic conditions also affect our operations. The risks and uncertainties described below are not the only risks and uncertainties facing us. Additional risks and uncertainties not presently known or that are currently considered to be immaterial may also materially and adversely affect our business operations or stock price. If any of the following risks or uncertainties occurs, our business, financial condition or operating results could materially suffer. These risk factors should be read carefully in connection with evaluating our business and in connection with the forward-looking statements and other information contained in this Quarterly Report on Form 10-Q. Any of the risks described in this Quarterly Report on Form 10-Q could materially affect our business, financial condition or future results and the actual outcome of matters as to which forward-looking statements are made. The risk factors below amend and supersede the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.
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Our revenues and results of operations are volatile and difficult to predict.
Our revenues and results of operations fluctuate significantly from quarter to quarter, due to a number of factors. These factors include, but are not limited to, the following:
● | Our ability to attract new clients and obtain additional business from our existing client base; | |
● | The number, size and timing of mergers and acquisition transactions, capital raising transactions and other strategic advisory services where we act as an adviser on our Auction and Liquidation and investment banking engagements; | |
● | The extent to which we acquire assets for resale, or guarantee a minimum return thereon, and our ability to resell those assets at favorable prices; | |
● | Variability in the mix of revenues from the Auction and Liquidation and Valuation and Appraisal businesses; | |
● | The rate of decline we experience from our dial-up and DSL Internet access pay accounts in our UOL business as customers continue to migrate to broadband access which provides faster Internet connection and download speeds offered by our competitors; | |
● | The rate of growth of new service areas; | |
● | The types of fees we charge clients, or other financial arrangements we enter into with clients; and | |
● | Changes in general economic and market conditions, including the effects of the ongoing COVID-19 pandemic, or an outbreak of another highly infectious or contagious disease. |
We have limited or no control over some of the factors set forth above and, as a result, may be unable to forecast our revenues accurately. For example, our investment banking revenues are typically earned upon the successful completion of a transaction, the timing of which is uncertain and beyond our control. A client’s acquisition transaction may be delayed or terminated because of a failure to agree upon final terms with the counterparty, failure to obtain necessary regulatory consents or board or stockholder approvals, failure to secure necessary financing, adverse market conditions or unexpected financial or other problems in the business of a client or a counterparty. If the parties fail to complete a transaction on which we are advising or an offering in which we are participating, we will earn little or no revenue from the contemplated transaction.
We rely on projections of revenues in developing our operating plans for the future and will base our expectations regarding expenses on these projections and plans. If we inaccurately forecast revenues and/or earnings, or fail to accurately project expenses, we may be unable to adjust our spending in a timely manner to compensate for these inaccuracies and, as a result, may suffer operating losses and such losses could have a negative impact on our financial condition and results of operations. If, for any reason, we fail to meet company, investor or analyst projections of revenue, growth or earnings, the market price of the common stock could decline and you may lose all or part of your investment.
Conditions in the financial markets and general economic conditions, including the ongoing COVID-19 pandemic, have impacted and may continue to impact our ability to generate business and revenues, which may cause significant fluctuations in our stock price.
Our business has been in the past, and we expect it in the future to be, be materially affected by conditions in the financial market and general economic conditions, such as the level and volatility of interest rates, investor sentiment, the availability and the cost of credit, the U.S. mortgage market, the U.S. real estate market, volatile energy prices, consumer confidence, unemployment, the adverse effects of events such as outbreaks of contagious disease (such as the ongoing COVID-19 pandemic), and geopolitical issues. Further, certain aspects of our business are cyclical in nature and changes in the current economic environment may require us to adjust our sales and marketing practices and react to different business opportunities and modes of competition. If we are not successful in reacting to changing economic conditions, we may lose business opportunities which could harm our financial condition.
Adverse economic developments, like the ongoing COVID-19 pandemic, can have an unpredictable impact on our business. For example, we are more likely to conduct auctions and liquidations in connection with insolvencies and store closures during periods of economic downturn relative to periods of economic expansion; however, temporary limits on businesses due to mandated “social distancing” measures and “stay at home” work restrictions have limited our ability to conduct auctions and liquidations.
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In addition, weakness or disruption in equity markets, such as the recent market volatility due to the ongoing COVID-19 pandemic, and diminished trading volume of securities could adversely impact our sales and trading business in the future. Any industry-wide declines in the size and number of underwritings and mergers and acquisitions transactions could also have an adverse effect on our investment banking revenues, which we are currently experiencing due to the ongoing COVID-19 pandemic. Reductions in the trading prices for equity securities, such as those that have occurred due to the ongoing COVID-19 pandemic, tend to reduce the transaction value of investment banking transactions, such as underwriting and mergers and acquisitions transactions, which in turn may reduce the fees we earn from these transactions. Market conditions may also affect the level and volatility of securities prices and the liquidity and value of investments in our funds and proprietary inventory, and we may not be able to manage our business’s exposure to these market conditions. In addition to these factors, deterioration in the financial markets or economic conditions, such as those that have occurred due to the ongoing COVID-19 pandemic, could materially affect our investment banking business in other ways, including the following:
● | Our opportunity to act as underwriter or placement agent could be adversely affected by a reduction in the number and size of capital raising transactions or by competing sources of equity. |
● | The number and size of mergers and acquisitions transactions or other strategic advisory services where we act as adviser could be adversely affected by continued uncertainties in valuations related to asset quality and creditworthiness, volatility in the equity markets, and diminished access to financing. |
● | Market volatility could lead to a decline in the volume of transactions that we execute for our customers and, therefore, to a decline in the revenue we receive from commissions and spreads. |
● | We may experience losses in securities trading activities, or as a result of write-downs in the value of securities that we own, as a result of deteriorations in the businesses or creditworthiness of the issuers of such securities. |
● | We may experience losses or write downs in the realizable value of our proprietary investments due to the inability of companies we invest in to repay their borrowings. |
● | Our access to liquidity and the capital markets could be limited, preventing us from making proprietary investments and restricting our sales and trading businesses. |
● | We may incur unexpected costs or losses as a result of the bankruptcy or other failure of companies for which we have performed investment banking services to honor ongoing obligations such as indemnification or expense reimbursement agreements. |
● | Sudden sharp declines in market values of securities can result in illiquid markets and the failure of counterparties to perform their obligations, which could make it difficult for us to sell securities, hedge securities positions, and invest funds under management. |
● | As an introducing broker to clearing firms, we are responsible to the clearing firm and could be held liable for the defaults of our customers, including losses incurred as the result of a customer’s failure to meet a margin call. When we allow customers to purchase securities on margin, we are subject to risks inherent in extending credit. This risk increases when a market is rapidly declining and the value of the collateral held falls below the amount of a customer’s indebtedness. If a customer’s account is liquidated as the result of a margin call, we are liable to our clearing firm for any deficiency. |
● | Competition in our investment banking, sales, and trading businesses could intensify as a result of the increasing pressures on financial services companies and larger firms competing for transactions and business that historically would have been too small for them to consider. |
● | Market volatility could result in lower prices for securities, which may result in reduced management fees calculated as a percentage of assets under management. |
● | Market declines could increase claims and litigation, including arbitration claims from customers. |
● | Our industry could face increased regulation as a result of legislative or regulatory initiatives. Compliance with such regulation may increase our costs and limit our ability to pursue business opportunities. |
● | Government intervention may not succeed in improving the financial and credit markets and may have negative consequences for our business. |
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It is difficult to predict how long the current financial market and economic conditions related to the ongoing COVID-19 pandemic will continue, whether they will further deteriorate and if they do, which of our business lines will be adversely affected. We are currently being impacted by the ongoing COVID-19 pandemic, including with respect to the above-described risks. While we are continuing to monitor the spread of COVID-19 and related risks, the rapid development and fluidity of situation precludes any prediction as to its ultimate impact on us. However, if the spread continues, such impact could grow and our business, financial condition, results of operations and cash flows could be materially adversely affected.
Global economic and political uncertainty, in particular due to the ongoing COVID-19 pandemic, could adversely affect our revenue and results of operations.
As a result of the international nature of our business, we are subject to the risks arising from adverse changes in global economic and political conditions. Uncertainty about the effects of current and future economic and political conditions on us, our customers, suppliers and partners makes it difficult for us to forecast operating results and to make decisions about future investments. Deterioration in economic conditions in any of the countries in which we do business could result in reductions in sales of our products and services and could cause slower or impaired collections on accounts receivable, which may adversely impact our liquidity and financial condition.
The ongoing COVID-19 pandemic has caused severe disruptions in the U.S. and global economy, which has impacted the business, activities, and operations of our customers, as well as our business and operations. In March 2020, the Federal Reserve lowered the target range for the federal funds rate to a range from 0 to 0.25 percent, citing concerns about the impact of COVID-19 on markets and stress in the energy sector. Many states and localities have imposed limitations on commercial activity and public gatherings and events, as well as moratoria on evictions. Concern about the spread of COVID-19 has caused and is likely to continue to cause quarantines, business shutdowns, reduction in business activity and financial transactions, labor shortages, supply chain interruptions, increased unemployment and overall economic and financial market instability, all of which may result a decrease in our business. Such conditions are likely to exacerbate many of the risks described elsewhere in these Risk Factors. Unfavorable economic conditions may also make it more difficult for us to access the capital markets, use the capital markets for our clients or otherwise obtain additional financing.
The continued spread of COVID-19, or a significant outbreak of another contagious disease, could negatively impact the availability of key personnel necessary to conduct our business, and the business and operations of our third-party service providers who perform critical services for our business. If COVID-19, or a future highly infectious or contagious disease, is not successfully contained, we could experience a material adverse effect on our business, financial condition, results of operations and cash flow. Among the factors outside our control that are likely to affect the impact the COVID-19 pandemic will ultimately have on our business are:
● | the pandemic’s course and severity; |
● | the direct and indirect results of the pandemic, such as recessionary economic trends, including with respect to employment, wages and benefits and commercial activity; |
● | political, legal and regulatory actions and policies in response to the pandemic, including the effects of restrictions on commerce or other public activities, moratoria and other suspensions of evictions or rent and related obligations; |
● | the timing, magnitude and effect of public spending, directly or through subsidies, its direct and indirect effects on commercial activity and incentives of employers and individuals to resume or increase employment, wages and benefits and commercial activity; |
● | the timing and availability of direct and indirect governmental support for various financial assets, and possible related distortions in market values and liquidity for such assets whose markets have or are assumed to have government support versus possibly similar assets that do not; |
● | potential longer-term effects of increased government spending on the interest rate environment and borrowing costs for non-governmental parties; |
● | the ability of our employees and our third-party vendors to work effectively during the course of the pandemic; |
● | potential longer-term shifts toward telecommuting and telecommerce; and |
● | geographic variation in the severity and duration of the COVID-19 pandemic, including in states such as New York and California where high percentages of our clients, customers and personnel are located. |
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We focus principally on certain sectors of the economy in our investment banking operations, and deterioration in the business environment in these sectors or a decline in the market for securities of companies within these sectors could harm our business.
Volatility in the business environment in the industries in which our clients operate or in the market for securities of companies within these industries could adversely affect our financial results and the market value of our common stock. The business environment for companies in some of these industries has been subject to high levels of volatility in recent years, and our financial results have consequently been subject to significant variations from year to year. For example, the consumer goods and services sectors are subject to consumer spending trends, which have been volatile, to mall traffic trends, which have been down, to the availability of credit, and to broader trends such as the rise of Internet retailers. Most recently, the consumer goods and services sector has been severely impacted by the ongoing COVID-19 pandemic, which has resulted in mandatory store closures of uncertain duration due to “social distancing” measures, “stay at home” work restrictions and the closing of non-essential businesses imposed to control the pandemic. Emerging markets have driven the growth of certain consumer companies but emerging market economies are fragile, subject to wide swings in GDP, and subject to changes in foreign currencies. The technology industry has been volatile, driven by evolving technology trends, by technological obsolescence, by enterprise spending, and by changes in the capital spending trends of major corporations and government agencies around the world.
Our investment banking operations focus on various sectors of the economy, and we also depend significantly on private company transactions for sources of revenues and potential business opportunities. Most of these private company clients are initially funded and controlled by private equity firms. To the extent that the pace of these private company transactions slows or the average transaction size declines due to a decrease in private equity financings, difficult market conditions, such as those due to the ongoing COVID-19 pandemic, in our target industries or other factors, our business and results of operations may be harmed.
Underwriting and other corporate finance transactions, strategic advisory engagements and related sales and trading activities in our target industries represent a significant portion of our investment banking business. This concentration of activity in our target industries exposes us to the risk of declines in revenues in the event of downturns in these industries, such as those due to the ongoing COVID-19 pandemic.
Our corporate finance and strategic advisory engagements are singular in nature and do not generally provide for subsequent engagements.
Our investment banking clients generally retain us on a short-term, engagement-by-engagement basis in connection with specific corporate finance, merger and acquisition transactions (often as an advisor in company sale transactions) and other strategic advisory services, rather than on a recurring basis under long-term contracts. As these transactions are typically singular in nature and our engagements with these clients may not recur, we must seek new engagements when our current engagements are successfully completed or are terminated. As a result, high activity levels in any period are not necessarily indicative of continued high levels of activity in any subsequent period. If we are unable to generate a substantial number of new engagements that generate fees from new or existing clients, our business, results of operations and financial condition could be adversely affected.
The asset management business is intensely competitive.
Over the past several years, the size and number of asset management funds, including hedge funds and mutual funds, has continued to increase. If this trend continues, it is possible that it will become increasingly difficult for our funds to raise capital. More significantly, the allocation of increasing amounts of capital to alternative investment strategies by institutional and individual investors leads to a reduction in the size and duration of pricing inefficiencies. Many alternative investment strategies seek to exploit these inefficiencies and, in certain industries, this drives prices for investments higher, in either case increasing the difficulty of achieving targeted returns. In addition, if interest rates were to rise or there were to be a prolonged bull market in equities, the attractiveness of our funds relative to investments in other investment products could decrease. Competition is based on a variety of factors, including:
● | investment performance; |
● | investor perception of the drive, focus and alignment of interest of an investment manager; |
● | quality of service provided to and duration of relationship with investors; |
● | business reputation; and |
● | level of fees and expenses charged for services. |
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We compete in the asset management business with a large number of investment management firms, private equity fund sponsors, hedge fund sponsors and other financial institutions. A number of factors serve to increase our competitive risks, as follows:
● | investors may develop concerns that we will allow a fund to grow to the detriment of its performance; |
● | some of our competitors have greater capital, lower targeted returns or greater sector or investment strategy specific expertise than we do, which creates competitive disadvantages with respect to investment opportunities; |
● | some of our competitors may perceive risk differently than we do which could allow them either to outbid us for investments in particular sectors or, generally, to consider a wider variety of investments; |
● | there are relatively few barriers to entry impeding new asset management firms, and the successful efforts of new entrants into our various lines of business, including former “star” portfolio managers at large diversified financial institutions as well as such institutions themselves, will continue to result in increased competition; and |
● | other industry participants in the asset management business continuously seek to recruit our best and brightest investment professionals away from us. |
These and other factors could reduce our earnings and revenues and adversely affect our business. In addition, if we are forced to compete with other alternative asset managers on the basis of price, we may not be able to maintain our current base management and incentive fee structures. We have historically competed primarily on the performance of our funds, and not on the level of our fees relative to those of our competitors. However, there is a risk that fees in the alternative investment management industry will decline, without regard to the historical performance of a manager, including our managers. Fee reductions on our existing or future funds, without corresponding decreases in our cost structure, would adversely affect our revenues and distributable earnings.
Poor investment performance may decrease assets under management and reduce revenues from and the profitability of our asset management business.
Revenues from our asset management business are primarily derived from asset management fees. Asset management fees are generally comprised of management and incentive fees. Management fees are typically based on assets under management, and incentive fees are earned on a quarterly or annual basis only if the return on our managed accounts exceeds a certain threshold return, or “highwater mark,” for each investor. We will not earn incentive fee income during a particular period, even when a fund had positive returns in that period, if we do not generate cumulative performance that surpasses a highwater mark. If a fund experiences losses, we will not earn incentive fees with regard to investors in that fund until its returns exceed the relevant highwater mark.
In addition, investment performance is one of the most important factors in retaining existing investors and competing for new asset management business. Investment performance may be poor as a result of the current or future difficult market or economic conditions, including changes in interest rates or inflation, terrorism, widespread outbreaks of disease, such as the ongoing COVID-19 pandemic, or political uncertainty, our investment style, the particular investments that we make, and other factors. Poor investment performance may result in a decline in our revenues and income by causing (i) the net asset value of the assets under our management to decrease, which would result in lower management fees to us, (ii) lower investment returns, resulting in a reduction of incentive fee income to us, and (iii) investor redemptions, which would result in lower fees to us because we would have fewer assets under management.
To the extent our future investment performance is perceived to be poor in either relative or absolute terms, the revenues and profitability of our asset management business will likely be reduced and our ability to grow existing funds and raise new funds in the future will likely be impaired.
The historical returns of our funds may not be indicative of the future results of our funds.
The historical returns of our funds should not be considered indicative of the future results that should be expected from such funds or from any future funds we may raise. Our rates of returns reflect unrealized gains, as of the applicable measurement date, which may never be realized due to changes in market and other conditions not in our control that may adversely affect the ultimate value realized from the investments in a fund. The returns of our funds may have also benefited from investment opportunities and general market conditions that may not repeat themselves, and there can be no assurance that our current or future funds will be able to avail themselves of profitable investment opportunities. Furthermore, the historical and potential future returns of the funds we manage also may not necessarily bear any relationship to potential returns on our common stock.
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We are subject to risks in using custodians.
Our asset management subsidiary and its managed funds depend on the services of custodians to settle and report securities transactions. In the event of the insolvency of a custodian, our funds might not be able to recover equivalent assets in whole or in part as they will rank among the custodian’s unsecured creditors in relation to assets which the custodian borrows, lends or otherwise uses. In addition, cash held by our funds with the custodian will not be segregated from the custodian’s own cash, and the funds will therefore rank as unsecured creditors in relation thereto.
We may suffer losses if our reputation is harmed.
Our ability to attract and retain customers and employees may be diminished to the extent our reputation is damaged. If we fail, or are perceived to fail, to address various issues that may give rise to reputational risk, we could harm our business prospects. These issues include, but are not limited to, appropriately dealing with market dynamics, potential conflicts of interest, legal and regulatory requirements, ethical issues, customer privacy, record-keeping, sales and trading practices, and the proper identification of the legal, reputational, credit, liquidity and market risks inherent in our products and services. Failure to appropriately address these issues could give rise to loss of existing or future business, financial loss, and legal or regulatory liability, including complaints, claims and enforcement proceedings against us, which could, in turn, subject us to fines, judgments and other penalties. In addition, our Capital Markets operations depend to a large extent on our relationships with our clients and reputation for integrity and high-caliber professional services to attract and retain clients. As a result, if a client is not satisfied with our services, it may be more damaging in our business than in other businesses.
Our Capital Markets operations are highly dependent on communications, information and other systems and third parties, and any systems failures could significantly disrupt our Capital Markets business.
Our data and transaction processing, custody, financial, accounting and other technology and operating systems are essential to our Capital Markets operations. A system malfunction (due to hardware failure, capacity overload, security incident, data corruption, etc.) or mistake made relating to the processing of transactions could result in financial loss, liability to clients, regulatory intervention, reputational damage and constraints on our ability to grow. We outsource a substantial portion of our critical data processing activities, including trade processing and back office data processing. We also contract with third parties for market data and other services. In the event that any of these service providers fails to adequately perform such services or the relationship between that service provider and us is terminated, we may experience a significant disruption in our operations, including our ability to timely and accurately process transactions or maintain complete and accurate records of those transactions.
Adapting or developing our technology systems to meet new regulatory requirements, client needs, expansion and industry demands also is critical for our business. Introduction of new technologies present new challenges on a regular basis. We have an ongoing need to upgrade and improve our various technology systems, including our data and transaction processing, financial, accounting, risk management and trading systems. This need could present operational issues or require significant capital spending. It also may require us to make additional investments in technology systems and may require us to reevaluate the current value and/or expected useful lives of our technology systems, which could negatively impact our results of operations.
Secure processing, storage and transmission of confidential and other information in our internal and outsourced computer systems and networks also is critically important to our business. We take protective measures and endeavor to modify them as circumstances warrant. However, our computer systems and software are subject to unauthorized access, computer viruses or other malicious code, inadvertent, erroneous or intercepted transmission of information (including by e-mail), and other events that have had an information security impact. If one or more of such events occur, this potentially could jeopardize our or our clients’ or counterparties’ confidential and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our, our clients’, our counterparties’ or third parties’ operations. We may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance maintained by us.
A disruption in the infrastructure that supports our business due to fire, natural disaster, health emergency (for example, the ongoing COVID-19 pandemic), power or communication failure, act of terrorism or war may affect our ability to service and interact with our clients. If we are not able to implement contingency plans effectively, any such disruption could harm our results of operations. Due to the ongoing COVID-19 pandemic, many businesses, including ours, have shifted largely to telecommuting. While we continue to evaluate the situation and invest in our technological infrastructure, the duration and effects of this shift are uncertain, but could make our operations more vulnerable.
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The growth of electronic trading and the introduction of new technology in the markets in which our market-making business operates may adversely affect this business and may increase competition.
The continued growth of electronic trading and the introduction of new technologies is changing our market-making business and presenting new challenges. Securities, futures and options transactions are increasingly occurring electronically, through alternative trading systems. We expect that the trend toward alternative trading systems will continue to accelerate. This acceleration could further increase program trading, increase the speed of transactions and decrease our ability to participate in transactions as principal, which would reduce the profitability of our market-making business. Some of these alternative trading systems compete with our market-making business and with our algorithmic trading platform, and we may experience continued competitive pressures in these and other areas. Significant resources have been invested in the development of our electronic trading systems, which includes our at-the-market business, but there is no assurance that the revenues generated by these systems will yield an adequate return on the investment, particularly given the increased program trading and increased percentage of stocks trading off of the historically manual trading markets.
Pricing and other competitive pressures may impair the revenues of our sales and trading business.
We derive a significant portion of our revenues for our investment banking operations from our sales and trading business. There has been intense price competition and trading volume reduction in this business in recent years. In particular, the ability to execute trades electronically and through alternative trading systems has increased the downward pressure on per share trading commissions and spreads. We expect these trends toward alternative trading systems and downward pricing pressure in the business to continue. We experience competitive pressures in these and other areas in the future as some of our competitors seek to obtain market share by competing on the basis of price or by using their own capital to facilitate client trading activities. In addition, we face pressure from our larger competitors, many of whom are better able to offer a broader range of complementary products and services to clients in order to win their trading business. These larger competitors may also be better able to respond to changes in the research, brokerage and investment banking industries, to compete for skilled professionals, to finance acquisitions, to fund internal growth and to compete for market share generally. As we are committed to maintaining and improving our comprehensive research coverage in our target sectors to support our sales and trading business, we may be required to make substantial investments in our research capabilities to remain competitive. If we are unable to compete effectively in these areas, the revenues of our sales and trading business may decline, and our business, results of operations and financial condition may be harmed.
Some of our large institutional sales and trading clients in terms of brokerage revenues have entered into arrangements with us and other investment banking firms under which they separate payments for research products or services from trading commissions for sales and trading services, and pay for research directly in cash, instead of compensating the research providers through trading commissions (referred to as “soft dollar” practices). In addition, we have entered into certain commission sharing arrangements in which institutional clients execute trades with a limited number of brokers and instruct those brokers to allocate a portion of the commission directly to us or other broker-dealers for research or to an independent research provider. If more of such arrangements are reached between our clients and us, or if similar practices are adopted by more firms in the investment banking industry, we expect that would increase the competitive pressures on trading commissions and spreads and reduce the value our clients place on high quality research. Conversely, if we are unable to make similar arrangements with other investment managers that insist on separating trading commissions from research products, volumes and trading commissions in our sales and trading business also would likely decrease.
Larger and more frequent capital commitments in our trading and underwriting businesses increase the potential for significant losses.
Certain financial services firms make larger and more frequent commitments of capital in many of their activities. For example, in order to win business, some investment banks increasingly commit to purchase large blocks of stock from publicly traded issuers or significant stockholders, instead of the more traditional marketed underwriting process in which marketing is typically completed before an investment bank commits to purchase securities for resale. We have participated in this activity and expect to continue to do so and, as a result, we are subject to increased risk. Conversely, if we do not have sufficient regulatory capital to so participate, our business may suffer. Furthermore, we may suffer losses as a result of the positions taken in these transactions even when economic and market conditions are generally favorable for others in the industry.
We may increasingly commit our own capital as part of our trading business to facilitate client sales and trading activities. The number and size of these transactions may adversely affect our results of operations in a given period. We may also incur significant losses from our sales and trading activities due to market fluctuations and volatility in our results of operations. To the extent that we own assets, i.e., have long positions, in any of those markets, a downturn in the value of those assets or in those markets could result in losses. Conversely, to the extent that we have sold assets we do not own, i.e., have short positions, in any of those markets, an upturn in those markets could expose us to potentially large losses as we attempt to cover our short positions by acquiring assets in a rising market.
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We have made and may make Principal Investments in relatively high-risk, illiquid assets that often have significantly leveraged capital structures, and we may fail to realize any profits from these activities for a considerable period of time or lose some or all of the principal amount we invest in these activities.
From time to time, we use our capital, including on a leveraged basis, in proprietary investments in both private company and public company securities that may be illiquid and volatile. The equity securities of a privately-held entity in which we make a proprietary investment are likely to be restricted as to resale and are otherwise typically highly illiquid. In the case of fund or similar investments, our investments may be illiquid until such investment vehicles are liquidated. We expect that there will be restrictions on our ability to resell the securities that we acquire for a period of up to one year after we acquire those securities. Thereafter, a public market sale may be subject to volume limitations or dependent upon securing a registration statement for an initial and potentially secondary public offering of the securities. We may make Principal Investments that are significant relative to the overall capitalization of the investee company and resales of significant amounts of these securities might be subject to significant limitations and adversely affect the market and the sales price for the securities in which we invest. In addition, our Principal Investments may involve entities or businesses with capital structures that have significant leverage. The large amount of borrowing in the leveraged capital structure increases the risk of losses due to factors such as rising interest rates, downturns in the economy or deteriorations in the condition of the investment or its industry. In the event of defaults under borrowings, the assets being financed would be at risk of foreclosure, and we could lose our entire investment.
Even if we make an appropriate investment decision based on the intrinsic value of an enterprise, we cannot assure you that general market conditions will not cause the market value of our investments to decline. For example, an increase in interest rates, a general decline in the stock markets, such as the recent declines in the stock markets due to the ongoing COVID-19 pandemic, or other market and industry conditions adverse to companies of the type in which we invest and intend to invest could result in a decline in the value of our investments or a total loss of our investment.
In addition, some of these investments are, or may in the future be, in industries or sectors which are unstable, in distress or undergoing some uncertainty. Further, the companies in which we invest may rely on new or developing technologies or novel business models, or concentrate on markets which are or may be disproportionately impacted by pressures in the financial services and/or mortgage and real estate sectors, have not yet developed and which may never develop sufficiently to support successful operations, or their existing business operations may deteriorate or may not expand or perform as projected. Such investments may be subject to rapid changes in value caused by sudden company-specific or industry-wide developments. Contributing capital to these investments is risky, and we may lose some or all of the principal amount of our investments. There are no regularly quoted market prices for a number of the investments that we make. The value of our investments is determined using fair value methodologies described in valuation policies, which may consider, among other things, the nature of the investment, the expected cash flows from the investment, bid or ask prices provided by third parties for the investment and the trading price of recent sales of securities (in the case of publicly-traded securities), restrictions on transfer and other recognized valuation methodologies. The methodologies we use in valuing individual investments are based on estimates and assumptions specific to the particular investments. Therefore, the value of our investments does not necessarily reflect the prices that would actually be obtained by us when such investments are sold. Realizations, if any, at values significantly lower than the values at which investments have been reflected on our balance sheet would result in loses of potential incentive income and Principal Investments.
We are exposed to credit risk from a variety of our activities and we may not be able to fully realize the value of the collateral securing certain of our loans.
We are generally exposed to the risk that third parties that owe us money, securities or other assets will fail to meet their obligations to us due to numerous causes, including bankruptcy, lack of liquidity, or operational failure, among others. Additionally, when we guarantee or backstop the obligations of third parties, we are exposed to the risk that our guarantee or backstop may be called by the holder following a default by the primary obligor, which could cause us to incur significant losses, and, when our obligations are secured, expose us to the risk that the holder may seek to foreclose on collateral pledged by us.
We incur credit risk through loans, lines of credit, guarantees and backstop commitments issued to or on behalf of businesses and individuals, and other loans collateralized by a variety of assets, including securities. Our credit risk and credit losses can increase if our loans or investments are concentrated among borrowers or issuers engaged in the same or similar activities, industries, or geographies, or to borrowers or issuers who as a group may be uniquely or disproportionately affected by economic or market conditions. The deterioration of an individually large exposure, for example due to natural disasters, health emergencies or pandemics (like the ongoing COVID-19 pandemic), acts of terrorism, severe weather events or other adverse economic events, could lead to additional loan loss provisions and/or charges-offs, or credit impairment of our investments, and subsequently have a material impact on our net income and regulatory capital.
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The amount and duration of our credit exposures have been increasing over the past year, as have the breadth and size of the entities to which we have credit exposures.
We permit our clients to purchase securities on margin. During periods of steep declines in securities prices, the value of the collateral securing client margin loans may fall below the amount of the purchaser’s indebtedness. If clients are unable to provide additional collateral for these margin loans, we may incur losses on those margin transactions. This may cause us to incur additional expenses defending or pursuing claims or litigation related to counterparty or client defaults.
Although a substantial amount of our loans to counterparties are protected by holding security interests in the assets or equity interests of the borrower, we may not be able to fully realize the value of the collateral securing our loans due to one or more of the following factors:
● | Our loans may be unsecured, therefore our liens on the collateral, if any, are subordinated to those of the senior secured debt of the borrower, if any. As a result, we may not be able to control remedies with respect to the collateral. |
● | The collateral may not be valuable enough to satisfy all of the obligations under our secured loan, particularly after giving effect to the repayment of secured debt of the borrower that ranks senior to our loan. |
● | Bankruptcy laws may limit our ability to realize value from the collateral and may delay the realization process. |
● | Our rights in the collateral may be adversely affected by the failure to perfect security interests in the collateral. |
● | The need to obtain regulatory and contractual consents could impair or impede how effectively the collateral would be liquidated and could affect the value received. |
● | Some or all of the collateral may be illiquid and may have no readily ascertainable market value. The liquidity and value of the collateral could be impaired as a result of changing economic conditions, competition, and other factors, including the availability of suitable buyers. |
We may experience write downs of our investments and other losses related to the valuation of our investments and volatile and illiquid market conditions.
In our proprietary investment activities, our concentrated holdings, illiquidity and market volatility may make it difficult to value certain of our investment securities. Subsequent valuations, in light of factors then prevailing, may result in significant changes in the values of these securities in future periods. In addition, at the time of any sales and settlements of these securities, the price we ultimately realize will depend on the demand and liquidity in the market at that time and may be materially lower than their current fair value. Any of these factors could require us to take write downs in the value of our investment and securities portfolio, which may have an adverse effect on our results of operations in future periods.
Our underwriting and market making activities may place our capital at risk.
We may incur losses and be subject to reputational harm to the extent that, for any reason, we are unable to sell securities we purchased as an underwriter at the anticipated price levels. As an underwriter, we also are subject to heightened standards regarding liability for material misstatements or omissions in prospectuses and other offering documents relating to offerings we underwrite. Further, even though underwriting agreements with issuing companies typically include a right to indemnification in favor of the underwriter for these offerings to cover potential liability from any material misstatements or omissions, indemnification may be unavailable or insufficient in certain circumstances, for example if the issuing company has become insolvent. As a market maker, we may own large positions in specific securities, and these undiversified holdings concentrate the risk of market fluctuations and may result in greater losses than would be the case if our holdings were more diversified.
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Our businesses may be adversely affected by the disruptions in the credit markets, such as those due to the ongoing COVID-19 pandemic, including reduced access to credit and liquidity and higher costs of obtaining credit.
In the event existing internal and external financial resources do not satisfy our needs, we would have to seek additional outside financing. The availability of outside financing will depend on a variety of factors, such as our financial condition and results of operations, the availability of acceptable collateral, market conditions, the general availability of credit, the volume of trading activities, and the overall availability of credit to the financial services industry, all of which may be negatively impacted due to the ongoing COVID-19 pandemic.
Widening credit spreads, as well as significant declines in the availability of credit, could adversely affect our ability to borrow on an unsecured basis. Disruptions in the credit markets could make it more difficult and more expensive to obtain funding for our businesses. If our available funding is limited or we are forced to fund our operations at a higher cost, these conditions may require us to curtail our business activities and increase our cost of funding, both of which could reduce our profitability, particularly in our businesses that involve investing and taking principal positions.
Liquidity, or ready access to funds, is essential to financial services firms, including ours. Failures of financial institutions have often been attributable in large part to insufficient liquidity. Liquidity is of particular importance to our sales and trading business, and perceived liquidity issues may affect the willingness of our clients and counterparties to engage in sales and trading transactions with us. Our liquidity could be impaired due to circumstances that we may be unable to control, such as a general market disruption, including disruptions due to the ongoing COVID-19 pandemic, or an operational problem that affects our sales and trading clients, third parties or us. Further, our ability to sell assets may be impaired if other market participants are seeking to sell similar assets at the same time.
Our clients engaging us with respect to mergers and acquisitions often rely on access to the secured and unsecured credit markets to finance their transactions. The lack of available credit and the increased cost of credit could adversely affect the size, volume and timing of our clients’ merger and acquisition transactions-particularly large transactions-and adversely affect our investment banking business and revenues.
We have experienced losses and may not achieve or maintain profitability.
Our profitability in each reporting period is impacted by the number and size of retail liquidation and Capital Markets engagements we perform on a quarterly or annual basis. We have experienced losses with respect to our current operations and it is possible that we may continue to experience losses as we continue to expand our operations and manage disruptions due to the ongoing COVID-19 pandemic. In addition, we expect that our operating expenses will increase to the extent that we grow our business. We may not be able to generate sufficient revenues to maintain profitability.
Because of their significant stock ownership, some of our existing stockholders will be able to exert control over us and our significant corporate decisions.
Our executive officers, directors and their affiliates own or control, in the aggregate, approximately 25.4% of our outstanding common stock as of March 31, 2020. In particular, our Chairman and Co-Chief Executive Officer, Bryant R. Riley, owns or controls, in the aggregate,4,722,409 shares of our common stock or 18.2% of our outstanding common stock as of March 31, 2020. These stockholders are able to exercise influence over matters requiring stockholder approval, such as the election of directors and the approval of significant corporate transactions, including transactions involving an actual or potential change of control of the company or other transactions that non-controlling stockholders may not deem to be in their best interests. This concentration of ownership may harm the market price of our common stock by, among other things:
● | delaying, deferring, or preventing a change in control of our company; |
● | impeding a merger, consolidation, takeover, or other business combination involving our company; |
● | causing us to enter into transactions or agreements that are not in the best interests of all stockholders; or |
● | discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of our company. |
We may incur losses as a result of “guarantee” based engagements that we enter into in connection with our Auction and Liquidation solutions business.
In many instances, in order to secure an engagement, we are required to bid for that engagement by guaranteeing to the client a minimum amount that such client will receive from the sale of inventory or assets. Our bid is based on a variety of factors, including: our experience, expertise, perceived value added by engagement, valuation of the inventory or assets and the prices we believe potential buyers would be willing to pay for such inventory or assets. An inaccurate estimate of any of the above or inaccurate valuation of the assets or inventory could result in us submitting a bid that exceeds the realizable proceeds from any engagement. If the liquidation proceeds, net of direct operating expenses, are less than the amount we guaranteed in our bid, we will incur a loss. Therefore, in the event that the proceeds, net of direct operating expenses, from an engagement are less than the bid, the value of the assets or inventory decline in value prior to the disposition or liquidation, or the assets are overvalued for any reason, we may suffer a loss and our financial condition and results of operations could be adversely affected.
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Losses due to any auction or liquidation engagement may cause us to become unable to make payments due to our creditors and may cause us to default on our debt obligations.
We have three engagement structures for our Auction and Liquidation services: (i) a “fee” based structure under which we are compensated for our role in an engagement on a commission basis, (ii) purchase on an outright basis (and take title to) the assets or inventory of the client, and (iii) “guarantee” to the client that a certain amount will be realized by the client upon the sale of the assets or inventory based on contractually defined terms in the auction or liquidation contract. We bear the risk of loss under the purchase and guarantee structures of Auction and Liquidation contracts. If the amount realized from the sale or disposition of assets, net of direct operating expenses, does not equal or exceed the purchase price (in purchase transaction), we will recognize a loss on the engagement, or should the amount realized, net of direct operating expenses, not equal or exceed the “guarantee,” we are still required to pay the guaranteed amount to the client.
The ongoing COVID-19 pandemic has temporarily limited our Auction and Liquidation businesses.
While we expect that our Auction and Liquidation services business will experience increased demand in the medium to long term as a result of business disruptions due to the ongoing COVID-19 pandemic, restrictions limiting travel, public gatherings and requiring store closures due to “social distancing” measures imposed to control the pandemic has temporarily limited our ability to conduct auctions and liquidations. We cannot predict when these restrictions will be relaxed or lifted or the extent to which such restrictions will materially and negatively affect our auction and liquidation businesses.
We could incur losses in connection with outright purchase transactions in which we engage as part of our Auction and Liquidation solutions business.
When we conduct an asset disposition or liquidation on an outright purchase basis, we purchase from the client the assets or inventory to be sold or liquidated and therefore, we hold title to any assets or inventory that we are not able to sell. In other situations, we may acquire assets from our clients if we believe that we can identify a potential buyer and sell the assets at a premium to the price paid. We store these unsold or acquired assets and inventory until they can be sold or, alternatively, transported to the site of a liquidation of comparable assets or inventory that we are conducting. If we are forced to sell these assets for less than we paid, or are required to transport and store assets multiple times, the related expenses could have a material adverse effect on our results of operations.
We depend on financial institutions as primary clients for our Valuation and Appraisal business. Consequently, the loss of any financial institutions as clients may have an adverse impact on our business.
A majority of the revenue from our Valuation and Appraisal business is derived from engagements by financial institutions. As a result, any loss of financial institutions as clients of our valuation and advisory services, whether due to changing preferences in service providers, failures of financial institutions or mergers and consolidations within the finance industry, could significantly reduce the number of existing, repeat and potential clients, thereby adversely affecting our revenues. In addition, any larger financial institutions that result from mergers or consolidations in the financial services industry could have greater leverage in negotiating terms of engagements with us, or could decide to internally perform some or all of the Valuation and Appraisal services which we currently provide to one of the constituent institutions involved in the merger or consolidation or which we could provide in the future. Any of these developments could have a material adverse effect on our Valuation and Appraisal business.
We may face liability or harm to our reputation as a result of a claim that we provided an inaccurate appraisal or valuation and our insurance coverage may not be sufficient to cover the liability.
We could face liability in connection with a claim by a client that we provided an inaccurate appraisal or valuation on which the client relied. Any claim of this type, whether with or without merit, could result in costly litigation, which could divert management’s attention and company resources and harm our reputation. Furthermore, if we are found to be liable, we may be required to pay damages. While our appraisals and valuations are typically provided only for the benefit of our clients, if a third party relies on an appraisal or valuation and suffers harm as a result, we may become subject to a legal claim, even if the claim is without merit. We carry insurance for liability resulting from errors or omissions in connection with our appraisals and valuations; however, the coverage may not be sufficient if we are found to be liable in connection with a claim by a client or third party.
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We could be forced to mark down the value of certain assets acquired in connection with outright purchase transactions.
In most instances, inventory is reported on the balance sheet at its historical cost; however, according to U.S. Generally Accepted Accounting Principles, inventory whose historical cost exceeds its market value should be valued conservatively, which dictates a lower value should apply. Accordingly, should the replacement cost (due to technological obsolescence or otherwise), or the net realizable value of any inventory we hold be less than the cost paid to acquire such inventory (purchase price), we will be required to “mark down” the value of such inventory held. If the value of any inventory held on our balance sheet is required to be written down, such write down could have a material adverse effect on our financial position and results of operations.
We operate in highly competitive industries. Some of our competitors may have certain competitive advantages, which may cause us to be unable to effectively compete with or gain market share from our competitors.
We face competition with respect to all of our service areas. The level of competition depends on the particular service area and, in the case of our asset and liquidation services, the category of assets being liquidated or appraised. We compete with other companies and investment banks to help clients with their corporate finance and capital needs. In addition, we compete with companies and online services in the bidding for assets and inventory to be liquidated. The demand for online solutions continues to grow and our online competitors include other e-commerce providers, auction websites such as eBay, as well as government agencies and traditional liquidators and auctioneers that have created websites to further enhance their product offerings and more efficiently liquidate assets. We expect the market to become even more competitive as the demand for such services continues to increase and traditional and online liquidators and auctioneers continue to develop online and offline services for disposition, redeployment and remarketing of wholesale surplus and salvage assets. In addition, manufacturers, retailers and government agencies may decide to create their own websites to sell their own surplus assets and inventory and those of third parties.
We also compete with other providers of valuation and advisory services. Competitive pressures within the Valuation and Appraisal services market, including a decrease in the number of engagements and/or a decrease in the fees which can be charged for these services, could affect revenues from our Valuation and Appraisal services as well as our ability to engage new or repeat clients. We believe that given the relatively low barriers to entry in the Valuation and Appraisal services market, this market may become more competitive as the demand for such services increases.
Some of our competitors may be able to devote greater financial resources to marketing and promotional campaigns, secure merchandise from sellers on more favorable terms, adopt more aggressive pricing or inventory availability policies and devote more resources to website and systems development than we are able to do. Any inability on our part to effectively compete could have a material adverse effect on our financial condition, growth potential and results of operations.
We compete with specialized investment banks to provide financial and investment banking services to small and middle-market companies. Middle-market investment banks provide access to capital and strategic advice to small and middle-market companies in our target industries. We compete with those investment banks on the basis of a number of factors, including client relationships, reputation, the abilities of our professionals, transaction execution, innovation, price, market focus and the relative quality of our products and services. We have experienced intense competition over obtaining advisory mandates in recent years, and we may experience pricing pressures in our investment banking business in the future as some of our competitors seek to obtain increased market share by reducing fees. Competition in the middle-market may further intensify if larger Wall Street investment banks expand their focus to this sector of the market. Increased competition could reduce our market share from investment banking services and our ability to generate fees at historical levels.
We also face increased competition due to a trend toward consolidation. In recent years, there has been substantial consolidation and convergence among companies in the financial services industry. This trend was amplified in connection with the unprecedented disruption and volatility in the financial markets during the past several years, and, as a result, a number of financial services companies have merged, been acquired or have fundamentally changed their respective business models. Many of these firms may have the ability to support investment banking, including financial advisory services, with commercial banking, insurance and other financial services in an effort to gain market share, which could result in pricing pressure in our businesses.
UOL competes with numerous providers of broadband, mobile broadband and DSL services, as well as other dial-up Internet access providers, many of whom are large and have significantly more financial and marketing resources. The principal competitors for UOL’s mobile broadband and DSL services include, among others, local exchange carriers, wireless and satellite service providers, and cable service providers.
magicJack competes with the traditional telephone service providers, which provide telephone service using the public switched telephone network. Certain of these traditional providers have also added, or are planning to add, broadband telephone services to their existing telephone and broadband offerings. We also face, or expect to face, competition from cable companies, which offer broadband telephone services to their existing cable television and broadband offerings. Further, wireless providers offer services that some customers may prefer over wireline-based service. In the future, as wireless companies offer more minutes at lower prices, their services may become more attractive to customers as a replacement for broadband or wireline-based phone service. We face competition on magicJack device sales from manufacturers of smart phones, tablets and other handheld wireless devices. Also, we compete against established alternative voice communication providers, and may face competition from other large, well-capitalized Internet companies. In addition, we compete with independent broadband telephone service providers.
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Our brand investment portfolio competes with companies that own other brands and trademarks, as these companies could enter into similar licensing arrangements with retailers and wholesalers in the United States and internationally. These arrangements could be with our existing retail and wholesale partners, thereby competing with us for consumer attention and limited floor or rack space in the same stores in which our branded products are sold, and vying with us for the time and resources of the retailers and wholesale licensees that manufacture and distribute our products. These companies may be able to respond more quickly to changes in retailer, wholesaler and consumer preferences and devote greater resources to brand acquisition, development and marketing.
If we are unable to attract and retain qualified personnel, we may not be able to compete successfully in our industry.
Our future success depends to a significant degree upon the continued contributions of senior management and the ability to attract and retain other highly qualified management personnel. We face competition for management from other companies and organizations; therefore, we may not be able to retain our existing personnel or fill new positions or vacancies created by expansion or turnover at existing compensation levels. Although we have entered into employment agreements with key members of the senior management team, there can be no assurances such key individuals will remain with us. The loss of any of our executive officers or other key management personnel would disrupt our operations and divert the time and attention of our remaining officers and management personnel which could have an adverse effect on our results of operations and potential for growth.
We also face competition for highly skilled employees with experience in our industry, which requires a unique knowledge base. We may be unable to recruit or retain other existing technical, sales and client support personnel that are critical to our ability to execute our business plan. Additionally, the ongoing COVID-19 pandemic could affect the availability of our key personnel.
We frequently use borrowings under credit facilities in connection with our guaranty engagements, in which we guarantee a minimum recovery to the client, and outright purchase transactions.
In engagements where we operate on a guaranty or purchase basis, we are typically required to make an upfront payment to the client. If the upfront payment is less than 100% of the guarantee or the purchase price in a “purchase” transaction, we may be required to make successive cash payments until the guarantee is met or we may issue a letter of credit in favor of the client. Depending on the size and structure of the engagement, we may borrow under our credit facilities and may be required to issue a letter of credit in favor of the client for these additional amounts. If we lose any availability under our credit facilities, are unable to borrow under credit facilities and/or issue letters of credit in favor of clients, or borrow under credit facilities and/or issue letters of credit on commercially reasonable terms, we may be unable to pursue large liquidation and disposition engagements, engage in multiple concurrent engagements, pursue new engagements or expand our operations. We are required to obtain approval from the lenders under our existing credit facilities prior to making any borrowings thereunder in connection with a particular engagement. Any inability to borrow under our credit facilities, or enter into one or more other credit facilities on commercially reasonable terms may have a material adverse effect on our financial condition, results of operations and growth.
Defaults under our credit agreements could have an adverse impact on our ability to finance potential engagements.
The terms of our credit agreements contain a number of events of default. Should we default under any of our credit agreements in the future, lenders may take any or all remedial actions set forth in such credit agreement, including, but not limited to, accelerating payment and/or charging us a default rate of interest on all outstanding amounts, refusing to make any further advances or issue letters of credit, or terminating the line of credit. As a result of our reliance on lines of credit and letters of credit, any default under a credit agreement, or remedial actions pursued by lenders following any default under a credit agreement, may require us to immediately repay all outstanding amounts, which may preclude us from pursuing new liquidation and disposition engagements and may increase our cost of capital, each of which may have a material adverse effect on our financial condition and results of operations.
If we cannot meet our future capital requirements, we may be unable to develop and enhance our services, take advantage of business opportunities and respond to competitive pressures.
We may need to raise additional funds in the future to grow our business internally, invest in new businesses, expand through acquisitions, enhance our current services or respond to changes in our target markets. If we raise additional capital through the sale of equity or equity derivative securities, the issuance of these securities could result in dilution to our existing stockholders. If additional funds are raised through the issuance of debt securities, the terms of that debt could impose additional restrictions on our operations or harm our financial condition. Additional financing may be unavailable on acceptable terms.
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We are subject to net capital and other regulatory capital requirements; failure to comply with these rules would significantly harm our business.
B. Riley FBR, our broker-dealer subsidiary, is subject to the net capital requirements of the SEC, FINRA, and various self-regulatory organizations of which it is a member. These requirements typically specify the minimum level of net capital a broker-dealer must maintain and also mandate that a significant part of its assets be kept in relatively liquid form. Failure to maintain the required net capital may subject a firm to limitation of its activities, including suspension or revocation of its registration by the SEC and suspension or expulsion by FINRA and other regulatory bodies, and ultimately may require its liquidation. Failure to comply with the net capital rules could have material and adverse consequences, such as:
● | limiting our operations that require intensive use of capital, such as underwriting or trading activities; or |
● | restricting us from withdrawing capital from our subsidiaries, when our broker-dealer subsidiary has more than the minimum amount of required capital. This, in turn, could limit our ability to implement our business and growth strategies, pay interest on and repay the principal of our debt and/or repurchase our shares. |
In addition, a change in the net capital rules or the imposition of new rules affecting the scope, coverage, calculation, or amount of net capital requirements, or a significant operating loss or any large charge against net capital, could have similar adverse effects.
Furthermore, B. Riley FBR is subject to laws that authorize regulatory bodies to block or reduce the flow of funds from it to B. Riley Financial, Inc. As a holding company, B. Riley Financial, Inc. depends on dividends, distributions and other payments from its subsidiaries to fund dividend payments, if any, and to fund all payments on its obligations, including debt obligations. As a result, regulatory actions could impede access to funds that B. Riley Financial, Inc. needs to make payments on obligations, including debt obligations, or dividend payments. In addition, because B. Riley Financial, Inc. holds equity interests in the firm’s subsidiaries, its rights as an equity holder to the assets of these subsidiaries may not materialize, if at all, until the claims of the creditors of these subsidiaries are first satisfied.
We may incur losses as a result of ineffective risk management processes and strategies.
We seek to monitor and control our risk exposure through operational and compliance reporting systems, internal controls, management review processes and other mechanisms. Our investing and trading processes seek to balance our ability to profit from investment and trading positions with our exposure to potential losses. While we employ limits and other risk mitigation techniques, those techniques and the judgments that accompany their application cannot anticipate economic and financial outcomes or the specifics and timing of such outcomes. Thus, we may, in the course of our investment and trading activities, incur losses, which may be significant.
In addition, we are investing our own capital in our funds and funds of funds as well as principal investing activities, and limitations on our ability to withdraw some or all of our investments in these funds or liquidate our investment positions, whether for legal, reputational, illiquidity or other reasons, may make it more difficult for us to control the risk exposures relating to these investments.
Our risk management policies and procedures may leave us exposed to unidentified or unanticipated risks.
Our risk management strategies and techniques may not be fully effective in mitigating our risk exposure in all market environments or against all types of risk. We seek to manage, monitor and control our operational, legal and regulatory risk through operational and compliance reporting systems, internal controls, management review processes and other mechanisms; however, there can be no assurance that our procedures will be fully effective. Further, our risk management methods may not effectively predict future risk exposures, which could be significantly greater than the historical measures indicate. In addition, some of our risk management methods are based on an evaluation of information regarding markets, clients and other matters that are based on assumptions that may no longer be accurate. A failure to adequately manage our growth, or to effectively manage our risk, could materially and adversely affect our business and financial condition.
We are exposed to the risk that third parties that owe us money, securities or other assets will not perform their obligations. These parties may default on their obligations to us due to bankruptcy, lack of liquidity, operational failure, and breach of contract or other reasons. We are also subject to the risk that our rights against third parties may not be enforceable in all circumstances. As an introducing broker, we could be held responsible for the defaults or misconduct of our customers. These may present credit concerns, and default risks may arise from events or circumstances that are difficult to detect, foresee or reasonably guard against. In addition, concerns about, or a default by, one institution could lead to significant liquidity problems, losses or defaults by other institutions, which in turn could adversely affect us. If any of the variety of instruments, processes and strategies we utilize to manage our exposure to various types of risk are not effective, we may incur losses.
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Our common stock price may fluctuate substantially, and your investment could suffer a decline in value.
The market price of our common stock may be volatile and could fluctuate substantially due to many factors, including, among other things:
● | actual or anticipated fluctuations in our results of operations; |
● | announcements of significant contracts and transactions by us or our competitors; |
● | sale of common stock or other securities in the future; |
● | the trading volume of our common stock; |
● | changes in our pricing policies or the pricing policies of our competitors; and |
● | general economic conditions |
In addition, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. These broad market factors may materially harm the market price of our common stock, regardless of our operating performance.
The trading price of our common shares is subject to volatility.
On November 16, 2016, we began trading our shares on the NASDAQ Global Market. Trading of our common stock has in the past been highly volatile and the market price of shares of our common stock could continue to fluctuate substantially. Additionally, if we are not able to maintain our listing on NASDAQ, then our common stock will again be quoted for trading on an over-the-counter quotation system and may be subject to more significant fluctuations in stock price and trading volume and large bid and ask price spreads.
Our amended and restated certificate of incorporation authorizes our board of directors to issue new series of preferred stock that may have the effect of delaying or preventing a change of control, which could adversely affect the value of your shares.
Our amended and restated certificate of incorporation provides that our board of directors will be authorized to issue from time to time, without further stockholder approval, up to 1,000,000 shares of preferred stock in one or more series and to fix or alter the designations, preferences, rights and any qualifications, limitations or restrictions of the shares of each series, including the dividend rights, dividend rates, conversion rights, voting rights, rights of redemption, including sinking fund provisions, redemption price or prices, liquidation preferences and the number of shares constituting any series or designations of any series. Such shares of preferred stock could have preferences over our common stock with respect to dividends and liquidation rights. We may issue additional preferred stock in ways which may delay, defer or prevent a change of control of our company without further action by our stockholders. Such shares of preferred stock may be issued with voting rights that may adversely affect the voting power of the holders of our common stock by increasing the number of outstanding shares having voting rights, and by the creation of class or series voting rights.
Anti-takeover provisions under our charter documents and Delaware law could delay or prevent a change of control and could also limit the market price of our stock.
Our amended and restated certificate of incorporation and our bylaws, as amended, contain provisions that could delay or prevent a change of control of our company or changes in our board of directors that our stockholders might consider favorable. We are also governed by the provisions of Section 203 of the Delaware General Corporate Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. The foregoing and other provisions in our amended and restated certificate of incorporation, our bylaws, as amended, and Delaware law could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors, including delaying or impeding a merger, tender offer, or proxy contest or other change of control transaction involving our company. Any delay or prevention of a change of control transaction or changes in our board of directors could prevent the consummation of a transaction in which our stockholders could receive a substantial premium over the then current market price for their shares.
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Our ability to use net loss carryovers to reduce our taxable income may be limited.
As a result of the common stock offering that was completed on June 5, 2014, the Company had a more than 50% ownership shift in accordance with Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). Accordingly, the Company may be limited to the amount of net operating loss that may be utilized in future taxable years depending on the Company’s actual taxable income. As a result of the acquisition of UOL on July 1, 2016, the historical net operating losses of UOL are limited to offset income we generate post acquisition. As of December 31, 2019, the Company believes that the net operating loss that existed as of the more than 50% ownership shift will be utilized in future tax periods before the loss carryforwards expire and it is more-likely-than-not that future taxable earnings will be sufficient to realize its deferred tax assets and has not provided an allowance. However, to the extent that the Company is unable to utilize such net operating loss, it may have a material adverse effect on our financial condition and results of operations.
The tax benefits, grants and other incentives available to us require us to continue to meet various conditions and may be terminated, repaid or reduced in the future, which could increase our costs and taxes.
The Israeli government currently provides major tax and capital investment incentives to domestic companies, as well as grant and loan programs relating to research and development and marketing and export activities. In recent years, the Israeli Government has reduced the benefits available under these programs and the Israeli Governmental authorities have indicated that the government may in the future further reduce, seek repayment or eliminate the benefits of those programs. magicJack currently takes advantage of these programs. There is no assurance that we will continue to meet the conditions of such benefits and programs or that such benefits and programs would continue to be available to us in the future. If we fail to meet the conditions of such benefits and programs or if they are terminated or further reduced, it could have an adverse effect on our business, operating results and financial condition.
Changes in tax laws or regulations, or to interpretations of existing tax laws or regulations, to which we are subject could adversely affect our financial condition and cash flows.
We are subject to taxation in the United States and in some foreign jurisdictions. Our financial condition and cash flows are impacted by tax policy implemented at each of the federal, state, local and international levels. We cannot predict whether any changes to tax laws or regulations, or to interpretations of existing tax laws or regulations, will be implemented in the future or whether any such changes would have a material adverse effect on our financial condition and cash flows. However, future changes to tax laws or regulations, or to interpretations of existing tax laws or regulations, could increase our tax burden or otherwise adversely affect our financial condition and cash flows.
Financial services firms have been subject to increased scrutiny over the last several years, increasing the risk of financial liability and reputational harm resulting from adverse regulatory actions.
Firms in the financial services industry have been operating in a difficult regulatory environment which we expect will become even more stringent in light of recent well-publicized failures of regulators to detect and prevent fraud. The industry has experienced increased scrutiny from a variety of regulators, including the SEC, the NYSE, FINRA and state attorneys general. Penalties and fines sought by regulatory authorities have increased substantially over the last several years. This regulatory and enforcement environment has created uncertainty with respect to a number of transactions that had historically been entered into by financial services firms and that were generally believed to be permissible and appropriate. We may be adversely affected by changes in the interpretation or enforcement of existing laws and rules by these governmental authorities and self-regulatory organizations. Each of the regulatory bodies with jurisdiction over us has regulatory powers dealing with many aspects of financial services, including, but not limited to, the authority to fine us and to grant, cancel, restrict or otherwise impose conditions on the right to carry on particular businesses. For example, a failure to comply with the obligations imposed by the Exchange Act on broker-dealers and the Investment Advisers Act of 1940 on investment advisers, including record-keeping, advertising and operating requirements, disclosure obligations and prohibitions on fraudulent activities, or by the Investment Company Act of 1940, could result in investigations, sanctions and reputational damage. We also may be adversely affected as a result of new or revised legislation or regulations imposed by the SEC, other U.S. or foreign governmental regulatory authorities or FINRA or other self-regulatory organizations that supervise the financial markets. Substantial legal liability or significant regulatory action against us could have adverse financial effects on us or cause reputational harm to us, which could harm our business prospects.
In addition, financial services firms are subject to numerous conflicts of interests or perceived conflicts. The SEC and other federal and state regulators have increased their scrutiny of potential conflicts of interest. We have adopted various policies, controls and procedures to address or limit actual or perceived conflicts and regularly review and update our policies, controls and procedures. However, appropriately addressing conflicts of interest is complex and difficult and our reputation could be damaged if we fail, or appear to fail, to appropriately address conflicts of interest. Our policies and procedures to address or limit actual or perceived conflicts may also result in increased costs and additional operational personnel. Failure to adhere to these policies and procedures may result in regulatory sanctions or litigation against us. For example, the research operations of investment banks have been and remain the subject of heightened regulatory scrutiny which has led to increased restrictions on the interaction between equity research analysts and investment banking professionals at securities firms. Several securities firms in the U.S. reached a global settlement in 2003 and 2004 with certain federal and state securities regulators and self-regulatory organizations to resolve investigations into the alleged conflicts of interest of research analysts, which resulted in rules that have imposed additional costs and limitations on the conduct of our business.
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Asset management businesses have experienced a number of highly publicized regulatory inquiries which have resulted in increased scrutiny within the industry and new rules and regulations for mutual funds, investment advisors and broker-dealers. Our subsidiary, B. Riley Capital Management, LLC, is registered as an investment advisor with the SEC and regulatory scrutiny and rulemaking initiatives may result in an increase in operational and compliance costs or the assessment of significant fines or penalties against our asset management business, and may otherwise limit our ability to engage in certain activities. In addition, the SEC staff has conducted studies with respect to soft dollar practices in the brokerage and asset management industries and proposed interpretive guidance regarding the scope of permitted brokerage and research services in connection with soft dollar practices. The SEC staff has indicated that it is considering additional rulemaking in this and other areas, and we cannot predict the effect that additional rulemaking may have on our asset management or brokerage business or whether it will be adverse to us. In addition, Congress is currently considering imposing new requirements on entities that securitize assets, which could affect our credit activities. It is impossible to determine the extent of the impact of any new laws, regulations or initiatives that may be proposed, or whether any of the proposals will become law. Compliance with any new laws or regulations could make compliance more difficult and expensive and affect the manner in which we conduct business.
Financial reforms and related regulations may negatively affect our business activities, financial position and profitability.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) instituted a wide range of reforms that have impacted and will continue to impact financial services firms and continues to require significant rule-making. In addition, the legislation mandates multiple studies, which could result in additional legislative or regulatory action. The legislation and regulation of financial institutions, both domestically and internationally, include calls to increase capital and liquidity requirements; limit the size and types of the activities permitted; and increase taxes on some institutions. FINRA’s oversight over broker-dealers and investment advisors may be expanded, and new regulations on having investment banking and securities analyst functions in the same firm may be created. Certain of the provisions of the Dodd-Frank Act remain subject to further rule making procedures and studies. As a result, we cannot assess the full impact of all of these legislative and regulatory changes on our business at the present time. However, these legislative and regulatory changes could affect our revenue, limit our ability to pursue business opportunities, impact the value of assets that we hold, require us to change certain of our business practices, impose additional costs on us, or otherwise adversely affect our businesses. If we do not comply with current or future legislation and regulations that apply to our operations, we may be subject to fines, penalties or material restrictions on our businesses in the jurisdiction where the violation occurred. Accordingly, such legislation or regulation could have an adverse effect on our business, results of operations, cash flows or financial condition.
Our failure to deal appropriately with conflicts of interest could damage our reputation and adversely affect our business.
As we have expanded the number and scope of our businesses, we increasingly confront potential conflicts of interest relating to our and our funds’ and clients’ investment and other activities. Certain of our funds have overlapping investment objectives, including funds which have different fee structures, and potential conflicts may arise with respect to our decisions regarding how to allocate investment opportunities among ourselves and those funds. For example, a decision to acquire material non-public information about a company while pursuing an investment opportunity for a particular fund gives rise to a potential conflict of interest when it results in our having to restrict the ability of the Company or other funds to take any action.
In addition, there may be conflicts of interest regarding investment decisions for funds in which our officers, directors and employees, who have made and may continue to make significant personal investments in a variety of funds, are personally invested. Similarly, conflicts of interest may exist or develop regarding decisions about the allocation of specific investment opportunities between the Company and the funds.
We also have potential conflicts of interest with our investment banking and institutional clients including situations where our services to a particular client or our own proprietary or fund investments or interests conflict or are perceived to conflict with a client. It is possible that potential or perceived conflicts could give rise to investor or client dissatisfaction or litigation or regulatory enforcement actions. Appropriately dealing with conflicts of interest is complex and difficult and our reputation could be damaged if we fail, or appear to fail, to deal appropriately with one or more potential or actual conflicts of interest. Regulatory scrutiny of, or litigation in connection with, conflicts of interest would have a material adverse effect on our reputation, which would materially adversely affect our business in a number of ways, including as a result of redemptions by our investors from our hedge funds, an inability to raise additional funds and a reluctance of counterparties to do business with us.
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Our exposure to legal liability is significant, and could lead to substantial damages.
We face significant legal risks in our businesses. These risks include potential liability under securities laws and regulations in connection with our Capital Markets, asset management and other businesses. The volume and amount of damages claimed in litigation, arbitrations, regulatory enforcement actions and other adversarial proceedings against financial services firms have increased in recent years. We also are subject to claims from disputes with our employees and our former employees under various circumstances. Risks associated with legal liability often are difficult to assess or quantify and their existence and magnitude can remain unknown for significant periods of time, making the amount of legal reserves related to these legal liabilities difficult to determine and subject to future revision. Legal or regulatory matters involving our directors, officers or employees in their individual capacities also may create exposure for us because we may be obligated or may choose to indemnify the affected individuals against liabilities and expenses they incur in connection with such matters to the extent permitted under applicable law. In addition, like other financial services companies, we may face the possibility of employee fraud or misconduct. The precautions we take to prevent and detect this activity may not be effective in all cases and there can be no assurance that we will be able to deter or prevent fraud or misconduct. Exposures from and expenses incurred related to any of the foregoing actions or proceedings could have a negative impact on our results of operations and financial condition. In addition, future results of operations could be adversely affected if reserves relating to these legal liabilities are required to be increased or legal proceedings are resolved in excess of established reserves.
Misconduct by our employees or by the employees of our business partners could harm us and is difficult to detect and prevent.
There have been a number of highly publicized cases involving fraud or other misconduct by employees in the financial services industry in recent years, and we run the risk that employee misconduct could occur at our firm. For example, misconduct could involve the improper use or disclosure of confidential information, which could result in regulatory sanctions and serious reputational or financial harm. It is not always possible to deter misconduct and the precautions we take to detect and prevent this activity may not be effective in all cases. Our ability to detect and prevent misconduct by entities with which we do business may be even more limited. We may suffer reputational harm for any misconduct by our employees or those entities with which we do business.
Our failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our financial condition, results of operations and business and the price of our common stock and other securities.
The Sarbanes-Oxley Act and the related rules require our management to conduct an annual assessment of the effectiveness of our internal control over financial reporting and require a report by our independent registered public accounting firm addressing our internal control over financial reporting. To comply with Section 404 of the Sarbanes-Oxley Act, we are required to document formal policies, processes and practices related to financial reporting that are necessary to comply with Section 404. Such policies, processes and practices are important to ensure the identification of key financial reporting risks, assessment of their potential impact and linkage of those risks to specific areas and activities within our organization.
If we fail for any reason to comply with the requirements of Section 404 in a timely manner, our independent registered public accounting firm may, at that time, issue an adverse report regarding the effectiveness of our internal control over financial reporting. Matters impacting our internal controls may cause us to be unable to report our financial information on a timely basis and thereby subject us to adverse regulatory consequences, including sanctions by the SEC or violations of applicable stock exchange listing rules. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. Any such event could adversely affect our financial condition, results of operations and business, and result in a decline in the price of our common stock and other securities.
We may not pay dividends regularly or at all in the future.
From time to time, we may decide to pay dividends which will be dependent upon our financial condition and results of operations. Our Board of Directors may reduce or discontinue dividends at any time for any reason it deems relevant and there can be no assurances that we will continue to generate sufficient cash to pay dividends, or that we will continue to pay dividends with the cash that we do generate. The determination regarding the payment of dividends is subject to the discretion of our Board of Directors, and there can be no assurances that we will continue to generate sufficient cash to pay dividends, or that we will pay dividends in future periods.
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Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.
In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and that of our customers, clients and business partners, and personally identifiable information of our employees, in our servers and on our networks. The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and regulatory penalties. In addition, such a breach could disrupt our operations and the services we provide to our clients, damage our reputation, and cause a loss of confidence in our services, which could adversely affect our business and our financial condition.
Significant disruptions of information technology systems, breaches of data security, or unauthorized disclosures of sensitive data or personally identifiable information could adversely affect our business, and could subject us to liability or reputational damage.
Our business is increasingly dependent on critical, complex, and interdependent information technology (“IT”) systems, including Internet-based systems, some of which are managed or hosted by third parties, to support business processes as well as internal and external communications. The size and complexity of our IT systems make us vulnerable to, and we have experienced, IT system breakdowns, malicious intrusion, and computer viruses, which may result in the impairment of our ability to operate our business effectively.
In addition, our systems and the systems of our third-party providers and collaborators are potentially vulnerable to data security breaches which may expose sensitive data to unauthorized persons or to the public. Such data security breaches could lead to the loss of confidential information, trade secrets or other intellectual property, or could lead to the public exposure of personal information (including personally identifiable information) of our employees, customers, business partners, and others. In addition, the increased use of social media by our employees and contractors could result in inadvertent disclosure of sensitive data or personal information, including but not limited to, confidential information, trade secrets and other intellectual property.
Any such disruption or security breach, as well as any action by us or our employees or contractors that might be inconsistent with the rapidly evolving data privacy and security laws and regulations applicable within the United States and elsewhere where we conduct business, could result in enforcement actions by U.S. states, the U.S. Federal government or foreign governments, liability or sanctions under data privacy laws that protect personally identifiable information, regulatory penalties, other legal proceedings such as but not limited to private litigation, the incurrence of significant remediation costs, disruptions to our development programs, business operations and collaborations, diversion of management efforts and damage to our reputation, which could harm our business and operations. Because of the rapidly moving nature of technology and the increasing sophistication of cybersecurity threats, our measures to prevent, respond to and minimize such risks may be unsuccessful.
In addition, the European Parliament and the Council of the European Union adopted a comprehensive general data privacy regulation (“GDPR”) in 2016 that took effect in May 2018 and governs the collection and use of personal data in the European Union. The GDPR, which is wide-ranging in scope, will impose several requirements relating to the consent of the individuals to whom the personal data relates, the information provided to the individuals, the security and confidentiality of the personal data, data breach notification and the use of third party processors in connection with the processing of the personal data. The GDPR also imposes strict rules on the transfer of personal data out of the European Union to the United States, enhances enforcement authority and imposes large penalties for noncompliance, including the potential for fines of up to €20 million or 4% of the annual global revenues of the infringer, whichever is greater. In addition, the California Consumer Privacy Act effective on January 1, 2020 and applies to for-profit businesses that conduct business in California and meet certain revenue or data collection thresholds. The CCPA will give consumers the right to request disclosure of information collected about them, and whether that information has been sold or shared with others, the right to request deletion of personal information (subject to certain exceptions), the right to opt out of the sale of the consumer’s personal information, and the right not to be discriminated against for exercising these rights. In October 2019, the California Attorney General adopted regulations to implement the CCPA. In addition, similar laws have and may be adopted by other states where the Company does business. The impact of the CCPA and other state privacy laws on the Company’s business is yet to be determined.
Due to the ongoing COVID-19 pandemic, most of our personnel have shifted to working remotely and we cannot predict the duration of this shift. While we have made substantial investments on our information security infrastructure, this shift has could put stress on our information security infrastructure and increase the risk of a data breach.
We may enter into new lines of business, make strategic investments or acquisitions or enter into joint ventures, each of which may result in additional risks and uncertainties for our business.
We may enter into new lines of business, make future strategic investments or acquisitions and enter into joint ventures. As we have in the past, and subject to market conditions, we may grow our business by increasing assets under management in existing investment strategies, pursue new investment strategies, which may be similar or complementary to our existing strategies or be wholly new initiatives, or enter into strategic relationships, or joint ventures. In addition, opportunities may arise to acquire or invest in other businesses that are related or unrelated to our current businesses.
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To the extent we make strategic investments or acquisitions, enter into strategic relationships or joint ventures or enter into new lines of business, we will face numerous risks and uncertainties, including risks associated with the required investment of capital and other resources and with combining or integrating operational and management systems and controls and managing potential conflicts. Entry into certain lines of business may subject us to new laws and regulations with which we are not familiar, or from which we are currently exempt, and may lead to increased litigation and regulatory risk. If a new business generates insufficient revenues, or produces investment losses, or if we are unable to efficiently manage our expanded operations, our results of operations will be adversely affected, and our reputation and business may be harmed. In the case of joint ventures, we are subject to additional risks and uncertainties in that we may be dependent upon, and subject to liability, losses or reputational damage relating to, systems, controls and personnel that are not under our control.
UOL competes against large companies, many of whom have significantly more financial and marketing resources, and our business will suffer if we are unable to compete successfully.
UOL competes with numerous providers of broadband, mobile broadband and DSL services, as well as other dial-up Internet access providers, many of whom are large and have significantly more financial and marketing resources. The principal competitors for UOL’s mobile broadband and DSL services include, among others, local exchange carriers, wireless and satellite service providers, and cable service providers. These competitors include established providers such as AT&T, Verizon, Sprint, and T-Mobile. UOL’s principal dial-up Internet access competitors include established online service and content providers, such as AOL and MSN, and independent national Internet service providers, such as EarthLink and its PeoplePC subsidiary. Dial-up Internet access services do not compete favorably with broadband services with respect to connection speed and do not have a significant, if any, price advantage over certain broadband services. In addition, there are a number of mobile virtual network operators, some of which focus on pricing as their main selling point. Certain portions of the U.S., primarily rural areas, currently have limited or no access to broadband services. However, the U.S. government has indicated its intention to facilitate the provision of broadband services to such areas. Such expansion of the availability of broadband services will increase the competition for Internet access subscribers in such areas and will likely adversely affect the UOL business. In addition to competition from broadband, mobile broadband, and DSL providers, competition among dial-up Internet access service providers is intense and neither UOL’s pricing nor the features of UOL’s services provides us with a significant competitive advantage, if any, over certain of UOL’s dial-up Internet access competitors. We expect that competition, particularly with respect to price, for broadband, mobile broadband, and DSL services, as well as dial-up Internet access services, will continue and may materially and adversely impact our business, financial condition, results of operations, and cash flows.
Dial-up and DSL pay accounts may decline faster than expected and adversely impact our business.
A significant portion of UOL’s revenues and profits come from dial-up Internet and DSL access services and related services and advertising revenues. UOL’s dial-up and DSL Internet access pay accounts and revenues have been declining and are expected to continue to decline due to the continued maturation of the market for dial-up and DSL Internet access, competitive pressures in the industry and limited sales efforts. Consumers continue to migrate to broadband access, primarily due to the faster connection and download speeds provided by broadband access. Advanced applications such as online gaming, music downloads and videos require greater bandwidth for optimal performance, which adds to the demand for broadband access. The pricing for basic broadband services has been declining as well, making it a more viable option for consumers. In addition, the popularity of accessing the Internet through tablets and mobile devices has been growing and may accelerate the migration of consumers away from dial-up Internet access. The number of dial-up Internet access pay accounts has been adversely impacted by both a decrease in the number of new pay accounts signing up for UOL’s services, as well as the impact of subscribers canceling their accounts, which we refer to as “churn.” Churn has increased from time to time and may increase in the future. If we experience a higher than expected level of churn, it will make it more difficult for us to increase or maintain the number of pay accounts, which could adversely affect our business, financial condition, results of operations, and cash flows.
We expect UOL’s dial-up and DSL Internet access pay accounts to continue to decline. As a result, related services revenues and the profitability of this segment may decline. The rate of decline in these revenues may continue to accelerate.
We may not be able to consistently make a high level of expense reductions in the future. Continued declines in revenues relating to the UOL business, particularly if such declines accelerate, will materially and adversely impact the profitability of this business.
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Failure to maintain or grow advertising revenues from UOL, including as a result of failing to increase or maintain the number of subscribers for UOL’s services, could have a negative impact on advertising profitability.
Advertising revenues are a key component of revenues and profitability from UOL. UOL’s services currently generate advertising revenues from search placements, display advertisements and online market research associated with Internet access and email services. Factors that have caused, or may cause in the future, UOL’s advertising revenues to fluctuate include, without limitation, changes in the number of visitors to UOL’s websites, active accounts or consumers purchasing our services and products, the effect of, changes to, or terminations of key advertising relationships, changes to UOL’s websites and advertising inventory, changes in applicable laws, regulations or business practices, including those related to behavioral or targeted advertising, user privacy, and taxation, changes in business models, changes in the online advertising market, changes in the economy, advertisers’ budgeting and buying patterns, competition, and changes in usage of UOL’s services. Decreases in UOL’s advertising revenues are likely to adversely impact our profitability. Further, our successful operation and management of UOL, including the ability to generate advertising revenues for UOL’s services, will depend in part upon our ability to increase or maintain the number of subscribers for UOL’s services. A decline in the number of subscribers using UOL’s services could result in decreased advertising revenues, and decreases in advertising revenues would adversely impact our profitability. The failure to increase or maintain the number of subscribers for UOL’s services could have a material adverse effect on advertising revenues and our profitability.
Interruption or failure of the network, information systems or other technologies essential to the UOL business could impair our ability to provide services relating to the UOL business, which could damage our reputation and harm our operating results.
Our successful operation of the UOL business depends on our ability to provide reliable service. Many of UOL’s products are supported by data centers. UOL’s network, data centers, central offices and those of UOL’s third-party service providers are vulnerable to damage or interruption from fires, earthquakes, hurricanes, tornados, floods and other natural disasters, terrorist attacks, power loss, capacity limitations, telecommunications failures, software and hardware defects or malfunctions, break ins, sabotage and vandalism, human error and other disruptions that are beyond our control. Some of the systems serving the UOL business are not fully redundant, and our disaster recovery or business continuity planning may not be adequate. The UOL business could also experience interruptions due to cable damage, theft of equipment, power outages, inclement weather and service failures of third-party service providers. The occurrence of any disruption or system failure or other significant disruption to business continuity may result in a loss of business, increase expenses, damage to reputation for providing reliable service, subject us to additional regulatory scrutiny or expose us to litigation and possible financial losses, any of which could adversely affect our business, results of operations and cash flows.
We may be accused of infringing upon the intellectual property rights of third parties, which is costly to defend and could limit our ability to use certain technologies in the future.
From time to time third parties have alleged that UOL infringes on their intellectual property rights, including patent rights. We may be unaware of filed patent applications and of issued patents that could be related to the products and services we acquired in the UOL acquisition. These claims are often made by patent holding companies that are not operating companies. The alleging parties generally seek royalty payments for prior use as well as future royalty streams. Defending against disputes, litigation or other legal proceedings, whether or not meritorious, may involve significant expense and diversion of management’s attention and resources from other matters. Due to the inherent uncertainties of litigation, we may not prevail in these actions. Both the costs of defending lawsuits and any settlements or judgments against us could adversely affect our results of operations and cash flows.
If there are events or circumstances affecting the reliability or security of the Internet, access to the websites related to the UOL business and/or the ability to safeguard confidential information could be impaired causing a negative effect on the financial results of our business operations.
Our website infrastructure and the website infrastructure of UOL may be vulnerable to computer viruses, hacking or similar disruptive problems caused by customers, other Internet users, other connected Internet sites, and the interconnecting telecommunications networks. Such problems caused by third-parties could lead to interruptions, delays or cessation of service to the customers of the UOL products and services. Inappropriate use of the Internet by third-parties could also potentially jeopardize the security of confidential information stored in our computer system, which may deter individuals from becoming customers. There can be no assurance that any such measures would not be circumvented in future. Dealing with problems caused by computer viruses or other inappropriate uses or security breaches may require interruptions, delays or cessation of service to customers, which could have a material adverse effect on our business, financial condition and results of operations. The ongoing COVID-19 pandemic has put increased strain on the internet due to, among other things, an increase in remote work and the effects on our business are difficult to estimate.
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The UOL business processes, stores and uses personal information and other data, which subjects us to governmental regulation and other legal obligations related to privacy, and our actual or perceived failure to comply with such obligations could harm our business.
The UOL business receives, stores and processes personal information and other customer data, and UOL enables customers to share their personal information with each other and with third parties. There are numerous federal, state and local laws around the world regarding privacy and the storing, sharing, use, processing, disclosure and protection of personal information and other customer data, the scope of which are changing, subject to differing interpretations, and may be inconsistent between countries or conflict with other rules. We will generally comply with industry standards and are and will be subject to the terms of privacy policies and privacy-related obligations to third parties. We will strive to comply with all applicable laws, policies, legal obligations and industry codes of conduct relating to privacy and data protection, to the extent possible. However, it is possible that these obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or UOL’s practices. Any failure or perceived failure to comply with UOL’s privacy policies, privacy-related obligations to customers or other third parties, or privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable information or other customer data, may result in governmental enforcement actions, litigation or public statements against us by consumer advocacy groups or others and could cause customers to lose trust in us, which could have an adverse effect on our business. Additionally, if third parties we work with, such as customers, vendors or developers, violate applicable laws or policies, such violations may also put our customers’ information at risk and could in turn have an adverse effect on our business.
Our marketing efforts for UOL’s business may not be successful or may become more expensive, either of which could increase our costs and adversely impact our business, financial condition, results of operations, and cash flows.
We rely on relationships for our UOL business with a wide variety of third parties, including Internet search providers such as Google, social networking platforms such as Facebook, Internet advertising networks, co-registration partners, retailers, distributors, television advertising agencies, and direct marketers, to source new members and to promote or distribute our services and products. In addition, in connection with the launch of new services or products for our UOL business, we may spend a significant amount of resources on marketing. With any of our brands, services, and products, if our marketing activities are inefficient or unsuccessful, if important third-party relationships or marketing strategies, such as Internet search engine marketing and search engine optimization, become more expensive or unavailable, or are suspended, modified, or terminated, for any reason, if there is an increase in the proportion of consumers visiting our websites or purchasing our services and products by way of marketing channels with higher marketing costs as compared to channels that have lower or no associated marketing costs, or if our marketing efforts do not result in our services and products being prominently ranked in Internet search listings, our business, financial condition, results of operations, and cash flows could be materially and adversely impacted.
Our UOL business is dependent on the availability of telecommunications services and compatibility with third-party systems and products.
Our UOL business substantially depends on the availability, capacity, affordability, reliability, and security of our telecommunications networks. Only a limited number of telecommunications providers offer the network and data services we currently require for our UOL business, and we purchase most of our telecommunications services from a few providers. Some of our telecommunications services are provided pursuant to short-term agreements that the providers can terminate or elect not to renew. In addition, some telecommunications providers may cease to offer network services for certain less populated areas, which would reduce the number of providers from which we may purchase services and may entirely eliminate our ability to purchase services for certain areas. Currently, our mobile broadband service of our UOL business is entirely dependent upon services acquired from one service provider, and the devices required by the provider can be used for only such provider’s service. If we are unable to maintain, renew or obtain a new agreement with the telecommunications provider on acceptable terms, or the provider discontinues its services, our business, financial condition, results of operations, and cash flows could be materially and adversely affected. Sprint, which owns Clearwire, ceased using WiMAX technology on the Clearwire network. This affected our mobile broadband subscribers for our UOL business that utilized the Clearwire network.
Our dial-up Internet access services of our UOL business also rely on their compatibility with other third-party systems, products and features, including operating systems. Incompatibility with third-party systems and products could adversely affect our ability to deliver our services or a user’s ability to access our services and could also adversely impact the distribution channels for our services. Our dial-up Internet access services are dependent on dial-up modems and an increasing number of computer manufacturers, including certain manufacturers with whom we have distribution relationships, do not pre-load their new computers with dial-up modems, requiring the user to separately acquire a modem to access our services. We cannot assure you that, as the dial-up Internet access market declines and new technologies emerge, we will be able to continue to effectively distribute and deliver our services.
Government regulations could adversely affect our business or force us to change our business practices.
The services that are provided by UOL are subject to varying degrees of international, federal, state and local laws and regulation, including, without limitation, those relating to taxation, bulk email or “spam,” advertising (including, without limitation, targeted or behavioral advertising), user privacy and data protection, consumer protection, antitrust, export, and unclaimed property. Compliance with such laws and regulations, which in many instances are unclear or unsettled, is complex. New laws and regulations, such as those being considered or recently enacted by certain states, the federal government, or international authorities related to automatic-renewal practices, spam, user privacy, targeted or behavioral advertising, and taxation, could impact our revenues or certain of our business practices or those of our advertisers.
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UOL resells broadband Internet access services offered by other parties pursuant to wholesale agreements with those providers. In an order released in March 2015, the Federal Communications Commission (the “FCC”) classified retail broadband Internet access services as telecommunications services subject to regulation under Title II of the Communications Act. That ruling is subject to a pending appeal. The classification of retail broadband Internet access services as telecommunications services means that providers of these services are subject to the general requirement that their charges, practices and classifications for telecommunications services be “just and reasonable,” and that they refrain from engaging in any “unjust or unreasonable discrimination” with respect to their charges, practices or classifications. However, the FCC has not determined what, if any, regulations will apply to wholesale broadband Internet access services, and it is uncertain whether it will adopt requirements that will be favorable or unfavorable to us. It is also possible that the classification of retail broadband Internet access services will be overturned on appeal, that Congress will adopt legislation reversing that decision, or that a future FCC will reverse that decision.
Broadband Internet access is also currently classified as an “information service.” While current policy exempts broadband Internet access services (but not all broadband services) from contributing to the Universal Service Fund (“USF”), Congress and the FCC may consider expanding the USF contribution base to include broadband Internet access services. If broadband Internet access providers become subject to USF contribution obligations, they would likely impose a USF surcharge on end users. Such a surcharge will raise the effective cost of our broadband services to UOL’s customers, which could adversely affect customer satisfaction and have an adverse impact on our revenues and profitability.
Failure to make proper payments for federal USF contributions, FCC regulatory fees or other amounts mandated by federal and state regulations; failure to maintain proper state tariffs and certifications; failure to comply with federal, state or local laws and regulations; failure to obtain and maintain required licenses, franchises and permits; imposition of burdensome license, franchise or permit requirements for us to operate in public rights-of-way; and imposition of new burdensome or adverse regulatory requirements could limit the types of services we provide or the terms on which we provide these services.
We cannot predict the outcome of any ongoing legislative initiatives or administrative or judicial proceedings or their potential impact upon the communications and information technology industries generally or upon the UOL business specifically. Any changes in the laws and regulations applicable to UOL, the enactment of any additional laws or regulations, or the failure to comply with, or increased enforcement activity by regulators of, such laws and regulations, could significantly impact our services and products, our costs, or the manner in which we or our advertisers conduct business, all of which could adversely impact our business, financial condition, results of operations, and cash flows and cause our business to suffer.
The FCC and some states require us to obtain prior approval of certain major merger and acquisition transactions, such as the acquisition of control of another telecommunications carrier. Delays in obtaining such approvals could affect our ability to close proposed transactions in a timely manner and could increase our costs and increase the risk of non-consummation of some transactions.
We manage debt investments that involve significant risks and potential additional liabilities.
GACP I., L.P. and GACP II, L.P., both direct lending funds of which our wholly owned subsidiary GACP is the general partner, may invest in secured debt issued by companies that have or may incur additional debt that is senior to the secured debt owned by the fund. In the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of any such company, the owners of senior secured debt (i.e., the owners of first priority liens) generally will be entitled to receive proceeds from any realization of the secured collateral until they have been reimbursed. At such time, the owners of junior secured debt (including, in certain circumstances, the fund) will be entitled to receive proceeds from the realization of the collateral securing such debt. There can be no assurances that the proceeds, if any, from the sale of such collateral would be sufficient to satisfy the loan obligations secured by subordinate debt instruments. To the extent that the fund owns secured debt that is junior to other secured debt, the fund may lose the value of its entire investment in such secured debt.
In addition, the fund may invest in loans that are secured by a second lien on assets. Second lien loans have been a developed market for a relatively short period of time, and there is limited historical data on the performance of second lien loans in adverse economic circumstances. In addition, second lien loan products are subject to intercreditor arrangements with the holders of first lien indebtedness, pursuant to which the second lien holders have waived many of the rights of a secured creditor, and some rights of unsecured creditors, including rights in bankruptcy, which can materially affect recoveries. While there is broad market acceptance of some second lien intercreditor terms, no clear market standard has developed for certain other material intercreditor terms for second lien loan products. This variation in key intercreditor terms may result in dissimilar recoveries across otherwise similarly situated second lien loans in insolvency or distressed situations. While uncertainty of recovery in an insolvency or distressed situation is inherent in all debt instruments, second lien loan products carry more risks than certain other debt products.
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The market in which magicJack participates is highly competitive and if we do not compete effectively, our operating results may be harmed by loss of market share and revenues.
The telecommunications industry is highly competitive. We face intense competition from traditional telephone companies, wireless companies, cable companies and alternative voice communication providers and manufacturers of communication devices.
The principal competitors for our products and services include the traditional telephone service providers, such as AT&T, Inc., CenturyLink, Inc. and Verizon Communications Inc., which provide telephone service using the public switched telephone network. Certain of these traditional providers have also added, or are planning to add, broadband telephone services to their existing telephone and broadband offerings. We also face, or expect to face, competition from cable companies, such as Cablevision Systems Corp., Charter Communications, Inc., Comcast Corporation, Cox Communications, Inc. and Time Warner Cable (a division of Time Warner Inc.), which offer broadband telephone services to their existing cable television and broadband offerings. Further, wireless providers, including AT&T Mobility, Inc., Sprint Corporation, T-Mobile USA Inc., and Verizon Wireless, Inc. offer services that some customers may prefer over wireline-based service. In the future, as wireless companies offer more minutes at lower prices, their services may become more attractive to customers as a replacement for broadband or wireline-based phone service.
We face competition on magicJack device sales from Apple, Samsung, Motorola and other manufacturers of smart phones, tablets and other handheld wireless devices. Also, we compete against established alternative voice communication providers, such as Vonage, Google Voice, Ooma, and Skype, which is another non-interconnected voice provider, and may face competition from other large, well-capitalized Internet companies. In addition, we compete with independent broadband telephone service providers.
Increased competition may result in our competitors using aggressive business tactics, including providing financial incentives to customers, selling their products or services at a discount or loss, offering products or services similar to our products and services on a bundled basis at a discounted rate or no charge, announcing competing products or services combined with aggressive marketing efforts, and asserting intellectual property rights or claims, irrespective of their validity.
We believe that some of our existing competitors may choose to consolidate or may be acquired in the future. Additionally, some of our competitors may enter into alliances or joint ventures with each other or establish or strengthen relationships with other third parties. Any such consolidation, acquisition, alliance, joint venture or other relationship could adversely affect our ability to compete effectively, lead to pricing pressure, our loss of market share and could harm our business, results of operations and financial condition.
magicJack may face difficulty in attracting new customers, and if we fail to attract new customers, our business and results of operations may suffer.
Most traditional wireline and wireless telephone service providers and cable companies are substantially larger and better capitalized than us and have the advantage of a large existing customer base. Because most of our customers are purchasing communications services from one or more of these providers, our success is dependent upon our ability to attract customers away from their existing providers. In addition, these competitors could focus their substantial financial resources to develop competing technology that may be more attractive to potential customers than what we offer. Our competitors’ financial resources may allow them to offer services at prices below cost or even for free in order to maintain and gain market share or otherwise improve their competitive positions.
magicJack’s competitors also could use their greater financial resources to offer broadband telephone service with more attractive service packages that include on-site installation and more robust customer service. In addition, because of the other services that our competitors provide, they may choose to offer broadband telephone service as part of a bundle that includes other products, such as video, high speed Internet access and wireless telephone service, which we do not offer at the present time. This bundle may enable our competitors to offer broadband telephone service at prices with which we may not be able to compete or to offer functionality that integrates broadband telephone service with their other offerings, both of which may be more desirable to consumers. Any of these competitive factors could make it more difficult for us to attract and retain customers to our products, and cause us to lower our prices in order to compete and reduce our market share and revenues.
magicJack may be unable to obtain enough phone numbers in desirable area codes to meet demand, which may adversely affect our ability to attract new customers and our results of operations.
magicJack’s operations are subject to varying degrees of federal and state regulation. It currently allows customers to select the area code for their desired phone number from a list of available area codes in cities throughout much of the United States. This selection may become limited if we are unable to obtain phone numbers, or a sufficient quantity of phone numbers, including certain area codes, due to exhaustion and consequent shortages of numbers in those area codes, restrictions imposed by federal or state regulatory agencies, or a lack of telephone numbers made available to us by third parties. If we are unable to provide our customers with a nationwide selection of phone numbers, or any phone numbers at all, in all geographical areas and is unable to obtain telephone numbers from another alternative source, or is required to incur significant new costs in connection with obtaining such phone numbers, our relationships with current and future customers may be damaged, causing a shortfall in expected revenue, increased customer attrition, and an inability to attract new customers. As a result, our business, results of operations and financial condition could be materially and adversely affected.
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If magicJack’s services are not commercially accepted by customers, our prospects for growth will suffer.
Our success in deriving a substantial amount of revenues from magicJack’s broadband telephone service offering sold to consumers and businesses relies on the commercial acceptance of our offering from consumers and business. Although we currently sell our services to a number of customers, it cannot be certain that future customers will find our services attractive. If customer demand for our services does not develop or develops more slowly than anticipated, it would have a material adverse effect on our business, results of operations and financial condition. Our success relies on the commercial acceptance of our offering from these advertisers and retailers. magicJack is not currently selling its advertising and retailing services and it cannot be certain future online advertisers and retailers will find its services attractive. If demand for these services does not develop or develops more slowly than anticipated, it would have a material adverse effect on our business, results of operations and financial condition.
If magicJack is unable to retain its existing customers, our revenue and results of operations would be adversely affected.
We offer magicJack services pursuant to a subscriber agreement that ranges generally from one month to five years in duration and allows our customers to gain access to our servers for telephone calls. Our customers do not have an obligation to renew their subscriber agreement after their initial term period expires, and these agreements may not be renewed on the same or on more profitable terms. As a result, our ability to grow depends in part on retaining customers for renewals. We may not be able to accurately predict future trends in customer renewals, and our customers’ renewal rates may decline or fluctuate because of several factors, including their satisfaction or dissatisfaction with our services, the prices of our services, the fees imposed by government entities, the prices of comparable services offered by our competitors or reductions in our customers’ spending levels. If our customers do not renew their services, renew on less favorable terms, or do not purchase additional functionality, our revenue may grow more slowly than expected or decline, and our profitability and gross margins may be harmed.
The market for magicJack’s services and products is characterized by rapidly changing technology and our success will depend on our ability to enhance our existing service and product offerings and to introduce new services and products on a timely and cost effective basis.
The market for magicJack’s services and products is characterized by rapidly changing enabling technology, frequent enhancements and evolving industry standards. Our continued success depends on our ability to accurately anticipate the evolution of new products and technologies and to enhance our existing products and services. Historically, several factors have deterred consumers and businesses from using voice over broadband service, including security concerns, inconsistent quality of service, increasing broadband traffic and incompatible software products. If we are unable to continue to address those concerns and foster greater consumer demand for our products and services, our business and results of operations will be adversely affected.
Our success also depends on our ability to develop and introduce innovative new magicJack services and products that gain market acceptance. We may not be successful in selecting, developing, manufacturing and marketing new products and services or enhancing existing products and services on a timely basis. We may experience difficulties with software development, industry standards, design or marketing that could delay or prevent our development, introduction or implementation of new products, services and enhancements. The introduction of new products or services by competitors, the emergence of new industry standards or the development of entirely new technologies to replace existing service offerings could render our existing or future services obsolete. If our services become obsolete due to wide-spread adoption of alternative connectivity technologies, our ability to generate revenue may be impaired. In addition, any new markets into which we attempt to sell our services, including new countries or regions, may not be receptive. If we are unable to successfully develop or acquire new products or services, enhance our existing products or services to anticipate and meet customer preferences or sell magicJack products and services into new markets, our revenue and results of operations would be adversely affected.
We may be unsuccessful in protecting our proprietary rights or may have to defend ourselves against claims of infringement, which could impair or significantly affect our business.
Our means of protecting our proprietary rights may not be adequate and our competitors may independently develop technology that is similar ours. Legal protections afford only limited protection for our technology. The laws of many countries do not protect our proprietary rights to as great an extent as do the laws of the United States. Despite our efforts to protect our proprietary rights, unauthorized parties have in the past attempted, and may in the future attempt, to copy aspects of our products or to obtain and use information that it regards as proprietary. Third parties may also design around our proprietary rights, which may render our protected products less valuable, if the design around is favorably received in the marketplace. In addition, if any our products or the technology underlying our products is covered by third-party patents or other intellectual property rights, we could be subject to various legal actions.
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We cannot assure you that our products do not infringe intellectual property rights held by others or that they will not in the future. Third parties may assert infringement, misappropriation, or breach of license claims against us from time to time. Such claims could cause us to incur substantial liabilities and to suspend or permanently cease the use of critical technologies or processes or the production or sale of major products. Litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity, misappropriation, or other claims. Any such litigation could result in substantial costs and diversion of our resources, which in turn could materially adversely affect our business and financial condition. Moreover, any settlement of or adverse judgment resulting from such litigation could require us to obtain a license to continue to use the technology that is the subject of the claim, or otherwise restrict or prohibit our use of the technology. Any required licenses may not be available to us on acceptable terms, if at all. If we attempt to design around the technology at issue or to find another provider of suitable alternative technology to permit it to continue offering applicable software or product solutions, our continued supply of software or product solutions could be disrupted or our introduction of new or enhanced software or products could be significantly delayed.
magicJack’s products must comply with various domestic and international regulations and standards and failure to do so could have an adverse effect on our business, operating results and financial condition.
magicJack’s products must comply with various domestic and international regulations and standards defined by regulatory agencies. If it does not comply with existing or evolving industry standards and other regulatory requirements or if we fail to obtain in a timely manner any required domestic or foreign regulatory approvals or certificates, we will not be able to sell our products where these standards or regulations apply, which may harm our business. Moreover, distribution partners or customers may require us, or we may otherwise deem it necessary or advisable, to alter our products to address actual or anticipated changes in the regulatory environment. Our inability to alter our products to address these requirements and any regulatory changes could have a material adverse effect on our business, financial condition, and operating results.
magicJack’s emergency and E911 calling services are different from those offered by traditional wireline telephone companies and may expose us to significant liability.
While we do not believe that we are currently subject to regulatory requirements to provide such capability, we provide our customers with emergency calling services/E911 calling services (“E911”) that significantly differ from the emergency calling services offered by traditional wireline telephone companies. Those differences may cause significant delays, or even failures, in callers’ receipt of the emergency assistance they need. Traditional wireline telephone companies route emergency calls from a fixed location over a dedicated infrastructure directly to an emergency services dispatcher at the public safety answering point (“PSAP”) in the caller’s area. Generally, the dispatcher automatically receives the caller’s phone number and actual location information. Because the magicJack devices are portable or nomadic, the only way we can determine to which PSAP to route an emergency call, and the only location information that our E911 service can transmit to a dispatcher at a PSAP is the information that our customers have registered with us. A customer’s registered location may be different from the customer’s actual location at the time of the call because customers can use their magicJack devices to make calls almost anywhere a broadband connection is available. Significant delays may occur in a customer updating its registered location information, and in applicable databases being updated and new routing implemented once a customer has provided new information. If our customers encounter delays when making emergency services calls and any inability to route emergency calls properly, or of the answering point to automatically recognize the caller’s location or telephone number, such delays can have devastating consequences. Customers may, in the future, attempt to hold us responsible for any loss, damage, personal injury or death suffered as a result.
Traditional phone companies also may be unable to provide the precise location or the caller’s telephone number when their customers place emergency calls. However, traditional phone companies are covered by federal legislation exempting them from liability for failures of emergency calling services, and magicJack is not afforded such protection. In addition, magicJack has lost, and may in the future lose, existing and prospective customers because of the limitations inherent in our emergency calling services. Additionally, service interruptions from our third-party providers could cause failures in our customers’ access to E911 services. Any of these factors could cause us to lose revenues, incur greater expenses or cause our reputation or financial results to suffer.
State and local governments may seek to impose E911 fees.
Many state and local governments have sought to impose fees on customers of VoIP providers, or to collect fees from VoIP providers, to support implementation of E911 services in their area. The application of such fees with respect to magicJack users and use is not clear because various statutes and regulations may not cover our services, we do not bill our customers monthly, nor do we bill customers at all for telecommunication services. We may also not know the end user’s location because the magicJack devices and services are nomadic. Should a regulatory authority require payment of money from us for such support, we may be required to develop a mechanism to collect fees from our customers, which may or may not be satisfactory to the entity requesting us to be a billing agent. We cannot predict whether the collection of such additional fees or limitations on where our services are available would impact customers’ interest in purchasing our products.
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In settlement of litigation, magicJack agreed that it would, at least once a year, issue bills for 911 emergency calling services to each user who has access to 911 services through their magicJack services, and who has provided a valid address in a U.S. jurisdiction that provides access to 911 services and which is legally empowered to impose 911 charges on such users in accordance with applicable state and/or local law.
Certain E911 regulatory authorities have asserted or may assert in the future that we are liable for damages, including end user assessed E911 taxes, surcharges and/or fees, for not having billed and collected E911 fees from our customers in the past or in the future. If a jurisdiction were to prevail in such claims, the decision could have a material adverse effect on our financial condition and results of operations.
Increases in credit card processing fees and high chargeback costs would increase our operating expenses and adversely affect our results of operations, and an adverse change in, or the termination of, magicJack’s relationship with any major credit card company would have a severe, negative impact on our business.
A significant number of magicJack’s customers purchase its products through magicJack’s website and pay for its products and services using credit or debit cards. The major credit card companies or the issuing banks may increase the fees that they charge for transactions using their cards. An increase in those fees would require us to either increase the prices we charge for our products, or suffer a negative impact on our profitability, either of which could adversely affect our business, financial condition and results of operations.
We have potential liability for chargebacks associated with the transactions we process, or that are processed on our behalf by merchants selling our products. If a customer returns his or her magicJack products at any time, or claims that magicJack’s product was purchased fraudulently, the returned product is “charged back” to magicJack or its bank, as applicable. If magicJack or its sponsoring banks are unable to collect the chargeback from the merchant’s account, or, if the merchant refuses or is financially unable, due to bankruptcy or other reasons, to reimburse the merchant’s bank for the chargeback, we bear the loss for the amount of the refund paid.
We are vulnerable to credit card fraud, as we sell magicJack products directly to customers through our website. Card fraud occurs when a customer uses a stolen card (or a stolen card number in a card-not-present-transaction) to purchase merchandise or services. In a traditional card-present transaction, if the merchant swipes the card, receives authorization for the transaction from the card issuing bank and verifies the signature on the back of the card against the paper receipt signed by the customer, the card issuing bank remains liable for any loss. In a fraudulent card-not-present transaction, even if the merchant or magicJack receive authorization for the transaction, magicJack or the merchant are liable for any loss arising from the transaction. Because sales made directly from magicJack’s website are card-not-present transactions, we are more vulnerable to customer fraud. We are also subject to acts of consumer fraud by customers that purchase magicJack products and services and subsequently claim that such purchases were not made.
In addition, as a result of high chargeback rates or other reasons beyond our control, the credit card companies or issuing bank may terminate their relationship with magicJack, and there are no assurances that it will be able to enter into a new credit card processing agreement on similar terms, if at all. Upon a termination, if magicJack’s credit card processor does not assist it in transitioning its business to another credit card processor, or if magicJack were not able to obtain a new credit card processor, the negative impact on our liquidity likely would be significant. The credit card processor may also prohibit magicJack from billing discounts annually or for any other reason. Any increases in the magicJack’s credit card fees could adversely affect our results of operations, particularly if we elect not to raise our service rates to offset the increase. The termination of magicJack’s ability to process payments on any major credit or debit card, due to high chargebacks or otherwise, would significantly impair our ability to operate our business.
Flaws in magicJack’s technology and systems could cause delays or interruptions of service, damage our reputation, cause us to lose customers and limit our growth.
Our service could be disrupted by problems with magicJack technology and systems, such as malfunctions in our software or other facilities and overloading of our servers. Our customers could experience interruptions in the future as a result of these types of problems. Interruptions could in the future cause us to lose customers, which could adversely affect our revenue and profitability. In addition, because magicJack’s systems and our customers’ ability to use our services are Internet-dependent, our services may be subject to “hacker attacks” from the Internet, which could have a significant impact on our systems and services. If service interruptions adversely affect the perceived reliability of our service, it may have difficulty attracting and retaining customers and our brand reputation and growth may suffer.
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We depend on overseas manufacturers, and for certain magicJack products, third-party suppliers, and our reputation and results of operations would be harmed if these manufacturers or suppliers fail to meet magicJack’s requirements.
The manufacture of the magicJack devices is conducted by a manufacturing company in China, and certain parts are produced in Taiwan and Hong Kong. These manufacturers supply substantially all of the raw materials and provide all facilities and labor required to manufacture our products. If these companies were to terminate their arrangements with us or fail to provide the required capacity and quality on a timely basis, either due to actions of the manufacturers; earthquakes, typhoons, tsunamis, fires, floods, or other natural disasters; or the actions of their respective governments, we would be unable to manufacture our products until replacement contract manufacturing services could be obtained. To qualify a new contract manufacturer, familiarize it with the magicJack products, quality standards and other requirements, and commence volume production is a costly and time-consuming process. We cannot assure you that we would be able to establish alternative manufacturing relationships on acceptable terms or in a timely manner that would not cause disruptions in our supply. Any interruption in the manufacture of our products would be likely to result in delays in shipment, lost sales and revenue and damage to our reputation in the market, all of which would harm our business and results of operations. In addition, while the magicJack contract obligations with its contract manufacturer in China is denominated in U.S. dollars, changes in currency exchange rates could impact our suppliers and increase our prices.
We rely on independent retailers to sell the magicJack devices, and disruption to these channels would harm our business.
Because we sell a significant amount of the magicJack devices, other devices and certain services to independent retailers, we are subject to many risks, including risks related to their inventory levels and support for magicJack’s products. In particular, magicJack’s retailers maintain significant levels of our products in their inventories. If retailers attempt to reduce their levels of inventory or if they do not maintain sufficient levels to meet customer demand, our sales could be negatively impacted.
The retailers who sell magicJack products also sell products offered by its competitors. If these competitors offer the retailers more favorable terms, those retailers may de-emphasize or decline to carry magicJack’s products. In the future, we may not be able to retain or attract a sufficient number of qualified retailers. If we are unable to maintain successful relationships with retailers or to expand our distribution channels, our business will suffer.
To continue this method of sales, we will have to allocate resources to train vendors, systems integrators and business partners as to the use of our products, resulting in additional costs and additional time until sales by such vendors, systems integrators and business partners are made feasible. Our business depends to a certain extent upon the success of such channels and the broad market acceptance of our products. To the extent that our channels are unsuccessful in selling our products, our revenues and operating results will be adversely affected.
Many factors out of our control could interfere with our ability to market, license, implement or support magicJack products with any of our channels, which in turn could harm our business. These factors include, but are not limited to, a change in the business strategy of magicJack’s channels, the introduction of competitive product offerings by other companies that are sold through one or more of its channels, potential contract defaults by one or more of its channels, bankruptcy of one or more distribution channel, or changes in ownership or management of one or more of its channels. For example, in February 2015, RadioShack Corporation, one of magicJack’s retail customers, filed a voluntary petition in bankruptcy court. magicJack was owed $1.3 million by RadioShack which it did not collect and sales to RadioShack were ceased to limit exposure. magicJack made limited sales to the RadioShack entity that emerged from the bankruptcy proceedings and terminated its relationship with that entity effective as of October 27, 2016. Some of magicJack’s competitors may have stronger relationships with its channels than magicJack does or offer more favorable terms with respect to their products, and magicJack has limited control, if any, as to whether those channels implement its products rather than its competitors’ products or whether they devote resources to market and support its competitors’ products rather than its offerings. If magicJack fails to maintain relationships with these channels, fails to develop new channels, fails to effectively manage, train, or provide incentives to existing channels or if these channels are not successful in their sales efforts, sales of magicJack’s products may decrease and our operating results would suffer. The independent retailers we rely on may be impacted by the ongoing COVID-19 pandemic, which has resulted in mandatory store closures of uncertain duration due to “social distancing” measures imposed to control the pandemic and they may be limited in their ability to sell magicJack devices to customers.
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We may not be able to maintain adequate customer care during periods of growth or in connection with our addition of new and complex devices or features, which could adversely affect our ability to grow and cause our financial results to be negatively impacted.
We consider our offshore customer care to be critically important to acquiring and retaining customers. A portion of our customer care for magicJack products is provided by third parties located in Costa Rica and the Philippines. This approach exposes us to the risk that we may not maintain service quality, control or effective management within these business operations. The increased elements of risk that arise from conducting certain operating processes in some jurisdictions could lead to an increase in reputational risk. Interruptions in our customer care caused by disruptions at our third-party facilities may cause us to lose customers, which could adversely affect our revenue and profitability. If our customer base expands rapidly in the U.S. or abroad, we may not be able to expand our outsourced customer care operations quickly enough to meet the needs of our customer base, and the quality of our customer care will suffer and our access right renewal rate may decrease. As we broaden our magicJack offerings and its customers build increasingly complex home networking environments, we will face additional challenges in training our customer care staff. We could face a high turnover rate among our customer service providers. We intend to have our customer care provider hire and train customer care representatives in order to meet the needs of our customer base. If they are unable to hire, train and retain sufficient personnel to provide adequate customer care, we may experience slower growth, increased costs and higher levels of customer attrition, which would adversely affect our business and results of operations.
If we are unable to maintain an effective process for local number portability provisioning, our growth may be negatively impacted.
We comply with requests for local number portability from our customers. Local number portability means that our customers can retain their existing telephone numbers when subscribing to magicJack’s services, and would in turn allow former customers to retain their telephone numbers should they subscribe to another carrier. If we are unable to maintain the technology to expedite porting our customers’ numbers, demand for our services may be reduced, and this will adversely affect our revenue and profitability.
If we cannot continue to obtain key switching elements from magicJack’s primary competitors on acceptable terms, we may not be able to offer our local voice and data services on a profitable basis, if at all.
We will not be able to provide our local voice and data services on a profitable basis, if at all, unless we are able to obtain key switching elements from some of magicJack’s primary competitors on acceptable terms. To offer local voice and data services in a market, we must connect our servers with other carriers in a specific market. This relationship is governed by an interconnection agreement or carrier service agreement between us and that carrier. magicJack has such agreements with Verizon, AT&T, XO Communications Services and CenturyLink in a majority of its markets. If we are unable to continue these relationships, enter into new interconnection agreements or carrier service agreements with additional carriers in other markets or if these providers liquidate or file for bankruptcy, our business and profitability may suffer.
Regulatory initiatives may continue to reduce the maximum rates we are permitted to charge long distance service providers for completing calls by our customers to customers served by our servers.
The rates that we charge and is charged by service providers for terminating calls by their customers to customers served by its servers, and for transferring calls by its customers onto other carriers, cannot exceed rates determined by regulatory authorities. In 2011, the FCC adopted an order fundamentally overhauling its existing intercarrier compensation (“ICC”) rules, which govern payments between carriers for exchange traffic. This order established a new ICC regime that will result in the elimination of virtually all terminating switched access charges and reciprocal compensation payments over a transition period that will end in 2020. The reductions resulting from these new ICC rules have affected and will continue to affect our revenues and results of operations.
Regulation of broadband telephone services are developing and therefore uncertain; and future legislative, regulatory or judicial actions could adversely impact our business and expose us to liability.
The current regulatory environment for broadband telephone services is developing and therefore uncertain. The United States and other countries have begun to assert regulatory authority over broadband telephone service and are continuing to evaluate how broadband telephone service will be regulated in the future. Both the application of existing rules to us and our competitors and the effects of future regulatory developments are uncertain. Future legislative, judicial or other regulatory actions could have a negative effect on our business. If its VoIP telephony service or our other magicJack products and services become subject to the rules and regulations applicable to telecommunications providers, if current broadband telephone service rules are expanded and applied to us, or if additional rules and regulations applicable specifically to broadband telephone services are adopted, we may incur significant compliance costs, and we may have to restructure our service offerings, exit certain markets or start charging for our services at least to the extent of regulatory costs or requirements, any of which could cause our services to be less attractive to customers. We are faced, and may continue to face, difficulty collecting such charges from our customers and/or carriers, and collecting such charges may cause us to incur legal fees. We may be unsuccessful in collecting all of the regulatory fees owed to us. The imposition of any such additional regulatory fees, charges, taxes and regulations on VoIP communications services could materially increase our costs and may limit or eliminate our competitive pricing advantages.
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Regulatory and governmental agencies may determine that we should be subject to rules applicable to certain broadband telephone service providers or seek to impose new or increased fees, taxes, and administrative burdens on broadband telephone service providers. We also may change our product and service offerings in a manner that subjects us to greater regulation and taxation. Such obligations could include requirements that we contribute directly to federal or state Universal Service Funds. We may also be required to meet various disability access requirements, number portability obligations, and interception or wiretapping requirements, such as the Communications Assistance for Law Enforcement Act. The imposition of such regulatory obligations or the imposition of additional federal, state or local taxes on our services could increase our cost of doing business and limit our growth.
We offer our magicJack products and services in other countries, and therefore could also be subject to regulatory risks in each such foreign jurisdiction, including the risk that regulations in some jurisdictions will prohibit us from providing our services cost-effectively or at all, which could limit our growth. Currently, there are several countries where regulations prohibit us from offering service. In addition, because customers can use our services almost anywhere that a broadband Internet connection is available, including countries where providing broadband telephone service is illegal, the governments of those countries may attempt to assert jurisdiction over us. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers or our employees, and prohibitions on the conduct of our business. Any such violations could include prohibitions on our ability to offer our products and services in one or more countries, could delay or prevent potential acquisitions, expose us to significant liability and regulation and could also materially damage our reputation, our brand, our international expansion efforts, our ability to attract and retain employees, our business and our operating results. Our success depends, in part, on our ability to anticipate these risks and manage these difficulties.
The success of our business relies on customers’ continued and unimpeded access to broadband service. Providers of broadband services may be able to block our services or charge their customers more for also using our services, which could adversely affect our revenue and growth.
Our customers must have broadband access to the Internet in order to use our service. Providers of broadband access, some of whom are also competing providers of voice services, may take measures that affect their customers’ ability to use our service, such as degrading the quality of the data packets they transmit over their lines, giving those packets low priority, giving other packets higher priority than ours, blocking our packets entirely or attempting to charge their customers more for also using our services.
In 2015, the FCC adopted net neutrality rules that prohibited broadband providers from: 1) blocking legal content, applications, services, or non-harmful devices; 2) impairing or degrading lawful Internet traffic on the basis of content, applications, services, or non-harmful devices; 3) engaging in paid prioritization by favoring some lawful Internet traffic over other lawful traffic in exchange for consideration of any kind or by prioritizing content and services of their affiliates; and 4) unreasonably interfering with or unreasonably disadvantaging the ability of consumers to select, access, and use the lawful content, applications, services, or devices of their choosing; or of edge providers to make lawful content, applications, services, or devices available to consumers. In doing so, the FCC reclassified broadband Internet access - the retail broadband service mass-market customers buy from cable, phone, and wireless providers - as a telecommunications service regulated under Title II of the Communications Act of 1934, although the FCC agreed to forbear from many requirements of Title II. Significantly, these rules applied equally to fixed and mobile broadband networks.
After the FCC’s new net neutrality rules went into effect in June 2015, various broadband providers and their trade associations challenged the FCC’s decision before the U.S. Court of Appeals for the D.C. Circuit. In June 2016, the D.C. Circuit issued its decision upholding the FCC’s rules. The D.C. Circuit also denied various petitions seeking rehearing en banc of the court’s decision. Various parties have sought review by the United States Supreme Court of the D.C. Circuit’s decision, which remains pending. We cannot predict the outcome of these proceedings.
In December 2017, the FCC adopted its “Restoring Internet Freedom Order,” which: 1) restored the classification of broadband Internet access services as unregulated information services, ending Title II regulation of these services; 2) eliminated the FCC’s three “bright-line” net neutrality rules; 3) eliminated the FCC’s “general conduct” rule; and 4) adopted a new transparency rule.
Multiple parties filed petitions seeking judicial review of the “Restoring Internet Freedom Order,” which were consolidated and heard by the United States Court of Appeals for the D.C. Circuit. In October 2019, the D.C. Circuit largely upheld the FCC decision to eliminate legal prohibitions against broadband providers blocking, throttling, or otherwise degrading the quality of our data packets or attempting to extract additional fees from us or our customers, which could adversely impact our business.
We may be bound by certain FCC regulations relating to the provision of E911 service, and if we fail to comply with FCC regulations requiring us to provide E911 emergency calling services, we may be subject to fines or penalties.
In 2005, the FCC issued regulations requiring interconnected voice-over broadband providers to provide E911 services and to notify customers of any differences between the broadband telephone service emergency calling services and those available through traditional telephone providers and obtain affirmative acknowledgments from customers of those notifications. In 2019, the FCC adopted rules broadening the scope of its E911 requirements, including imposing 911 obligations on outbound VoIP providers – obligations that will take effect in two years.
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Limitations on our ability to provide E911 service or comply with the FCC’s new mandates could materially limit our growth and have a material adverse effect on our profitability. We could be subjected to various fines and forfeitures. FCC rulings could also subject us to greater regulation in some states.
Regulatory rulings and/or carrier disputes could affect the manner in which we interconnect and exchange traffic with other providers and the costs and revenues associated with doing so.
We exchange calls with other providers pursuant to applicable law and interconnection agreements and other carrier contracts that define the rates, terms, and conditions applicable to such traffic exchange. The calls we exchange originate from and terminate to a customer that uses a broadband Internet connection to access our services and are routed using telephone numbers of the customer’s choosing. There is uncertainty, however, with respect to intercarrier compensation for such traffic while rules continue to be challenged in various courts. The FCC Report and Order issued in November 2011 has asserted its jurisdiction over such traffic. Various state commissions have also issued rulings with respect to the exchange of different categories of traffic under interconnection agreements. To the extent that another provider were to assert that the traffic we exchanges with them is subject to higher levels of compensation than we, or the third parties terminating our traffic to the PSTN, pay today (if any), or if other providers from whom we currently collect compensation for the exchange of such traffic refuse to pay it going forward, we may need to seek regulatory relief to resolve such a dispute. Given the recent changes to the intercarrier compensation regime, we cannot guarantee that the outcome of any proceeding would be favorable, and an unfavorable ruling could adversely affect the amounts we collect and/or pay to other providers in connection with the exchange of our traffic. The FCC clarified in January 2015 that its VoIP symmetry rule does not require a CLEC or its VoIP provider partner to provide the physical last-mile facility to the VoIP provider’s end user customers in order to provide the functional equivalent of end office switching, and thus for the CLEC to be eligible to assess access charges for this service. The ruling confirms that the VoIP symmetry rule is technology and facilities neutral and applies regardless of whether a CLEC’s VoIP partner is a facilities-based or over-the-top VoIP provider. However, in November 2016, the U.S. Court of Appeals for the D.C. Circuit vacated the FCC’s ruling. In December 2019, the Federal Communications Commission (FCC) issued an order on remand revisiting its interpretation of the VoIP symmetry rule, concluding that LECs may assesses end office switched access charges only if the LEC or its VoIP partner provides a physical connection to the last-mile facilities used to serve an end user. If neither the LEC nor its VoIP partner provides such physical connection, it is not providing the functional equivalent of end office switched access and the LEC may not assess end office switched access charges. The FCC also decided to give its order retroactive effect to “prevent an undue hardship being worked upon those parties who properly interpreted the VoIP Symmetry Rule and have been in disputes ever since.” We are still assessing the impact of this recent FCC order that will affect the amounts we collect and/or pay to other providers in connection with the exchange of our traffic.
Server failures or system breaches could cause delays or adversely affect our service quality, which may cause us to lose customers and revenue.
In operating our servers, we may be unable to connect and manage a large number of customers or a large quantity of traffic at high speeds. Any failure or perceived failure to achieve or maintain high-speed data transmission could significantly reduce demand for our magicJack services and adversely affect our operating results. In addition, computer viruses, break-ins, human error, natural disasters and other problems may disrupt our servers. The system security and stability measures we implement may be circumvented in the future or otherwise fail to prevent the disruption of our services. The costs and resources required to eliminate computer viruses and other security problems may result in interruptions, delays or cessation of services to our customers, which could decrease demand, decrease our revenue and slow our planned expansion.
Hardware and software failures, delays in the operation of magicJack’s computer and communications systems or the failure to implement system enhancements may harm our business.
Our success depends on the efficient and uninterrupted operation of magicJack’s software and communications systems. A failure of our servers could impede the delivery of services, customer orders and day-to-day management of our business and could result in the corruption or loss of data. Despite any precautions we may take, damage from fire, floods, hurricanes, power loss, telecommunications failures, computer viruses, break-ins and similar events at our various facilities could result in interruptions in the flow of data to our servers and from our servers to our customers. In addition, any failure by our computer environment to provide our required telephone communications capacity could result in interruptions in our service. Additionally, significant delays in the planned delivery of system enhancements and improvements, or inadequate performance of the systems once they are completed, could damage our reputation and harm our business. Finally, long-term disruptions in infrastructure caused by events such as natural disasters, the outbreak of war, the escalation of hostilities, and acts of terrorism (particularly involving cities in which it has offices) could adversely affect our business. Although we maintain general liability insurance, including coverage for errors and omissions, this coverage may be inadequate, or may not be available in the future on reasonable terms, or at all. We cannot assure you that this policy will cover any claim against us for loss of data or other indirect or consequential damages and defending a lawsuit, regardless of its merit, could be costly and divert management’s attention. In addition to potential liability, if we experience interruptions in our ability to supply our services, our reputation could be harmed and we could lose customers.
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Our magicJack service requires an operative broadband connection, and if the adoption of broadband does not progress as expected, the market for our services will not grow and we may not be able to grow our business and increase our revenue.
Use of magicJack’s service requires that the user be a subscriber to an existing broadband Internet service, most typically provided through a cable or digital subscriber line, or DSL, connection. Although the number of broadband subscribers in the U.S. and worldwide has grown significantly over the last five years, this service has not yet been adopted by all consumers and is not available in every part of the United States and Canada, particularly rural locations. If the adoption of broadband services does not continue to grow, the market for our services may not grow.
Our magicJack business is subject to privacy and online security risks, including security breaches, and we could be liable for such breaches of security. If we are unable to protect the privacy of our customers making calls using our service, or information obtained from our customers in connection with their use or payment of our services, in violation of privacy or security laws or expectations, we could be subject to significant liability and damage to our reputation.
Although we have developed systems and processes that are designed to protect customer information and prevent fraudulent transactions, data loss and other security breaches, such systems and processes may not be sufficient to prevent fraudulent transactions, data loss and other security breaches. Failure to prevent or mitigate such breaches may adversely affect our operating results.
Customers may believe that using our services to make and receive telephone calls using their broadband connection could result in a reduction of their privacy, as compared to traditional wireline carriers. Additionally, our website, www.magicJack.com, serves as an online sales portal. We currently obtain and retain personal information about our website users in connection with such purchases. In addition, we obtain personal information about our customers as part of their registration to use our products and services. Federal, state and foreign governments have enacted or may enact laws or regulations regarding the collection and use of personal information.
Our business involves the storage and transmission of users’ proprietary information, and security breaches could expose us to a risk of loss or misuse of this information, litigation, and potential liability. An increasing number of websites, including several other Internet companies, have recently disclosed breaches of their security, some of which have involved sophisticated and highly targeted attacks on portions of their sites. Because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems, change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures could be harmed and we could lose users. A party that is able to circumvent our security measures could misappropriate magicJack’s or its users’ proprietary information, cause interruption in our operations, damage our computers or those of our users, or otherwise damage our reputation and business. Any compromise of our security could result in a violation of applicable privacy and other laws, significant legal and financial exposure, damage to our reputation, and a loss of confidence in our security measures, which could harm our business.
Currently, a significant number of our users authorize it to bill their credit card accounts directly for all transaction fees charged by us. We rely on encryption and authentication technology licensed from third parties to provide the security and authentication to effectively secure transmission of confidential information, including customer credit card numbers. Advances in computer capabilities, new discoveries in the field of cryptography or other developments may result in the technology used by us to protect transaction data being breached or compromised. Non-technical means, for example, actions by a suborned employee, can also result in a data breach.
Possession and use of personal information in conducting our business subjects it to legislative and regulatory burdens that could require notification of data breach, restrict our use of personal information and hinder our ability to acquire new customers or market to existing customers. We may incur expenses to comply with privacy and security standards and protocols imposed by law, regulation, industry standards or contractual obligations.
Under payment card rules and magicJack’s contracts with its card processors, if there is a breach of payment card information that we store, we could be liable to the payment card issuing banks for their cost of issuing new cards and related expenses. In addition, if we fail to follow payment card industry security standards, even if there is no compromise of customer information, we could incur significant fines or lose our ability to give customers the option of using payment cards to fund their payments or pay their fees. If we were unable to accept payment cards, our business would be seriously damaged.
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Our servers are also vulnerable to computer viruses, physical or electronic break-ins, and similar disruptions. We may need to expend significant resources to protect against security breaches or to address problems caused by breaches. These issues are likely to become more difficult as we expand the number of places where we operate. Security breaches, including any breach by us or by parties with which we have commercial relationships that result in the unauthorized release of magicJack’s users’ personal information, could damage our reputation and expose us to a risk of loss or litigation and liability. Our insurance policies carry coverage limits that may not be adequate to reimburse it for losses caused by security breaches.
magicJack’s users, as well as those of other prominent Internet companies, have been and will continue to be targeted by parties using fraudulent “spoof” and “phishing” emails to misappropriate passwords, credit card numbers, or other personal information or to introduce viruses or other malware through “trojan horse” programs to magicJack’s users’ computers. These emails appear to be legitimate emails sent by magicJack, but direct recipients to fake websites operated by the sender of the email or request that the recipient send a password or other confidential information via email or download a program. Despite our efforts to mitigate “spoof” and “phishing” emails through product improvements and user education, “spoof” and “phishing” remain a serious problem that may damage our brands, discourage use of our websites, and increase our costs.
We have a stringent privacy policy covering the information we collect from our customers and have established security features to protect this information. However, our security measures may not prevent security breaches. We may need to expend resources to protect against security breaches or to address problems caused by breaches. If unauthorized third parties were able to penetrate our security and gain access to, or otherwise misappropriate, our customers’ personal information or be able to access their telephone calls, it could harm our reputation and, therefore, our business and magicJack could be subject to liability. Such liability could include claims for misuse of personal information or unauthorized use of credit cards. These claims could result in litigation, our involvement in which, regardless of the outcome, could require us to expend significant financial resources. Internet privacy is a rapidly changing area and we may be subject to future requirements and legislation that are costly to implement and negatively impact our results.
magicJack has operations located in Israel, and therefore our results may be adversely affected by political, economic and military conditions in Israel.
magicJack’s business and operations may be directly influenced by the political, economic and military conditions affecting Israel at any given time. A change in the security and political situation in Israel could have a material adverse effect on our business, operating results and financial condition. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its Arab neighbors, including Hezbollah in Lebanon and Hamas in the Gaza Strip. In the last few years, these conflicts involved missile strikes against civilian targets in various parts of Israel and negatively affected business conditions in Israel. In addition, political uprisings and conflicts in various countries in the Middle East, including Syria and Iraq, and including terrorist organizations gaining control and political power in the region such as the Islamic State of Iraq and Syria, or ISIS, are affecting the political stability of those countries. It is not clear how this instability will develop and how it will affect the political and security situation in the Middle East.
Our commercial insurance does not cover losses that may occur as a result of events associated with the security situation in the Middle East. Although the Israeli government currently covers the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, we cannot assure you that this government coverage will be maintained. Any losses or damages incurred by us could have a material adverse effect on our business, operating results and financial condition.
Furthermore, several countries, principally in the Middle East, restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with Israel and Israeli companies if hostilities in the region continue or intensify. Any hostilities involving Israel or the interruption or curtailment of trade between Israel and its present trading partners could have a material adverse effect on our business, operating results and financial condition.
Our operations could be disrupted as a result of the obligation of magicJack’s personnel to perform military service.
Several of magicJack’s employees reside in Israel and may be required to perform annual military reserve duty and may be called for active duty under emergency circumstances at any time. Our operations could be disrupted by the absence for a significant period of time of one or more of these employees due to military service. Any such disruption could adversely affect our business, results of operations and financial condition.
The failure of our licensees to sell products that generate royalties to us, to pay us royalties pursuant to their license agreements with us, or to renew these agreements could negatively affect our results of operations and financial condition.
Our revenues are dependent on royalty payments made to us under our license agreements. Although some of our license agreements guarantee a minimum royalty payment to us each year, the failure of our licensees to satisfy these or the other obligations under their agreements with us, their decision to not renew their agreements with us or their inability to grow or maintain their sales of products bearing our brands or their businesses generally could cause our revenues to decline. These events or circumstances could occur for a variety of reasons, many of which are outside our control, including business and operational risks that impact our licensees’ ability to make payments and sell products generally, such as obtaining and maintaining desirable store locations and consumer acceptance and presence; retaining key personnel, including the specific individuals who work on sales and marketing for products bearing our brands; and liquidity and capital resources risks.
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The consumer goods and services sector has been severely impacted by the ongoing COVID-19 pandemic, which has resulted in mandatory store closures of uncertain duration due to “social distancing” measures imposed to control the pandemic and our licensees may have difficulty selling their merchandise and meeting their financial obligations to us.
The failure by any of our key licensees or the concurrent failure by several licensees to meet their financial obligations to us or to renew their respective license agreements with us could materially and adversely impact our results of operations and our financial condition.
Our brand investment portfolio is subject to intense competition.
We hold a majority interest in a brand investment portfolio that is focused on generating revenue through the licensing of trademarks. Therefore, our degree of success is dependent on the strength of our brands, consumer acceptance of our brands and our licensees’ ability to design, manufacture and sell products bearing our brands, all of which is dependent on the ability of us and our licensees responding to ever-changing consumer demands. We cannot control the level of consumer acceptance of our brands and changing preferences and trends may lead customers to purchase other products. Further, we cannot control the level of resources that our licensees commit to supporting our brands, and our licensees may choose to support products bearing other brands to the detriment of our brands because our agreements generally do not prevent them from licensing or selling other products, including products bearing competing brands.
In addition, we compete with companies that own other brands and trademarks, as these companies could enter into similar licensing arrangements with retailers and wholesalers in the United States and internationally. These arrangements could be with our existing retail and wholesale partners, thereby competing with us for consumer attention and limited floor or rack space in the same stores in which our branded products are sold, and vying with us for the time and resources of the retailers and wholesale licensees that manufacture and distribute our products. These companies may be able to respond more quickly to changes in retailer, wholesaler and consumer preferences and devote greater resources to brand acquisition, development and marketing. We may not be able to compete effectively against these companies.
If we or our brands are unable to compete successfully against current and future competitors, we may be unable to sustain or increase demand for products bearing our brands, which could have a material adverse effect on our reputation, prospects, performance and financial condition.
Our level of indebtedness, and restrictions under such indebtedness, could adversely affect our operations and liquidity.
Our senior notes include: (a) the 6.875% 2023 Notes with an aggregate principal amount of approximately $113.1 million; (b) the 7.375% 2023 Notes with an aggregate principal amount of approximately $127.4 million, (c) the 7.25% 2027 Notes with an aggregate principal amount of $122.5 million; (d) the 7.50% 2027 Notes with an aggregate principal amount of $125.5 million; (e) the 2024 Notes with an aggregate principal amount of approximately $110.5 million; (f) the 2026 Notes with an aggregate principal amount of approximately $134.7 million and (g) the 2025 Notes with an aggregate principal amount of approximately $130.9 million. The Company periodically enters into At Market Issuance Sales Agreements with B. Riley FBR. Most recently, the Company entered into the February 2020 Sales Agreement on February 14, 2020. Pursuant to the February 2020 Sales Agreement, the Company may sell from time to time, at the Company’s option, up to the aggregate principal amount of $150,000,000 of the 7.25% 2027 Notes, 7.375% 2023 Notes, 6.875% 2023 Notes, 2024 Notes, 2026 Notes, 2025 Notes and Depositary Shares. At March 31, 2020, the Company had $148.4 million available for offer and sale pursuant to the February 2020 Sales Agreement.
On December 19, 2018, BRPI Acquisition Co LLC (“BRPAC”), a Delaware limited liability company, UOL, and YMAX Corporation, a Delaware corporation (collectively, the “Borrowers”), indirect wholly owned subsidiaries of ours, in the capacity of borrowers, entered into a credit agreement with the Banc of California, N.A. in the capacity as agent and lender and with the other lenders party thereto (the “BRPAC Credit Agreement”). Under the BRPAC Credit Agreement, we borrowed $80.0 million due December 19, 2023. Pursuant to the terms of the BRPAC Credit Agreement, we may request additional optional term loans in an aggregate principal amount of up to $10.0 million at any time prior to the first anniversary of the agreement date. On February 1, 2019, the Borrowers entered into the First Amendment to Credit Agreement and Joinder with City National Bank as a new lender in which the new lender extended to Borrowers the additional $10.0 million as further discussed in Note 9 to the accompanying financial statements. In April 2017, we amended our Credit Agreement with Wells Fargo Bank (the “Wells Fargo Credit Agreement”) to increase our retail liquidation line of credit from $100 million to $200 million.
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The terms of such indebtedness contain various restrictions and covenants regarding the operation of our business, including, but not limited to, restrictions on our ability to merge or consolidate with or into any other entity. We may also secure additional debt financing in the future in addition to our current debt. Our level of indebtedness generally could adversely affect our operations and liquidity, by, among other things: (i) making it more difficult for us to pay or refinance our debts as they become due during adverse economic and industry conditions because we may not have sufficient cash flows to make our scheduled debt payments; (ii) causing us to use a larger portion of our cash flows to fund interest and principal payments, thereby reducing the availability of cash to fund working capital, capital expenditures and other business activities; (iii) making it more difficult for us to take advantage of significant business opportunities, such as acquisition opportunities or other strategic transactions, and to react to changes in market or industry conditions; and (iv) limiting our ability to borrow additional monies in the future to fund working capital, capital expenditures, acquisitions and other general corporate purposes as and when needed, which could force us to suspend, delay or curtail business prospects, strategies or operations.
We may not be able to generate sufficient cash flow to pay the interest on our debt, and future working capital, borrowings or equity financing may not be available to pay or refinance such debt. If we are unable to generate sufficient cash flow to pay the interest on our debt, we may have to delay or curtail our operations. If we are unable to service our indebtedness, we will be forced to adopt an alternative strategy that may include actions such as reducing capital expenditures, selling assets, restructuring or refinancing our indebtedness or seeking additional equity capital. These alternative strategies may not be affected on satisfactory terms, if at all, and they may not yield sufficient funds to make required payments on our indebtedness. If, for any reason, we are unable to meet our debt service and repayment obligations, we would be in default under the terms of the agreements governing our debt, which could allow our creditors at that time to declare certain outstanding indebtedness to be due and payable or exercise other available remedies, which may in turn trigger cross acceleration or cross default rights in other agreements. If that should occur, we may not be able to pay all such debt or to borrow sufficient funds to refinance it. Even if new financing were then available, it may not be on terms that are acceptable to us.
Our senior notes are unsecured and therefore are effectively subordinated to any secured indebtedness that we currently have or that we may incur in the future.
Our senior notes are not secured by any of our assets or any of the assets of our subsidiaries. As a result, our senior notes are effectively subordinated to any secured indebtedness that we or our subsidiaries have currently outstanding or may incur in the future (or any indebtedness that is initially unsecured to which we subsequently grant security) to the extent of the value of the assets securing such indebtedness. The indenture governing our senior notes does not prohibit us or our subsidiaries from incurring additional secured (or unsecured) indebtedness in the future. In any liquidation, dissolution, bankruptcy or other similar proceeding, the holders of any of our existing or future secured indebtedness and the secured indebtedness of our subsidiaries may assert rights against the assets pledged to secure that indebtedness and may consequently receive payment from these assets before they may be used to pay other creditors, including the holders of our senior notes.
Our senior notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries.
Our senior notes are obligations exclusively of the Company and not of any of our subsidiaries. None of our subsidiaries is a guarantor of our senior notes, and our senior notes are not required to be guaranteed by any subsidiaries we may acquire or create in the future. Therefore, in any bankruptcy, liquidation or similar proceeding, all claims of creditors (including trade creditors) of our subsidiaries will have priority over our equity interests in such subsidiaries (and therefore the claims of our creditors, including holders of our senior notes) with respect to the assets of such subsidiaries. Even if we are recognized as a creditor of one or more of our subsidiaries, our claims would still be effectively subordinated to any security interests in the assets of any such subsidiary and to any indebtedness or other liabilities of any such subsidiary senior to our claims. Consequently, our senior notes will be structurally subordinated to all indebtedness and other liabilities (including trade payables) of any of our subsidiaries and any subsidiaries that we may in the future acquire or establish as financing vehicles or otherwise. The indenture governing our senior notes does not prohibit us or our subsidiaries from incurring additional indebtedness in the future. In addition, future debt and security agreements entered into by our subsidiaries may contain various restrictions, including restrictions on payments by our subsidiaries to us and the transfer by our subsidiaries of assets pledged as collateral.
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The indenture under which our senior notes were issued contains limited protection for holders of our senior notes.
The indenture under which our senior notes were issued offers limited protection to holders of our senior notes. The terms of the indenture and our senior notes do not restrict our or any of our subsidiaries’ ability to engage in, or otherwise be a party to, a variety of corporate transactions, circumstances or events that could have an adverse impact on the holders of our senior notes. In particular, the terms of the indenture and our senior notes do not place any restrictions on our or our subsidiaries’ ability to:
● | issue debt securities or otherwise incur additional indebtedness or other obligations, including (1) any indebtedness or other obligations that would be equal in right of payment to our senior notes, (2) any indebtedness or other obligations that would be secured and therefore rank effectively senior in right of payment to our senior notes to the extent of the values of the assets securing such debt, (3) indebtedness of ours that is guaranteed by one or more of our subsidiaries and which therefore is structurally senior to our senior notes and (4) securities, indebtedness or obligations issued or incurred by our subsidiaries that would be senior to our equity interests in our subsidiaries and therefore rank structurally senior to our senior notes with respect to the assets of our subsidiaries; |
● | pay dividends on, or purchase or redeem or make any payments in respect of, capital stock or other securities subordinated in right of payment to our senior notes; |
● | sell assets (other than certain limited restrictions on our ability to consolidate, merge or sell all or substantially all of our assets); |
● | enter into transactions with affiliates; |
● | create liens (including liens on the shares of our subsidiaries) or enter into sale and leaseback transactions; |
● | make investments; or |
● | create restrictions on the payment of dividends or other amounts to us from our subsidiaries. |
In addition, the indenture does not include any protection against certain events, such as a change of control, a leveraged recapitalization or “going private” transaction (which may result in a significant increase of our indebtedness levels), restructuring or similar transactions. Furthermore, the terms of the indenture and our senior notes do not protect holders of our senior notes in the event that we experience changes (including significant adverse changes) in our financial condition, results of operations or credit ratings, as they do not require that we or our subsidiaries adhere to any financial tests or ratios or specified levels of net worth, revenues, income, cash flow, or liquidity. Also, an event of default or acceleration under our other indebtedness would not necessarily result in an event of default under our senior notes.
Our ability to recapitalize, incur additional debt and take a number of other actions that are not limited by the terms of our senior notes may have important consequences for the holders of our senior notes, including making it more difficult for us to satisfy our obligations with respect to our senior notes or negatively affecting the trading value of our senior notes.
Other debt we issue or incur in the future could contain more protections for its holders than the indenture and our senior notes, including additional covenants and events of default. The issuance or incurrence of any such debt with incremental protections could affect the market for and trading levels and prices of our senior notes.
An increase in market interest rates could result in a decrease in the value of our senior notes.
In general, as market interest rates rise, notes bearing interest at a fixed rate decline in value. Consequently, if the market interest rates increase after our senior notes were purchased, the market value of our senior notes may decline. We cannot predict the future level of market interest rates.
An active trading market for our senior notes may not develop, which could limit the market price of our senior notes or the ability of our senior note holders to sell them.
The 7.25% 2027 Notes are quoted on Nasdaq under the symbol “RILYG,” the 7.50% 2027 Notes are quoted on Nasdaq under the symbol “RILYZ,” the 7.375% 2023 Notes are quoted on Nasdaq under the symbol “RILYH,” the 6.875% 2023 Notes are quoted on Nasdaq under the symbol “RILYI,” the 2024 Notes are quoted on Nasdaq under the symbol “RILYO,” the 2026 Notes are quoted on Nasdaq under the symbol “RILYN,” and the 2025 Notes are quoted on Nasdaq under the symbol “RILYM.” We cannot provide any assurances that an active trading market will develop for our senior notes or that our senior note holders will be able to sell their senior notes. If the senior notes are traded after their initial issuance, they may trade at a discount from their initial offering price depending on prevailing interest rates, the market for similar securities, our credit ratings, general economic conditions, our financial condition, performance and prospects and other factors. Accordingly, we cannot assure our senior note holders that a liquid trading market will develop for our senior notes, that our senior note holders will be able to sell our senior notes at a particular time or that the price our senior note holders receive when they sell will be favorable. To the extent an active trading market does not develop, the liquidity and trading price for our senior notes may be harmed. Accordingly, our senior note holders may be required to bear the financial risk of an investment in our senior notes for an indefinite period of time.
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We may issue additional notes.
Under the terms of the indenture governing our senior notes, we may from time to time without notice to, or the consent of, the holders of our senior notes, create and issue additional notes which will be equal in rank to our senior notes. We will not issue any such additional notes unless such issuance would constitute a “qualified reopening” for U.S. federal income tax purposes.
The rating for the 7.25% 2027 Notes, 7.375% 2023 Notes, 6.875% 2023 Notes, 2024 Notes, 2026 Notes or 2025 Notes could at any time be revised downward or withdrawn entirely at the discretion of the issuing rating agency.
We have obtained a rating for the 7.25% 2027 Notes, 7.375% 2023 Notes, 6.875% 2023 Notes, 2024 Notes, 2026 Notes and 2025 Notes (collectively, the “Rated Notes”). Ratings only reflect the views of the issuing rating agency or agencies and such ratings could at any time be revised downward or withdrawn entirely at the discretion of the issuing rating agency. A rating is not a recommendation to purchase, sell or hold any of the Rated Notes. Ratings do not reflect market prices or suitability of a security for a particular investor and the rating of the Rated Notes may not reflect all risks related to us and our business, or the structure or market value of the Rated Notes. We may elect to issue other securities for which we may seek to obtain a rating in the future. If we issue other securities with a rating, such ratings, if they are lower than market expectations or are subsequently lowered or withdrawn, could adversely affect the market for or the market value of the Rated Notes.
There is no established market for the Depositary Shares and the market value of the Depositary Shares could be substantially affected by various factors.
The Depositary Shares are a new issue of securities with no established trading market. Although the shares recently began trading on the Nasdaq Global Market, an active trading market on the Nasdaq Global Market for the Depositary Shares may not develop or last, in which case the trading price of the Depositary Shares could be adversely affected. If an active trading market does develop on the Nasdaq Global Market, the Depositary Shares may trade at prices higher or lower than their initial offering price. The trading price of the Depositary Shares also depends on many factors, including, but not limited to:
● | prevailing interest rates; |
● | the market for similar securities; |
● | general economic and financial market conditions; and |
● | the Company’s financial condition, results of operations and prospects. |
The Company has been advised by some of the underwriters that they intend to make a market in the Depositary Shares, but they are not obligated to do so and may discontinue market-making at any time without notice.
The Series A Preferred Stock and the Depositary Shares rank junior to all of the Company’s indebtedness and other liabilities and are effectively junior to all indebtedness and other liabilities of the Company’s subsidiaries.
In the event of a bankruptcy, liquidation, dissolution or winding-up of the affairs of the Company, the Company’s assets will be available to pay obligations on the 6.875% Series A Cumulative Perpetual Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”), only after all of the Company’s indebtedness and other liabilities have been paid. The rights of holders of the Series A Preferred Stock to participate in the distribution of the Company’s assets will rank junior to the prior claims of the Company’s current and future creditors and any future series or class of preferred stock the Company may issue that ranks senior to the Series A Preferred Stock. In addition, the Series A Preferred Stock effectively ranks junior to all existing and future indebtedness and other liabilities of (as well as any preferred equity interests held by others in) the Company’s existing subsidiaries and any future subsidiaries. The Company’s existing subsidiaries are, and any future subsidiaries would be, separate legal entities and have no legal obligation to pay any amounts to the Company in respect of dividends due on the Series A Preferred Stock. If the Company is forced to liquidate its assets to pay its creditors, the Company may not have sufficient assets to pay amounts due on any or all of the Series A Preferred Stock then outstanding. The Company and its subsidiaries have incurred and may in the future incur substantial amounts of debt and other obligations that will rank senior to the Series A Preferred Stock. The Company may incur additional indebtedness and become more highly leveraged in the future, which could harm the Company’s financial position and potentially limit cash available to pay dividends. As a result, the Company may not have sufficient funds remaining to satisfy its dividend obligations relating to the Series A Preferred Stock if the Company incurs additional indebtedness.
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Future offerings of debt or senior equity securities may adversely affect the market price of the Depositary Shares. If the Company decides to issue debt or senior equity securities in the future, it is possible that these securities will be governed by an indenture or other instrument containing covenants restricting the Company’s operating flexibility. Additionally, any convertible or exchangeable securities that the Company issues in the future may have rights, preferences and privileges more favorable than those of the Series A Preferred Stock and may result in dilution to owners of the Depositary Shares. The Company and, indirectly, the Company’s shareholders, will bear the cost of issuing and servicing such securities. Because the Company’s decision to issue debt or equity securities in any future offering will depend on market conditions and other factors beyond the Company’s control, the Company cannot predict or estimate the amount, timing or nature of the Company’s future offerings. Thus, holders of the Depositary Shares will bear the risk of the Company’s future offerings reducing the market price of the Depositary Shares and diluting the value of their holdings in the Company.
The Company may issue additional shares of the Series A Preferred Stock and additional series of preferred stock that rank on a parity with the Series A Preferred Stock as to dividend rights, rights upon liquidation or voting rights.
The Company is allowed to issue additional shares of Series A Preferred Stock and additional series of preferred stock that would rank on a parity with the Series A Preferred Stock as to dividend payments and rights upon the Company’s liquidation, dissolution or winding up of the Company’s affairs pursuant to the Company’s articles of incorporation and the certificate of designation for the Series A Preferred Stock without any vote of the holders of the Series A Preferred Stock. The Company’s articles of incorporation authorize the Company to issue up to 1,000,000 shares of preferred stock in one or more series on terms determined by the Company’s Board of Directors. Prior to the issuance of Series A Preferred Stock, the Company had no outstanding series of preferred stock. However, the use of depositary shares enables the Company to issue significant amounts of preferred stock, notwithstanding the number of shares authorized by the Company’s articles of incorporation. The issuance of additional shares of Series A Preferred Stock and additional series of parity preferred stock could have the effect of reducing the amounts available to the Series A Preferred Stockholders upon the Company’s liquidation or dissolution or the winding up of the Company’s affairs. It also may reduce dividend payments on the Series A Preferred Stock issued and outstanding if the Company does not have sufficient funds to pay dividends on all Series A Preferred Stock outstanding and other classes of stock with equal priority with respect to dividends.
In addition, although holders of the Depositary Shares are entitled to limited voting rights (discussed further below), the holders of the Depositary Shares will vote separately as a class along with all other outstanding series of the Company’s preferred stock that the Company may issue upon which like voting rights have been conferred and are exercisable. As a result, the voting rights of holders of the Depositary Shares may be significantly diluted, and the holders of such other series of preferred stock that the Company may issue may be able to control or significantly influence the outcome of any vote.
Future issuances and sales of parity preferred stock, or the perception that such issuances and sales could occur, may cause prevailing market prices for the Depositary Shares and the Company’s common stock to decline and may adversely affect the Company’s ability to raise additional capital in the financial markets at times and prices favorable to the Company. Such issuances may also reduce or eliminate the Company’s ability to pay dividends on the Company’s common stock.
Holders of Depositary Shares will have extremely limited voting rights.
The voting rights of holders of Depositary Shares will be limited. The Company’s common stock is the only class of the Company’s securities that carries full voting rights. Voting rights for holders of Depositary Shares will exist primarily with respect to the ability to elect (together with the holders of other outstanding series of the Company’s preferred stock, or Depositary Shares representing interests in the Company’s preferred stock, or additional series of preferred stock the Company may issue in the future and upon which similar voting rights have been or are in the future conferred and are exercisable) two additional directors to the Company’s Board of Directors in the event that six quarterly dividends (whether or not declared or consecutive) payable on the Series A Preferred Stock are in arrears, and with respect to voting on amendments to the Company’s articles of incorporation or certificate of designation (in some cases voting together with the holders of other outstanding series of the Company’s preferred stock as a single class) that materially and adversely affect the rights of the holders of Depositary Shares (and other series of preferred stock, as applicable) or create additional classes or series of the Company’s stock that are senior to the Series A Preferred Stock, provided that in any event adequate provision for redemption has not been made. Other than the limited circumstances described in this prospectus supplement, holders of Depositary Shares will not have any voting rights.
The Depositary Shares have not been rated.
The Series A Preferred Stock and the Depositary Shares have not been rated and may never be rated. It is possible, however, that one or more rating agencies might independently decide to assign a rating to the Depositary Shares or that the Company may elect to obtain a rating of the Depositary Shares in the future. Furthermore, the Company may elect to issue other securities for which the Company may seek to obtain a rating. If any ratings are assigned to the Depositary Shares in the future or if the Company issues other securities with a rating, such ratings, if they are lower than market expectations or are subsequently lowered or withdrawn, could adversely affect the market for, or the market value of, the Depositary Shares.
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Ratings reflect the views of the issuing rating agency or agencies, and such ratings could at any time be revised downward, placed on negative outlook or withdrawn entirely at the discretion of the issuing rating agency or agencies. Furthermore, a rating is not a recommendation to purchase, sell or hold any particular security, including the Depositary Shares. Ratings do not reflect market prices or the suitability of a security for a particular investor, and any future rating of the Depositary Shares may not reflect all risks related to the Company and its business, or the structure or market value of the Depositary Shares.
The conversion feature may not adequately compensate the holders, and the conversion and redemption features of the Series A Preferred Stock and the Depositary Shares may make it more difficult for a party to take over the Company and may discourage a party from taking over the Company.
Upon the occurrence of a Delisting Event or Change of Control (each as defined in the certificate of designation for the Series A Preferred Stock), holders of the Depositary Shares will have the right (unless, prior to the Delisting Event Conversion Date or Change of Control Conversion Date (each as defined in the certificate of designation for the Series A Preferred Stock), as applicable, the Company has provided or provide notice of the Company’s election to redeem the Series A Preferred Stock) to direct the depositary to convert some or all of the Series A Preferred Stock underlying their Depositary Shares into the Company’s common stock (or equivalent value of alternative consideration), and under these circumstances the Company will also have a special optional redemption right to redeem the Series A Preferred Stock. Upon such a conversion, the holders will be limited to a maximum number of shares of the Company’s common stock equal to the Share Cap (as defined in the certificate of designation for the Series A Preferred Stock) multiplied by the number of shares of Series A Preferred Stock converted. If the Common Stock Price is less than $11.49 (which is approximately 50% of the closing sale price per share of the Company’s common stock on October 1, 2019), subject to adjustment, the holders will receive a maximum number of shares of the Company’s common stock per depositary share, which may result in a holder receiving value that is less than the liquidation preference of the Depositary Shares. In addition, those features of the Series A Preferred Stock and Depositary Shares may have the effect of inhibiting a third party from making an acquisition proposal for the Company or of delaying, deferring or preventing a change of control of the Company under circumstances that otherwise could provide the holders of the Company’s common stock and Depositary Shares with the opportunity to realize a premium over the then-current market price or that shareholders may otherwise believe is in their best interests.
The market price of the Depositary Shares could be substantially affected by various factors.
The market price of the Depositary Shares will depend on many factors, which may change from time to time, including:
● | prevailing interest rates, increases in which may have an adverse effect on the market price of the Depositary Shares; |
● | the annual yield from distributions on the Depositary Shares as compared to yields on other financial instruments; |
● | general economic and financial market conditions; |
● | government action or regulation; |
● | the financial condition, performance and prospects of the Company and its competitors; |
● | changes in financial estimates or recommendations by securities analysts with respect to the Company, its competitors or the industry in which the Company operates; |
● | the Company’s issuance of additional preferred equity or debt securities; and |
● | actual or anticipated variations in quarterly operating results of the Company and its competitors. |
As a result of these and other factors, investors who purchase the Depositary Shares may experience a decrease, which could be substantial and rapid, in the market price of the Depositary Shares, including decreases unrelated to the Company’s operating performance or prospects.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
None.
The exhibits filed as part of this Quarterly Report are listed in the index to exhibits immediately preceding such exhibits, which index to exhibits is incorporated herein by reference.
Exhibit Index
83
* | Filed herewith. |
** | Furnished herewith. |
# | Management contract or compensatory plan or arrangement |
^ | The Company has omitted certain information contained in this exhibit pursuant to Rule 601(b)(10) of Regulation S-K. The omitted information is not material and, if publicly disclosed, would likely cause competitive harm to the Company. |
84
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
B. Riley Financial, Inc. | |||
Date: May 11, 2020 | By: | /s/ PHILLIP J. AHN | |
Name: | Phillip J. Ahn | ||
Title: | Chief Financial Officer and Chief Operating Officer (Principal Financial Officer) |
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Exhibit 10.1
February 14, 2020
Confidential
Franchise Group, Inc.
1716 Corporate Landing Parkway
Virginia Beach, VA 23454
Project Buckeye
ABL Commitment Letter
Ladies and Gentlemen:
Franchise Group, Inc., a Delaware corporation (“FGI Topco” or “you”) have advised B. Riley Financial, Inc. (“BRiley”, the “Commitment Party,” “we,” or “us”) that FGI Topco, intends to acquire, directly or indirectly through one or more wholly-owned subsidiaries (the “Acquisition”) all of the outstanding equity interests of American Freight Group, Inc., a Delaware corporation (collectively, the “Target”) pursuant to the terms of that certain Agreement and Plan of Merger, dated as of the date hereof between and among Target, Franchise Group Newco Intermediate AF, LLC, a Delaware limited liability company (“AcquisitionCo”), Franchise Group Merger Sub AF, Inc., a Delaware limited liability company (“MergerSub”) and The Jordan Company, L.P. (collectively with all exhibits, schedules, and disclosure letters thereto, the “Acquisition Agreement”). You have further advised us that, in connection with the foregoing, you entered into a commitment letter for an asset based lending facility with GACP II, L.P. dated as of December 28, 2019 (such commitment letter, attached hereto as Exhibit A, the “Primary Commitment Letter”). All capitalized terms used herein and not otherwise defined herein shall have the respective meanings specified therefor in the Primary Commitment Letter.
Subject to the terms and conditions referred to in this Letter, BRiley commits to provide a $100 million asset based lending facility (the “BRiley ABL”) to Borrower having the terms set forth in the ABL Term Sheet (as defined in the Primary Commitment Letter) (other than with respect to the identity of agents and lenders, the aggregate commitment amount, the initial conditions to borrowing set forth therein and the use of proceeds on the Closing Date (as defined below)) (the “Backstop Commitment”). The Backstop Commitment shall be provided to Borrower on the earlier of (a) the date that is two (2) months after the date hereof if, on or before such date, the obligations under the ABL Credit Agreement, dated as of February 14, 2020, between, inter alia, GACP FINANCE CO., LLC, as administrative agent and collateral agent and Franchise Group Intermediate Holdco, LLC, as lead borrower (the “Existing ABL Credit Agreement”) are not refinanced in full with financing in form and substance reasonably satisfactory to Kayne (as defined below) and (b) the date that is thirty (30) days prior to the final maturity date set forth in the ABL Credit Agreement, if, on or before such date, the obligations under the ABL Credit Agreement are not refinanced in full with financing in form and substance reasonably satisfactory to Kayne (the “Closing Date”).
BRiley’s Backstop Commitment is subject solely to the execution and delivery by Borrower and Guarantors of ABL Loan Documents in accordance with the ABL Term Sheet and this Letter. On the Closing Date and subject solely to the foregoing condition, the BRiley ABL shall be provided by BRiley to Borrower. The BRiley ABL shall be used on the Closing Date to repay any obligations outstanding under the Existing ABL Credit Agreement and concurrently therewith the commitments under the Existing ABL Credit Agreement shall be terminated. After the Closing Date, the BRiley ABL shall be used for working capital and general corporate purposes.
Without limiting our obligations hereunder, you agree to use best efforts to obtain an asset based lending facility from Citizens Bank and/or other potential financing sources.
You shall indemnify, hold harmless, release and discharge each Indemnified Party (as defined below) from and against any losses, claims, damages, liabilities and expenses (including, without limitation, reasonable and documented out of pocket fees and disbursements of one firm of external counsel) to which any Indemnified Party may become subject arising out of or in connection with any claim, litigation, investigation or proceeding relating to this Letter or any related transaction, regardless of whether any Indemnified Party is a party thereto; provided, that the foregoing indemnity will not, as to any Indemnified Party, apply to losses, claims, damages, liabilities or related expenses to the extent they arise from (i) the willful misconduct, bad faith or gross negligence of such Indemnified Party (or any such Indemnified Party’s controlled affiliates or controlling persons or the respective directors, officers, employees, partners, advisors, trustees, agents or other representatives of each of the foregoing) as determined in a final, non-appealable judgment of a court of competent jurisdiction, (ii) the material breach of this Commitment Letter by such Indemnified Party (or any such Indemnified Party’s controlled affiliates or controlling persons or the respective directors, officers, employees, partners, advisors, trustees, agents or other representatives of each of the foregoing) as determined in a final, non-appealable judgment of a court of competent jurisdiction or (iii) any disputes solely among Indemnified Persons and not arising out of any act or omission by you or any of your affiliates. In no event shall any Indemnified Party be liable for any indirect or consequential damages.
For purposes hereof, each “Indemnified Party” shall mean each of BRiley and Kayne and each of their respective affiliates, officers, directors, partners, employees, representatives and agents.
In addition, you shall reimburse BRiley for any reasonable and documented out of pocket expenses (including, without limitation, reasonable and documented fees and disbursements of one firm of external counsel) incurred in performing BRiley’s obligations hereunder, as further described in the ABL Term Sheet. Such expenses shall be due and payable on the Closing Date.
The indemnity and reimbursement obligations shall survive the termination of this Letter, but shall not survive the execution of the ABL Loan Documents.
Kayne Solutions Fund, L.P., as collateral agent and as a lender under the Term Loan Facility ( “Kayne”) is a third party beneficiary of this Letter and the commitments and agreements made hereunder by BRiley, and shall have the right to enforce such commitments and agreements directly against BRiley to the extent Kayne may, in its sole discretion, deem such enforcement necessary or advisable to effectuate this Letter or to protect its rights, the rights of the lenders under the Term Loan Facility or the rights of Borrower. This Letter shall not be amended, modified, waived or supplemented without the prior written consent of Kayne.
BRiley and you each agree that the existence of this Letter and the terms and conditions hereof are confidential and may not be disclosed by either party to any third party, without the other party’s prior written consent, except to the extent that such disclosure (a) is determined by BRiley to be consistent with its services hereunder, (b) is required by law, regulation, supervisory authority, or other applicable judicial or governmental order, (c) was or becomes generally available to the public other than as a result of a disclosure by one of the parties, (d) is made on a comparable confidential basis to either party’s directors, attorneys, accountants or tax and financial advisors on a need to know basis, or (e) is made to Kayne.
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS, BRILEY AND YOU HEREBY AGREE THAT THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK. EACH OF THE PARTIES HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING HEREUNDER OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LETTER OR THE BORROWER/LENDER RELATIONSHIP THAT IS BEING ESTABLISHED.
This Letter may not be amended or modified except in a writing signed by the parties hereto and Kayne. This Letter contains the entire agreement among the parties hereto and supersedes all prior understandings, written or oral. This Letter may be executed in any number of counterparts, each of which shall be an original, and all of which, when taken together, shall constitute one agreement. Delivery of an executed signature page of this Letter by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof.
We hereby notify you that pursuant to the requirements of the USA PATRIOT Act, Title III of Pub. L. 107-56 (signed into law October 26, 2001) (as the same may be amended and in effect from time to time, the “PATRIOT Act”), we are required to obtain, verify, and record information that identifies the Borrower and the Guarantors, which information includes the name, address, tax identification number, and other information regarding the Borrower and the Guarantors that will allow us to identify the Borrower and the Guarantors in accordance with the PATRIOT Act. This notice is given in accordance with the requirements of the PATRIOT Act. You hereby acknowledge and agree that the we shall be permitted to share any or all such information with lenders under the BRiley ABL.
If the foregoing correctly sets forth our agreement, please indicate your acceptance of the terms hereof.
Very truly yours, | ||
B. RILEY FINANCIAL, INC. | ||
By: | /s/ Bryant R. Riley | |
Name: | Bryant R. Riley | |
Title: | Co-Chief Executive Officer |
Accepted and agreed to as of | |||
the date first written above: | |||
FRANCHISE GROUP, INC. | |||
By: | /s/ Brian Kahn | ||
Name: | Brian Kahn | ||
Title: | Chief Executive Officer |
[Signature Page to ABL Commitment Letter]
KAYNE SOLUTIONS FUND L.P., | ||
as Kayne Agent | ||
By: Kayne Solutions Fund GP, LLC, | ||
its general partner | ||
By: | /s/ Jon Levinson | |
Name: | Jon Levinson | |
Title: | Managing Partner |
[Signature Page to ABL Commitment Letter]
Exhibit A
[Attached]
GACP Finance Co., LLC
11100 Santa Monica Blvd., Suite 800
Los Angeles, CA 90025
PERSONAL AND CONFIDENTIAL
December 28, 2019
Franchise Group, Inc.
1716 Corporate Landing Parkway
Virginia Beach, VA 23454
Project Buckeye
Commitment Letter
Ladies and Gentlemen:
You have advised GACP II, L.P. (“GACP ” and together with the Lenders party hereto, collectively, the “Commitment Parties ,” “we,” or “us”) that Franchise Group, Inc., a Delaware corporation (“FGI Topco” or “you”), intends to acquire, directly or indirectly through one or more wholly-owned subsidiaries (the “Acquisition”) all of the outstanding equity interests of American Freight Group, Inc., a Delaware corporation (collectively, the “Target”) pursuant to the terms of that certain Agreement and Plan of Merger, dated as of the date hereof between and among Target, Franchise Group Newco Intermediate AF, LLC, a Delaware limited liability company (“AcquisitionCo”), Franchise Group Merger Sub AF, Inc., a Delaware limited liability company (“MergerSub”) and The Jordan Company, L.P. (collectively with all exhibits, schedules, and disclosure letters thereto, the “Acquisition Agreement”). You have further advised us that, in connection with the foregoing, you intend to consummate the other Transactions described in the Transaction Description attached hereto as Exhibit A (the “Transaction Description”). Capitalized terms used but not defined herein shall have the meanings assigned to them in the Exhibits hereto (such Exhibits, together with this letter, collectively, this “Commitment Letter”).
1. Commitment. Based upon the foregoing and subject to the terms and conditions expressly set forth in this letter and in the Term Sheets (as defined below), (i) GACP is pleased to advise you of the several, but not joint, commitments of GACP and each of its affiliates listed on the signature pages hereto under the heading “ABL Lenders” (in such capacity, each an “ABL Lender” and, collectively, the “ABL Lenders”) to provide to the Borrower 100% of the $150,000,000 aggregate principal amount of the ABL Facility (the “ABL Term Sheet”) and (ii) GACP is pleased to advise you of the several, but not joint, commitments of GACP and each of its affiliates listed on the signature pages hereto under the heading “Term Loan Lender” (in such capacity, each a “Term Loan Lender” and, collectively, the “Term Loan Lenders”) is pleased to advise you of its commitment to provide to the Borrower 100% of the $400,000,000 aggregate principal amount of the A-1 Tranche under the First Lien Term Loan Facility (together with the ABL Facility, each a “Facility” and collectively, the “Facilities”), in each case, upon the principal terms and subject to the conditions set forth or referred to herein, in the Fee Letter (as defined below) and in the ABL Facility Summary of Terms and Conditions attached hereto as Exhibit B (and incorporated by reference herein) (the “ABL Term Sheet”) and the A-1 Tranche of the First Lien Term Loan Facility Summary of Terms and Conditions attached hereto as Exhibit C (and incorporated by reference herein) (the “Term Loan Term Sheet” and together with the ABL Term Sheet, individually and collectively, the “Term Sheets”), respectively.
2. Appointment of Roles. You hereby appoint (i) GACP to act as sole lead arranger and bookrunning manager (in such capacity, the “Lead Arranger”) for each Facility, (ii) GACP Finance Co., LLC to act as sole administrative agent (in such capacities, the “Administrative Agent”) for each Facility (iii) GACP Finance Co., LLC to act as sole collateral agent for the ABL Facility and (iv) an entity to be mutually agreed to act as sole collateral agent for the First Lien Term Loan Facility, and GACP and its affiliates will, in each of such capacities, perform the duties and exercise the authority customarily performed and exercised by financial institutions in such roles.
It is understood and agreed that GACP will appear on the top left of the cover page of any marketing materials for the Facilities and will hold the roles and responsibilities conventionally understood to be associated with such name placement. It is further understood and agreed that no other agents, co-agents, arrangers, co-arrangers, bookrunners, managers, or co-managers will be appointed, no other titles will be awarded, and no compensation (other than compensation expressly contemplated by this Commitment Letter, the Term Sheets and the Fee Letter) will be paid in connection with the Facilities unless you and we shall so agree.
3. [Reserved].
4. Fees. As consideration for our commitments hereunder and our undertakings to arrange, manage, and structure the Facilities, you agree to pay to us the fees set forth in the GACP Fee Letter, dated as of the date hereof (the “Fee Letter”), between you and GACP. Once paid, such fees shall not be refundable under any circumstances, except as otherwise contemplated by the Fee Letter or agreed in writing by the parties hereto.
5. Conditions. Notwithstanding anything in this Commitment Letter, the Term Sheets, the Fee Letter, the Facilities Documentation (as defined in Exhibit C), or any other letter agreement or other undertaking between us and you concerning the financing of the Transactions to the contrary, our commitments and undertakings hereunder are subject solely to the satisfaction of the conditions set forth under the heading “Conditions Precedent to Borrowing” in Exhibit D hereto (“Specified Conditions”), and, upon the satisfaction of the Specified Conditions, the funding of the Facilities shall occur.
2
Notwithstanding anything in this Commitment Letter, the Term Sheets, the Fee Letter, the Facilities Documentation, or any other letter agreement or other undertaking between us and you concerning the financing of the Transactions to the contrary, (a) the only representations and warranties the accuracy of which shall be a condition to availability of the Facilities on the date of initial funding under the Facilities and the consummation of the Acquisition (the “Closing Date”), shall be (i) such of the representations made by, or with respect to, the Target in the Acquisition Agreement, but only to the extent that you (or your applicable affiliate) has a right (taking into account any applicable cure provisions) not to consummate the transactions contemplated by the Acquisition Agreement or to terminate your (or your applicable affiliate’s) obligations under the Acquisition Agreement, in each case, as a result of a breach of such representations and warranties that are material to the interests of the Lenders (such representations, the “Specified Acquisition Agreement Representations”), and (ii) the Specified Representations (as defined below), and (b) the terms of the Facilities Documentation shall be in a form such that they do not impair availability of the Facilities on the Closing Date if the Specified Conditions are satisfied or waived by the Lead Arranger (it being understood that, to the extent any Collateral (including the creation or perfection of any security interest) referred to in the Term Sheets cannot be provided on the Closing Date (other than the grant and perfection of security interests (i) in assets with respect to which a lien may be perfected by the filing of a financing statement under the Uniform Commercial Code (“UCC”), (ii) in equity interests of your subsidiaries (other than subsidiaries of the Target) with respect to which a lien may be perfected by the delivery of a stock (or equivalent) certificate) after your use of commercially reasonable efforts to do so, then the delivery of such Collateral shall not constitute a condition precedent to the availability and initial funding of the Facilities on the Closing Date but shall be required to be delivered and perfected within 60 days (or such longer period as the Administrative Agents (as defined in Exhibit C) may agree in its sole discretion) after the Closing Date pursuant to arrangements to be mutually agreed). For purposes hereof, “Specified Representations” means the representations and warranties made in the Facilities Documentation (as defined in Exhibit C) relating to organizational existence of the Loan Parties; requisite power and authority, qualification, due authorization (in each case, solely as to execution, delivery and performance of the applicable Facilities Documentation); enforceability; no conflicts with organizational documents of the Loan Parties (in each case, solely as it relates to the borrowing under, guaranteeing under, performance of, and granting of security interests in the Collateral pursuant to, the Facilities Documentation); Federal Reserve margin regulations; use of proceeds not violating the Patriot Act, OFAC, Sanctions, FCPA, anti-money laundering, anti -bribery and similar domestic and international laws; the Investment Company Act; solvency (solvency to be defined in a manner consistent with the manner in which solvency is defined in the solvency certificate attached as Annex I to Exhibit D hereto) as of the Closing Date (after giving effect on a pro forma basis to the Transactions) of the Borrower and its subsidiaries on a consolidated basis; and the creation, validity, and perfection of security interests in the Collateral (subject to the parenthetical in clause (b) above). Notwithstanding anything in this Commitment Letter, the Term Sheets, the Fee Letter, the Facilities Documentation, or any other letter agreement or other undertaking concerning the financing Transactions to the contrary, the only conditions to availability of the Facilities on the Closing Date are the Specified Conditions, and upon the satisfaction of the Specified Conditions the funding of the Facilities shall occur. Notwithstanding anything to the contrary contained herein, if any of the Specified Representations is qualified or subject to “material adverse effect”, the definition of “Material Adverse Effect” in the Acquisition Agreement shall apply for the purposes of any representations and warranties made, or to be made, on or as of the Closing Date. This paragraph, and the provisions herein, shall be referred to as the “Certain Funds Provision.”
6. Information. You hereby represent and warrant that (and with respect to the Target, to the best of your knowledge that) (a) all written factual information (other than projections and other forward looking information (“Projections”) and information of a general economic or industry nature) (the “Information”) that has been or will be made available to the Commitment Parties by or on behalf of you or at your request by any of your representatives on your behalf in connection with the Transactions is or will be, when furnished, correct in all material respects and does not or will not, as the case may be, when furnished, contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements contained therein not materially misleading in light of the circumstances under which such statements are made (after giving effect to all supplements and updates thereto), and (b) the Projections that have been made or will be made available to the Commitment Parties by or on behalf of you or at your request by any of your representatives on your behalf in connection with the Transactions have been or will be, as the case may be, prepared based upon good faith estimates and assumptions believed by you to be reasonable at the time so made available (it being recognized by us that such Projections are not to be viewed as facts and that actual results during the period or periods covered by any such Projections may differ from the projected results). You agree to supplement (or, to the extent relating to Target prior to the Closing Date (subject to any limitation on your rights set forth in the Acquisition Agreement), use your commercially reasonable efforts to cause to be promptly supplemented) the Information and the Projections from time to time until the Closing Date so that the representation and warranties in the preceding sentence each remains correct (to your knowledge with respect to the Target prior to the Closing Date). In arranging the Facilities, we will be entitled to use and rely primarily on the Information and the Projections without responsibility for independent verification thereof. It is understood and agreed that neither the accuracy of the representations and warranties set forth in this paragraph nor your compliance with this paragraph shall be a condition precedent to our commitments hereunder or the funding of the Facilities.
3
7. Expenses. You agree to pay or reimburse each Commitment Party regardless of whether the Closing Date occurs, for all of each Commitment Party’s actual and reasonable documented out-of-pocket costs and expenses (including, but not limited to, expenses of each Commitment Party’s due diligence investigation, attorneys’ fees and expenses, consultant’s fees and travel expenses, and auditors, appraisers, accountants, search and lien filing agencies, and external service providers) incurred in connection with this Commitment Letter, the Fee Letter, and the Facilities Documentation and any consents, amendments, waivers, or other modifications thereto, limited in the case of legal expenses to the reasonable and documented or invoiced out-of-pocket legal expenses of one firm of counsel the Commitment Parties, and, if reasonably necessary, (a) one firm of local counsel in each relevant material jurisdiction (which may include a single special counsel acting in multiple jurisdictions); and (b) in the case of an actual or perceived conflict of interest where any such person affected by such conflict informs Borrower of such conflict, in each case, a single additional firm of counsel in each relevant jurisdiction for all similarly situated affected persons).
8. Indemnification. You agree to defend (subject to the Indemnified Persons’ selection of counsel), indemnify, and hold harmless each Commitment Party and its affiliates and each Commitment Party’s and its affiliates’ respective officers, partners, directors, trustees, employees, and agents (each Commitment Party and each such other person being an “Indemnified Person”), from and against any and all Indemnified Liabilities, in all cases, whether or not caused by or arising, in whole or in part, out of the comparative, contributory, or sole negligence of such Indemnified Person; provided that you shall not have any obligation to any Indemnified Person hereunder with respect to any Indemnified Liabilities to the extent such Indemnified Liabilities arise from (i) the bad faith, gross negligence or willful misconduct, as determined by a court of competent jurisdiction in a final, non-appealable order, of that Indemnified Person, (ii) a material breach of the obligations under this Commitment Letter of such Indemnified Person or any of such Indemnified Person’s officers, directors, employees, agents, advisors or other representatives of any of the foregoing (as determined by a court of competent jurisdiction in a final, non-appealable order) or (iii) any proceeding solely between or among Indemnified Persons not arising from any act or omission by you or any of your affiliates (other than any claim, actions, suits, inquiries, litigation, investigation or proceeding against any Indemnified Person in its capacity or in fulfilling its role as an Administrative Agent or Lead Arranger). As used herein, “Indemnified Liabilities” means, collectively, any and all liabilities, obligations, losses, damages (including natural resource damages), penalties, claims (including environmental liabilities), costs (including the costs of any investigation, study, sampling, testing, abatement, cleanup, removal, remediation, or other response action necessary to remove, remediate, clean up, or abate any hazardous materials), expenses, and disbursements of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel for the Indemnified Persons in connection with any investigative, administrative, or judicial proceeding commenced or threatened by any person, whether or not any such Indemnified Person shall be designated as a party or a potential party thereto, and any fees or expenses incurred by the Indemnified Persons in enforcing this indemnity), whether direct, indirect, or consequential and whether based on any federal, state, or foreign laws, statutes, rules, or regulations (including securities and commercial laws, statutes, rules, or regulations and environmental laws), on common law or equitable cause or on contract or otherwise, that may be imposed on, incurred by, or asserted against any such Indemnified Person, in any manner relating to or arising out of this Commitment Letter, the Fee Letter, the Facilities Documentation, or the Transactions (including the Lenders’ agreement to make the Facilities available to the Borrower on the terms, and subject to the conditions, set forth herein or the use or intended use of the proceeds thereof, or any enforcement of this Commitment Letter, the Fee Letter, or the Facilities Documentation (including any sale of, collection from, or other realization upon any of the collateral or the enforcement of any guaranty)) or any related transaction contemplated hereby or any of the use of proceeds of the Facilities; provided that the Indemnified Liabilities shall be limited in the case of legal expenses to the reasonable and documented or invoiced out-of-pocket legal expenses of one firm of counsel for all such Indemnified Persons, taken as a whole, and, if reasonably necessary, of one firm of local counsel in each relevant material jurisdiction (which may include a single special counsel acting in multiple jurisdictions) for all such Indemnified Persons, taken as a whole (and, solely in the case of an actual or potential conflict of interest where the Indemnified Persons affected by such conflict notify you of the existence of such conflict, of one additional firm of counsel for all affected Indemnified Persons, taken as a whole and, if necessary, one firm of local counsel in each relevant material jurisdiction (which may include a single special counsel acting in multiple jurisdictions) for each group of similarly situated affected Indemnified Persons, taken as a whole). To the extent the undertakings set forth in this Section 8 may be unenforceable in whole or in part because they are violative of any law or public policy, the applicable loan party shall contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by the Indemnified Persons or any of them. Notwithstanding any other provision of this Commitment Letter, and without limitation of your indemnification obligations set forth herein, no party hereto shall be liable for any damages arising from the use by others of information or other materials obtained through electronic, telecommunications, or other information transmission systems, except to the extent such damages have been determined in a final, non-appealable judgment of a court of competent jurisdiction to have resulted from the bad faith, willful misconduct or gross negligence of such person.
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9. Confidentiality; Absence of Fiduciary Duty; Etc. You agree that you will not disclose, directly or indirectly, the Fee Letter and the contents thereof or this Commitment Letter and the Term Sheets and the contents hereof and thereof, or the activities of the Commitment Parties pursuant hereto or thereto, to any person without prior written approval of the Commitment Parties, except that you may disclose (a) the Commitment Letter, the Term Sheets, the Fee Letter, and the contents hereof and thereof (i) to your officers, directors, agents, employees, attorneys, accountants, and advisors, in each case to the extent directly involved in the consideration of this matter on a confidential and need-to-know basis and (ii) as required by applicable law, regulation, or compulsory legal process (in which case you agree to provide prompt written notice thereof, such notice to be provided in advance to the extent permitted by applicable law), (b) this Commitment Letter, the Term Sheets, and the contents hereof and thereof (but not the Fee Letter unless redacted in a customary manner reasonably acceptable to the Lead Arranger) to the Target, and its officers, directors, employees, attorneys, accountants, and advisors, in each case in connection with the Transactions and on a confidential and need-to-know basis, (c) the existence and contents of the Term Sheets to potential Lenders in connection with the Transactions, and (d) to the extent required by applicable law, the existence and contents of this Commitment Letter and the Term Sheets in any public filing or prospectus (it being acknowledged that the fees in the Fee Letter may be included generically in projections and pro forma information and in a generic disclosure of aggregate sources and uses contained in such syndication and other marketing materials). Further, notwithstanding the next succeeding paragraph, we shall be permitted, in consultation with you, after the Closing Date, to use information related to the arrangement of the Facilities in connection with marketing, press releases, or other transactional announcements or updates provided to investor or trade publications. You agree that you will permit the applicable Commitment Party to review and approve (such approval not to be unreasonably delayed or withheld) any reference to such Commitment Party or any of its affiliates in connection with the Facilities or the Transactions contained in any press release or similar public disclosure prior to public release.
We shall hold all non-public information regarding you, Holdings, the Borrower and the Target, and your and their respective subsidiaries and their businesses identified as such by you in accordance with our customary procedures for handling confidential information of such nature, it being understood and agreed by you that, in any event, we may make (a) disclosures of such information to our respective affiliates and to their agents, advisors, directors, and shareholders (and to other persons authorized by a Commitment Party to organize, present, or disseminate such information in connection with disclosures otherwise made in accordance with this Section 9), (b) disclosures of such information reasonably required by any bona fide or potential Lender or participant in connection with the contemplated assignment, transfer, or participation by any such Commitment Party of any interest in the Facilities or any participations therein, (c) disclosure to any rating agency when required by it; provided, that prior to any disclosure, such rating agency shall undertake in writing to preserve the confidentiality of any confidential information received by it from any of the Commitment Parties, (d) disclosure to any Commitment Party’s financing sources; provided, that prior to any disclosure, such financing source is informed of the confidential nature of the information, (e) disclosures of such information to any investors and partners of any Commitment Party; provided, that prior to any disclosure, such investor or partner is informed of the confidential nature of the information, (f) disclosure required or requested in connection with any public filings, whether pursuant to any securities laws or regulations or rules promulgated therefor (including the Investment Company Act of 1940 or otherwise) or representative thereof or by the National Association of Insurance Commissioners (and any successor thereto) or pursuant to legal or judicial process; provided, that unless specifically prohibited by applicable law or court order, each Commitment Party shall make reasonable efforts to notify Borrower of any request by any governmental authority or representative thereof (other than any such request in connection with any examination of the financial condition or other routine examination of such Commitment Party by such governmental authority) for disclosure of any such non-public information prior to disclosure of such information, (g) to the extent any such information becomes publicly available other than by reason of disclosure by us, our affiliates, or our or their respective officers, directors, agents, employees, attorneys, accountants, or advisors in breach of this Commitment Letter, or to the extent any such information is developed independently by us, (h) to the extent not known by us to consist of material non -public information, and (i) for purposes of establishing a “due diligence” defense or to exercise rights or remedies; provided that no such disclosure shall be made to any person that is at such time a Disqualified Lender. Our obligations under this paragraph shall automatically expire upon the earlier of execution and delivery of the Facilities Documentation and the second anniversary of the date hereof.
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You acknowledge that each Commitment Party and its affiliates may be providing debt financing, equity capital, or other services (including, without limitation, financial advisory services) to other companies in respect of which you may have conflicting interests regarding the transactions described herein and otherwise. The Commitment Parties and their respective affiliates will not use confidential information obtained from you by virtue of the transactions contemplated by this Commitment Letter or any of their other relationships with you in connection with the performance by them and their affiliates of services for other companies, and except as expressly permitted hereby, the Commitment Parties and their respective affiliates will not furnish any such information to such other companies. By the same token, we will not make available to you confidential information that we have obtained or may obtain from any other customer. You also acknowledge that no Commitment Party, nor any of its affiliates, has any obligation to use in connection with the transactions contemplated by this Commitment Letter, or to furnish to you, the Target, or your or its subsidiaries, confidential information obtained by such Commitment Party and its affiliates from other companies.
In connection with all aspects of each transaction contemplated by this Commitment Letter, you acknowledge and agree, and acknowledge your affiliates’ understanding, that: (a) each of the A-1 Tranche under the First Lien Term Loan Facility, the ABL Facility and any related arranging or other services described in this Commitment Letter is an arm’s-length commercial transaction between you and your affiliates, on the one hand, and the Commitment Parties, on the other hand, (b) the Commitment Parties have not provided any investment, legal, accounting, regulatory, or tax advice with respect to any of the Transactions, you have consulted your own investment, legal, accounting, regulatory, and tax advisors to the extent you have deemed appropriate, and neither you, nor any of your affiliates, have received, or have relied upon, the advice of the Commitment Parties or any of their respective affiliates or advisors regarding investment, legal, regulatory, accounting, or tax matters, (c) you are capable of evaluating, and understand and accept, the terms, risks, and conditions of the Transactions, (d) in connection with the financing Transactions and the process leading to such Transactions, each of the Commitment Parties has been, is, and will be acting solely as a principal and has not been, is not, and will not be acting as an advisor, agent, or fiduciary for you or the Target or any of your or the Target’s affiliates, stockholders, creditors, or employees or any other party, (e) the Commitment Parties have not assumed and will not assume an advisory, agency, or fiduciary responsibility in your or your affiliates’ favor with respect to any of the financing Transactions or the process leading thereto, and the Commitment Parties have no obligation to you or your affiliates with respect to the financing Transactions except those obligations expressly set forth in this Commitment Letter, and (f) the Commitment Parties and their respective affiliates may be engaged in a broad range of transactions that involve interests that differ from yours and those of your affiliates, and the Commitment Parties have no obligation to disclose any of such interests to you or your affiliates. To the fullest extent permitted by law, you hereby waive and release any claims that you may have against the Commitment Parties with respect to any breach or alleged breach of agency or fiduciary duty in connection with any aspect of any financing transaction contemplated by this Commitment Letter.
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10. Termination. Our commitments and undertakings hereunder shall terminate in their entirety automatically without further notice or action by us on the first to occur of (a) three business days following the Termination Date (as defined in the Acquisition Agreement in effect on the date hereof[, and as such date may be extended pursuant to the terms thereof as they exist on the date hereof)]if the Closing Date shall not have occurred by such date, (b) with respect to our commitments and undertakings hereunder in respect of the Facilities, consummation of the Acquisition without use of the Facilities, (c) the date of execution and delivery of the Facilities Documentation by the Borrower and the Lenders, and (d) the termination of the Acquisition Agreement in accordance with its terms prior to the Closing Date.
The Fee Letter and the compensation, reimbursement, indemnification, jurisdiction, absence of fiduciary relationship, governing law, waiver of jury trial, and confidentiality provisions contained herein shall remain in full force and effect regardless of whether the Facilities Documentation shall be executed and delivered and notwithstanding the termination of this Commitment Letter or any Lender’s commitments hereunder; provided that your obligations under this Commitment Letter (other than your obligations with respect to confidentiality) shall automatically terminate and be superseded to the extent of any corresponding provisions of the Facilities Documentation covering the same subject matter upon the execution and delivery thereof, and you shall automatically be released from all liability hereunder in connection therewith at such time.
11. Assignment; etc. This Commitment Letter and the commitments and undertakings hereunder shall not be assignable by any party hereto without the prior written consent of each other party hereto, and any attempted assignment shall be void and of no effect; provided, however, that nothing contained in this paragraph shall prohibit us (in our sole discretion), subject to the terms of this Commitment Letter, from granting participations in, or selling assignments of, all or a portion of the commitments or the advances under either Facility; provided that notwithstanding such assignment or participation, with respect to amounts to be funded on the Closing Date, the commitment of the Lenders to fund Facilities on the terms and conditions set forth in this Commitment Letter and the Fee Letter will be reduced solely to the extent such other lenders fund their commitments on the Closing Date. This Commitment Letter is intended to be solely for the benefit of the parties hereto and is not intended to confer any benefits upon, or create any rights in favor of, any person other than the parties hereto and the Indemnified Persons, except that the Commitment Parties may perform the duties and activities described hereunder through any of their respective affiliates or branches and the provisions of the third preceding paragraph shall apply with equal force and effect to any of such affiliates or branches so performing any such duties or activities.
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12. Governing Law; Waiver of Jury Trial; etc. This Commitment Letter, the Term Sheets, and the Fee Letter and the rights and obligations of the parties hereunder and thereunder shall be governed by, and construed in accordance with, the laws of the State of New York without regard to conflict of laws principles (other than Sections 5-1401 and 5-1402 of the New York General Obligations Law), together constitute the entire agreement between the parties relating to the subject matter hereof and thereof, and supersede any previous agreement, written or oral, between the parties with respect to the subject matter hereof and thereof. Each of the parties hereto hereby agrees to waive its respective rights to a jury trial of any claim or cause of action based upon or arising hereunder or under the Fee Letter or any dealings between them relating to the subject matter of this Commitment Letter or the Fee Letter or the borrower/lender relationship that is being established. The scope of this waiver is intended to be all encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of these Transactions, including contract claims, tort claims, breach of duty claims, and all other common law and statutory claims. Each party hereto acknowledges that this waiver is a material inducement to enter into a business relationship, that each has already relied on this waiver in entering into this Commitment Letter and the Fee Letter, and that each will continue to rely on this waiver in its related future dealings. Each party hereto further warrants and represents that it has reviewed this waiver with its legal counsel and that it knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. This waiver is irrevocable, meaning that it may not be modified either orally or in writing (other than by a mutual written waiver specifically referring to this Section 12 and executed by each of the parties hereto), and this waiver shall apply to any subsequent amendments, renewals, supplements, or modifications hereto or to the Fee Letter. In addition, with respect to any action or proceeding arising out of or relating to this Commitment Letter, the Term Sheets, the Fee Letter, the Transactions, or the performance of any of the parties hereunder, the parties hereto hereby irrevocably: (a) submit to the exclusive jurisdiction of any New York State or Federal court sitting in the Borough of Manhattan, New York, New York; (b) agree that all claims with respect to such action or proceeding shall be heard and determined in such New York State or Federal court; (c) waive the defense of any inconvenient forum to such New York State or Federal court; (d) agree that a final judgment in any such action or proceeding shall be conclusive and may be enforced in another jurisdiction by suit on the judgment or in any other manner provided by law; and (e) consent to service of process by mailing or delivering a copy of such process to such party at its address set forth on the first page of this Commitment Letter and agree that such service shall be effective when sent or delivered. Nothing in this Commitment Letter shall affect any right that any Commitment Party or any of its affiliates may otherwise have to bring any action or proceeding relating to this Commitment Letter and the Transactions against you or your properties in the courts of any jurisdiction.
13. Amendments; Counterparts; etc. No amendment or waiver of any provision hereof or the Term Sheets, shall be effective unless in writing and signed by the parties hereto, and no amendment or waiver of any provision of the Fee Letter shall be effective unless in writing and signed by the applicable parties thereto, and, in each case, then only in the specific instance and for the specific purpose for which given. This Commitment Letter may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page of this Commitment Letter by facsimile transmission (or in “pdf” or similar format by electronic mail) shall be effective as delivery of a manually executed counterpart of this Commitment Letter.
14. PATRIOT Act Notification. We hereby notify you that pursuant to the requirements of the USA PATRIOT Act, Title III of Pub. L. 107-56 (signed into law October 26, 2001) (as the same may be amended and in effect from time to time, the “PATRIOT Act”), each Commitment Party is required to obtain, verify, and record information that identifies the Borrower and the Guarantors, which information includes the name, address, tax identification number, and other information regarding the Borrower and the Guarantors that will allow the Commitment Parties to identify the Borrower and the Guarantors in accordance with the PATRIOT Act. This notice is given in accordance with the requirements of the PATRIOT Act and is effective as to each Commitment Party and each Lender. You hereby acknowledge and agree that the Commitment Parties shall be permitted to share any or all such information with the Lenders.
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15. If the foregoing proposal is acceptable to you, please so confirm by signing and returning to us executed counterparts of this Commitment Letter and the Fee Letter. Unless we receive your executed counterparts hereof and thereof by 5:00 p.m., New York City time, on December 31, 2019 (the “Expiration Date”) our offer hereunder will automatically expire at such time without further action or notice.
[Signature Pages Follow]
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We are pleased to have this opportunity and we look forward to working with you on this transaction.
Very truly yours, | |||
GACP FINANCE CO., LLC, | |||
as ABL Administrative Agent | |||
By: | /s/ John Ahn | ||
Name: | John Ahn | ||
Title: | CEO | ||
GACP FINANCE CO., LLC, | |||
as Term Loan Administrative Agent | |||
By: | /s/ John Ahn | ||
Name: | John Ahn | ||
Title: | CEO | ||
GACP II, L.P., as ABL Lender | |||
By: | /s/ John Ahn | ||
Name: | John Ahn | ||
Title: | CEO | ||
GACP II, L.P., as Term Loan Lender | |||
By: | /s/ John Ahn | ||
Name: | John Ahn | ||
Title: | CEO |
[Signature Page to Franchise Group Commitment Letter]
Accepted and agreed to as of | |||
the date first written above: | |||
FRANCHISE GROUP, INC. | |||
By: | /s/ Eric Seeton | ||
Name: | Eric Seeton | ||
Title: | Chief Financial Officer |
[Signature Page to Franchise Group Commitment Letter]
CONFIDENTIAL | EXHIBIT A |
Project Buckeye
Transaction Description
Capitalized terms used but not defined in this Exhibit A shall have the meanings set forth in the Commitment Letter to which this Exhibit A is attached or the other Exhibits to the Commitment Letter.
Pursuant to the Acquisition Agreement, AcquisitionCo intends to acquire, via merger of MergerSub with and into the Target, the Target. In connection with the foregoing, it is intended that:
(a) The Borrower will obtain (x) a senior secured term loan facility in an aggregate principal amount of up to $600.0 million (as such amount may, at the election of the Borrower, be increased by an additional amount sufficient to fund any upfront fees or OID pursuant to the “market flex” provisions of the Fee Letter) (the “First Lien Term Loan Facility”), which shall be composed of (i) a “first-out” A-1 Tranche in an aggregate principal amount of $400.0 million (the “A-1 Tranche”) and (ii) a “second out” A-2 Tranche in an aggregate principal amount of $200.0 million (the “A-2 Tranche”) and (y) and a senior secured ABL facility in an aggregate principal of up to $150.0 million (the “ABL Facility”).
(b) Pursuant to Acquisition Agreement, [Fully-Diluted Stockholders (as defined in the Acquisition Agreement)] will sell the Target to AcquisitionCo, via merger of MergerSub with and into the Target.
(c) All the existing indebtedness (i) of the Target (excluding Indebtedness permitted to remain outstanding pursuant to the Acquisition Agreement and other indebtedness permitted under the Facilities Documentation), (ii) incurred under that certain Credit Agreement, dated as of October 23, 2019 (the “Sears Facility”), among Franchise Group Intermediate S, LLC (“Sears Holdco”), Franchise Group Newco S, LLC (“Sears Borrower”), Guggenheim Credit Services, LLC, as administrative agent, and the lenders and other parties party thereto, and (iii) incurred under that certain Credit Agreement, dated as of July 10, 2019 (the “Buddy’s Facility”), among Franchise Group Intermediate B, LLC (“Buddy’s Holdco”), Buddy’s Newco, LLC (“Buddy’s Borrower”), Kayne Solutions Fund, L.P., as administrative agent, and the lenders and other parties party thereto, in each case, will be refinanced or repaid in full (or substantially simultaneously with the initial borrowings under the Facilities shall be refinanced or repaid in full), all commitments in respect thereof terminated, and all security, liens, financing statements, other perfection instruments and guaranties in respect thereof discharged and released (the “Refinancing”).
(d) The proceeds of the Facilities on the Closing Date will be applied to pay (i) the consideration in connection with the Acquisition, (ii) the fees and expenses incurred in connection with the Transactions (such fees and expenses, the “Transaction Costs”), and (iii) for the Refinancing.
The transactions described above (including the payment of Transaction Costs) are collectively referred to herein as the “Transactions.”
A-1
CONFIDENTIAL | EXHIBIT B |
Project Buckeye
ABL Facility
Summary of Terms and Conditions
Capitalized terms used but not defined in this Exhibit B shall have the meanings set forth in the Commitment Letter to which this Exhibit B is attached or the other Exhibits to the Commitment Letter.
Borrower: | Franchise Group Intermediate Holdco, LLC, a Delaware limited liability company (the “Lead Borrower”), MergerSub and certain other subsidiaries of the Lead Borrower to be agreed (together with the Lead Borrower and MergerSub, the “Borrower”). |
GACP: | GACP II, L.P. (“GACP”). |
Sole Lead Arranger and Bookrunner: | GACP (in such capacity, the “Lead Arranger”). |
ABL Administrative Agent and ABL Collateral Agent: | GACP Finance Co., LLC will act as the sole administrative agent and sole collateral agent (collectively, in such capacities, the “ABL Administrative Agent”) for the ABL Lenders (as defined below). |
Transactions: | As described in Exhibit A to the Commitment Letter. |
ABL Facility: | An asset-based revolving senior secured facility (the “ABL Facility”) in an aggregate principal amount of up to $150.0 million (the “ABL Commitment Amount”). The ABL Facility shall also include a sublimit for letters of credit in an amount to be determined to be made available for the account of Borrower. |
Loans under the ABL Facility (the “ABL Loans”) will be available to the Borrower in U.S. dollars. | |
ABL Lenders: | GACP and such other lenders that become party to the ABL Facility Documentation from time to time (collectively, the “ABL Lenders”). |
Purpose: | The proceeds of loans under the ABL Facility will be used (i) on the Closing Date, to finance the Acquisition and the Refinancing and to pay the Transaction Costs and (ii) after the Closing Date, for working capital and other general corporate purposes. |
Availability: | Availability under the ABL Facility shall not exceed the lesser of the ABL Commitment Amount and the Borrowing Base (as defined below). “ABL Usage” shall mean the aggregate amount of ABL Loans, protective overadvances, unreimbursed drawings under Letters of Credit and undrawn amounts of outstanding Letters of Credit incurred under the ABL Facility. |
B-1
Interest Rates and Fees: | As set forth on Annex I hereto. |
Borrowing Base: | ABL Loans and Letters of Credit advanced under the ABL Facility will be subject to availability under a borrowing base calculated as follows (the “Borrowing Base”): |
(A) 85% of the amount of eligible credit card receivables and eligible accounts, plus | |
(B) 90% of the net orderly liquidation value of eligible inventory, minus | |
(C) in each case, customary reserves (as described below). | |
Eligible in-transit inventory shall not exceed 10% of the Borrowing Base. | |
Eligibility criteria for eligible accounts, eligible credit card receivables, eligible inventory (including eligible in-transit inventory) shall be set forth in a manner consistent with the ABL Facility Documentation. | |
Notwithstanding the foregoing, the Borrowing Base on the Closing Date shall be determined based on the Borrowing Base Certificate delivered on the Closing Date, it being understood that, if the audit, examinations and appraisals engaged by the ABL Administrative Agent are not completed on or before the Closing Date or if such Borrowing Base Certificate is not delivered by the Closing Date for any other reason, solely for purposes of determining the Borrowing Base on the Closing Date and for the period from the Closing Date until the earlier of (i) the date of delivery of such audit, examinations and appraisals or (ii) the date that is three (3) month following the Closing Date (the “Initial Availability Period”), the Borrowing Base shall be deemed to be $100 million in the aggregate until the expiration of the Initial Availability Period. | |
After the Initial Availability Period, the Borrowing Base shall be reset based upon the results of such audit, examinations and appraisals. Thereafter, standards of eligibility, advance rates and reserve criteria to be utilized in the calculation of the Borrowing Base shall be determined or modified by the ABL Administrative Agent in its Permitted Discretion (as defined below) following notice of not less than three (3) days; provided that the ABL Administrative Agent shall not be required to provided notice with respect to changes to reserves based on mathematical calculations. Upon delivery of such notice, the ABL Administrative Agent agrees to make representatives available to discuss the proposed changes or modifications to or establishment of the standards of eligibility, advance rates or reserve criteria. Standards of eligibility or reserves established or modified and changes in advance rates by the ABL Administrative Agent shall have a reasonable relationship to circumstances, conditions, events or contingencies that are the basis for such standards of eligibility or reserves or changes in advance rates, as are reasonably determined by the ABL Administrative Agent in good faith. In the event that any reserve, modification or other action contemplated in this paragraph causes an overadvance, the Borrower shall have two (2) business days to repay any such overage. |
B-2
“Permitted Discretion” means a determination made in good faith and in the exercise of reasonable (from the perspective of a secured asset-based lender) business judgment and as it relates to the establishment or adjustment of reserves (or the modification of eligibility standards and criteria) shall require that (a) such establishment, adjustment or imposition after the Initial Availability Period be based on the analysis of facts or events first occurring or first discovered by the ABL Administrative Agent after the Closing Date or are materially different from the facts or events occurring or known to the ABL Administrative Agent at the end of the Initial Availability Period, unless the Borrower and the ABL Administrative Agent otherwise agree in writing, (b) the contributing factors to the imposition of any reserves shall not duplicate the exclusionary criteria set forth in the definitions of eligible accounts or eligible inventory, as applicable (and vice versa) and (c) the amount of any such reserve so established or the effect of any adjustment or imposition of exclusionary criteria be a reasonable quantification (as reasonably determined by the ABL Administrative Agent) of the incremental dilution of the Borrowing Base attributable to such contributing factors. | |
The Borrowing Base shall be computed by the Borrower monthly and a certificate (the “Borrowing Base Certificate”) presenting the Borrower’s computation of the Borrowing Base will be delivered to the ABL Administrative Agent promptly, but in no event later than the 15th calendar day following the end of each calendar month, provided however that (i) during the continuance of a Specified Event of Default (as defined below), or if Excess Availability is less than the greater of $20 million and 15% of the ABL Loan Cap (as defined below) the Borrower shall be required to compute the Borrowing Base and deliver a Borrowing Base Certificate on a weekly basis until the date on which, as applicable, in the case of clause (i), such Specified Event of Default is cured or waived, or in the case of clause (ii), Excess Availability has been at least the greater of 15% of the ABL Loan Cap and $20 million for at least 20 consecutive days. | |
“Specified Event of Default” shall mean any payment or bankruptcy event of default, a misrepresentation of the Borrowing Base in any material respect, a failure to deliver any required Borrowing Base Certificate, any event of default arising from the breach of the cash management provisions and any event of default arising from failure to comply with the Financial Covenants. |
B-3
“ABL Loan Cap” shall mean, at any time, the lesser of (x) the ABL Commitment Amount, and (y) the Borrowing Base. | |
“Excess Availability” means, at any time of determination, (i) the ABL Loan Cap minus (y) ABL Usage, in each case calculated based on the most recent Borrowing Base Certificate delivered under the ABL Facility. | |
Maturity: | The ABL Facility will mature and the commitments thereunder will terminate on the earlier of (i) the 90th day preceding the maturity of the First Lien Term Loan Facility and (ii) the fifth anniversary of the Closing Date. |
Guarantees: | All obligations of the Borrower under the ABL Facility will be unconditionally guaranteed by: |
(a) Franchise Group New Holdco, LLC, a Delaware limited liability company (“Holdings”), which is the direct parent of the Lead Borrower; and | |
(b) Subject to exceptions to be agreed, each existing and each subsequently acquired or organized direct or indirect subsidiary of the Lead Borrower (other than (i) Franchise Group Intermediate L, LLC, a Delaware limited liability company (“Liberty Holdco”), or any of its direct or indirect subsidiaries (collectively with Liberty Holdco, the “Liberty Entities”) and (ii) Franchise Group Intermediate V, LLC, a Delaware limited liability company (“VSI Holdco”), or any of its direct or indirect subsidiaries (collectively with VSI Holdco, the “VSI Entities”), in the case of the foregoing clauses (i) and (ii), so long as the guarantee of either Facility by such Liberty Entities and VSI Entities is prohibited by the terms of indebtedness which is not provided by FGI Topco or any of its affiliates (to the extent such prohibition applies, the “Excluded Liberty/VSI Entities”)), (the “Subsidiary Guarantors”; and together with Holdings, the “Guarantors”). | |
The foregoing guarantees are referred to herein as the “Guarantees.” The Borrower and the Guarantors are herein referred to as the “Loan Parties” and, individually, as a “Loan Party.” |
B-4
On the Closing Date, after giving effect to the Transactions (1) Holdings shall directly own 100% of the voting and non-voting interest of the Lead Borrower, (2) the Lead Borrower shall directly own 100% of the voting and non-voting interest of AcquisitionCo, (3) AcquisitionCo shall directly own 100% of the voting and non-voting interest of MergerSub and (4) the Lead Borrower shall directly or indirectly own 100% of the voting and non-voting equity interests of each Subsidiary Guarantor. | |
Collateral: | Subject to the limitations set forth below and the Certain Funds Provision, obligations of the Loan Parties in respect of the ABL Facility will be secured by a valid and perfected security interest on all assets of the Loan Parties, in each case, wherever located, now owned or hereafter acquired, including without limitation (a) all tangible and intangible assets of the Loan Parties (including, without limitation, each promissory note issued by A Team Sales, LLC to the Sears Borrower); (b) all of the equity interests issued by the Borrower, any other Loan Party (other than Holdings) and each present and future, direct or indirect subsidiary of any Loan Party (other than any equity interests issued by any Liberty/VSI Entities to the extent that a pledge thereof to secure the ABL Facility is prohibited by the terms of indebtedness which is not provided by FGI Topco or any of its affiliates); and (c) all proceeds and products of the property and assets described in clauses (a) and (b) above, in each case other than any Excluded Assets, (collectively, the “Collateral”). |
B-5
Notwithstanding anything to the contrary, the Collateral shall exclude the following: (i) motor vehicles and other assets subject to certificates of title; (ii) any leased real property, (iii) any owned real property with a fair market value of less than an amount to be agreed (with any required mortgages on properties with a value greater than such amount being permitted to be delivered post-closing); (iv) intent-to-use trademark or service mark applications; (v) equity interests in any person other than wholly-owned subsidiaries to the extent not permitted by the terms of such subsidiary’s organizational or joint venture documents as in effect on the date the applicable person becomes a direct or indirect subsidiary of the Borrower and not created or entered into in contemplation of the Transactions or the acquisition thereof) (it being understood that no joint venture arrangements shall exist as of the Closing Date) (provided, that, the income stream, receivables, and proceeds of such equity interests shall be Collateral); (vi) any lease, license, or other agreement or any property subject to a purchase money security interest or capital lease obligation, or similar arrangements, in each case, to the extent permitted under the ABL Facility Documentation to the extent that a grant of a security interest therein would violate or invalidate such lease, license, or agreement, purchase money, capital lease, or a similar arrangement or create a right of termination in favor of any other party thereto (other than the Borrower or a Guarantor) after giving effect to the applicable anti-assignment provisions of the UCC or other applicable law which provides that the assignment thereof is deemed effective under applicable law notwithstanding such prohibition, and other than the proceeds thereof; (vii) pledges and security interests in any asset prohibited (A) by applicable law, rule, regulation at any time or (B) by a contractual obligation binding on the grantor at the time the asset subject to such contractual obligation was acquired (so long as not entered into in contemplation of such acquisition) (in each case, except to the extent such prohibition is unenforceable after giving effect to the applicable provisions of the Uniform Commercial Code) or which could require governmental (including regulatory) consent, approval, license or authorization to be pledged (unless such consent, approval, license or authorization has been received) (in each case, after giving effect to the applicable provisions of the Uniform Commercial Code), and other than the proceeds thereof; (viii) assets located outside the United States to the extent a security interest in such assets could reasonably be expected to result in material adverse tax consequences and subject to Tax Principles (to be agreed); (ix) zero balance accounts and deposit accounts to the extent the balance of that account is automatically transferred at the end of each business day to a concentration account that is subject to the ABL Administrative Agent’s control (subject to the post-closing time frame for granting such control to the ABL Administrative Agent), local or petty cash accounts to the extent the balance on each such account is less than an amount to be agreed, accounts used solely for payroll (including accounts used for the disbursement of payroll, for payroll taxes and other employee wage and benefit payments), accounts used solely for withholding and trust accounts, escrow and any other fiduciary accounts (collectively, “Excluded Accounts”), (x) margin stock and (xi) other exceptions to be mutually agreed upon (collectively, the “Excluded Assets”); provided that the proceeds and receivables of any Excluded Assets shall not constitute Excluded Assets (unless such proceeds otherwise qualify as Excluded Assets) and rather, shall be included as Collateral. | |
The Loan Parties shall be required to use commercially reasonable efforts to deliver collateral access agreements in customary form and substance reasonably satisfactory to the ABL Administrative Agent in respect of certain material leased real properties to be agreed. No security agreements or pledge agreements governed under the laws of any non-United States jurisdiction shall be required and no filing or other action outside of the United States to create or perfect a security interest therein in any asset shall be required, in each case, unless the total assets or Consolidated EBITDA attributable to subsidiaries located in a jurisdiction outside the United States exceed thresholds to be agreed (subject to Tax Principles, to be agreed). |
B-6
Subject to the limitations set forth in this section and subject to the Certain Funds Provision, the obligations under the ABL Facility will be secured by: (i) a perfected first priority security interest in the Collateral consisting of (a) credit card receivables and account receivables (in each case, other than to the extent constituting identifiable proceeds of Term Collateral), (b) deposit accounts, securities accounts and commodity accounts and the cash and funds held therein (in each case, other than to the extent constituting identifiable proceeds of Term Collateral held in such deposit accounts, securities accounts and commodity accounts), (c) inventory, (d) documents, supporting obligations, books and records related to the foregoing, (e) general intangibles evidencing, governing, or securing the foregoing, and in each case, proceeds thereof, but excluding for the avoidance of doubt, without limitation, equity interests, real estate, equipment and intellectual property; provided that subject to the Intercreditor Agreement, the ABL Administrative Agent shall have a non-exclusive license allowing the use of such intellectual property as may be necessary for the liquidation of the Collateral in addition to the benefit of other customary intercreditor provisions relating to the access and use of the Term Collateral (other than the Excluded Assets, the “ABL Collateral”), and (ii) a perfected second priority security interest in the Term Collateral. | |
All the above-described pledges, security interests and mortgages shall be created on terms, and pursuant to documentation, consistent with the ABL Documentation Principles. Notwithstanding the foregoing, the requirements of the preceding paragraphs of this “Collateral” section shall be, as of the Closing Date, subject to the Certain Funds Provision. | |
Deposit Accounts and Securities Accounts: |
Deposit accounts and securities accounts held by the Loan Parties (other than Excluded Accounts) shall be subject to customary “springing” control agreements in form and substance reasonably acceptable to the ABL Administrative Agent among the depository bank, the applicable Loan Party and the ABL Administrative Agent, in form and substance satisfactory to the ABL Administrative Agent within 30 days following the Closing Date (or, for deposit accounts or securities accounts acquired after the Closing Date (other than Excluded Accounts), following the opening or acquisition of such accounts) (or, in each case, such later date agreed to by the ABL Administrative Agent) for all deposit accounts and securities accounts of the Loan Parties (other than Excluded Accounts).
|
B-7
During a Cash Dominion Period (as defined below), all cash receipts and amounts in controlled concentration account agreements will be swept into a collection account maintained with the ABL Administrative Agent and used to repay borrowings under the ABL Facility, subject to customary exceptions and thresholds. | |
“Cash Dominion Period” means (a) the period from the date that Excess Availability shall have been less than the greater of $20 million and 15% of the ABL Loan Cap to the date that Excess Availability shall have been at least the greater of $20 million and 15% of the ABL Loan Cap for 20 consecutive calendar days or (b) upon the occurrence of a Specified Event of Default, the period that such Specified Event of Default shall be continuing. | |
ABL Facility Documentation: | The definitive documentation for ABL Facility, including all the above-described pledges, security interests, and mortgages (the “ABL Facility Documentation”) shall be based on the Term Loan Documentation, with modifications (i) to reflect the asset based revolving nature of the ABL Facility and (ii) modifications consistent with this Term Sheet. To the extent that any representations and warranties made on the Closing Date are qualified by “Material Adverse Effect”, for the purposes of such representations and warranties, the definition thereof shall be “Material Adverse Effect” as defined in the Acquisition Agreement. The foregoing shall be referred to as the “ABL Documentation Principles”. |
The relative rights and priorities in the Collateral for the secured parties in the ABL Facility and the First Lien Term Loan Facility will be set forth in the in an intercreditor agreement (the “Intercreditor Agreement“) which shall be based on the intercreditor agreement, dated as of November 30, 2018, which was separately identified prior to the date hereof, with such modifications as may be mutually agreed. | |
Mandatory Prepayments: | If at any time the outstanding drawings under the ABL Facility exceed the ABL Loan Cap, prepayment of the ABL Loans shall be required in an amount equal to such excess (without any permanent reduction in commitments). |
B-8
Subject to the Intercreditor Agreement, Loans under the ABL Facility shall be prepaid (without any permanent reduction in commitments) with: | |
(a) 100% of the net cash proceeds of all non-ordinary course asset sales or other dispositions of property (including, without limitation, insurance and condemnation proceeds) by the Loan Parties and their subsidiaries (other than any Excluded Liberty/VSI Entities except to the extent (x) the Liberty Facility or the credit facilities to which the VSI Entities are subject, as applicable, has been repaid in full and terminated or (y) the Liberty Facility or such other credit facilities permit the applicable Excluded Liberty/VSI Entities to distribute the proceeds of such asset sales or other dispositions to equityholders that are not Excluded Liberty/VSI Entities (to the extent of such distribution)), subject to customary reinvestment rights so long as no default or event of default has occurred and is continuing at the time of such disposition; | |
(b) 100% of the net cash proceeds of issuances of debt obligations of the Loan Parties and their subsidiaries (other than any Excluded Liberty/VSI Entities) after the Closing Date (other than permitted debt); and | |
(c) 100% of the net cash proceeds of Extraordinary Receipts (to be defined in a manner to be mutually agreed) in excess of an amount to be agreed in any fiscal year. | |
Voluntary Prepayments/Reductions in Commitments: | Voluntary prepayments of borrowings under the ABL Facility will be permitted at any time, in minimum principal amounts to be agreed upon, without premium or penalty, subject to reimbursement of the ABL Lenders’ redeployment costs in the case of a prepayment of Adjusted LIBOR loans other than on the last day of the relevant interest period. |
Representations and Warranties: | Limited to the following (applicable to the Loan Parties and their subsidiaries (other than any Excluded Liberty/VSI Entities)), in each case with customary exceptions, limitations and qualifications to be mutually agreed, and otherwise consistent with the ABL Documentation Principles: organization; requisite power and authority; qualification; capital stock and ownership with respect to subsidiaries; due authorization; no conflict; governmental consents; binding obligation; financial statements; projections; no material adverse effect since the Closing Date; adverse proceedings, etc.; payment of material taxes; properties; environmental matters; governmental regulation; margin stock; employee matters; employee benefit plans; certain fees; solvency; compliance with statues, etc.; intellectual property; inventory and equipment; insurance; bank accounts and securities accounts; security interests; PATRIOT Act; OFAC/sanctions; FCPA, anti-money laundering, anti-bribery; disclosure; use of proceeds; chief executive offices; and franchising matters; accuracy and completeness of the Borrowing Base Certificates. |
Conditions Precedent to Borrowing: | The availability of the initial borrowing under the ABL Facility shall only be subject solely to (a) the delivery of a customary borrowing notice (which, for the avoidance of doubt, shall not require a certification (x) as to the accuracy of any representations and warranties other than the Specified Representations and the Specified Acquisition Agreement Representations or (y) as to the absence of any default or Event of Default under the ABL Facility Documentation) and (b) the conditions set forth in Exhibit C hereto. |
B-9
Affirmative Covenants: | Limited to the following (applicable to the Loan Parties and their subsidiaries (other than any Excluded Liberty/VSI Entities)), in each case with customary exceptions, limitations and qualifications to be mutually agreed, and otherwise consistent with the ABL Documentation Principles: financial statements and other reports, management discussion and analysis; existence; payment of material taxes; maintenance of properties; insurance; cash management and springing cash dominion upon an event of default; inspections; lender meetings and conference calls; compliance with laws; environmental; subsidiaries; additional material owned real estate assets; further assurances; use of proceeds; and franchising matters. The ABL Administrative Agent shall be entitled to one field examination and one inventory appraisal per year, provided that the foregoing limitations shall not be applicable during the continuance of an event of default. |
Negative Covenants: | Limited to the following (applicable to the Loan Parties and their subsidiaries (other than, except as otherwise expressly described below, any Excluded Liberty/VSI Entities)), in each case with customary exceptions, limitations and qualifications to be mutually agreed, and otherwise consistent with the ABL Documentation Principles: indebtedness; liens; equitable lien; no further negative pledges; restricted junior payments; restrictions on distributions and dividends (subject to the exception below and permitting among other items, customary tax distributions); investments; fundamental changes, dispositions of assets, acquisitions; disposal of subsidiary interests; sales and lease-backs; transactions with affiliates; conduct of business; customary passive holding company covenant with respect to Holdings; changes to organizational documents; accounting methods; deposit accounts and securities accounts; prepayments of certain indebtedness for borrowed money or junior indebtedness; anti-terrorism laws; and franchising matters. |
Notwithstanding the foregoing, following the Closing Date, the Borrower may make Permitted Dividends (as defined and subject to the same terms as the Term Loan Term Sheet), subject to satisfactory review of the Sponsor Model. |
B-10
Payment Conditions: | So long as no event of default has occurred and is continuing or would result therefrom, the ABL Facility Documentation will include, in addition to the same baskets and exceptions permitted by the First Lien Term Loan Facility (including those for Permitted Acquisitions, Investments, Restricted Payments and dispositions (other than assets of the type included in any Borrowing Base)), additional exceptions permitting unlimited distributions, dividends, investments and acquisitions, subject to satisfaction of the following conditions (the “Payment Conditions”): |
(a)(x) pro forma Excess Availability is equal to at least 15% of the ABL Loan Cap, (y) pro forma Average Excess Availability (to be defined) for the 30 days prior to the closing of the proposed transaction is equal to at least 12.5% of the ABL Loan Cap and (z) pro forma Fixed Charge Coverage Ratio is at least 1.10:1.00, or (b) Pro forma Excess Availability is equal to at least 20% of the ABL Loan Cap and (y) pro forma Average Excess Availability for the 30 days prior to the closing of the proposed transaction is equal to at least 15% of the ABL Loan Cap. | |
Financial Covenants: | If Excess Availability shall be less than the greater of 12.5% of the ABL Loan Cap and $15 million (the “ABL Covenant Trigger”) and until Excess Availability is greater than or equal to the ABL Covenant Trigger for 20 consecutive calendar days (such period, a “Compliance Period”), the Borrowers shall comply on a quarterly basis with a minimum Fixed Charge Coverage Ratio (to be defined in a manner to be mutually agreed) of not less than 1.00:1.00. |
For purposes of determining compliance with the Fixed Charge Coverage Ratio, a cash equity contribution (which shall be common equity or otherwise in a form reasonably acceptable to the ABL Administrative Agent) in the Borrower after the end of the relevant fiscal quarter and on or prior to the day that is ten business days after the earlier of the date on which the compliance certificate was delivered to the ABL Administrative Agent in respect of such fiscal quarter and the date on which the compliance certificate was required to be delivered to the ABL Administrative Agent in respect of such fiscal quarter will, at the request of the Borrower (so long as the compliance certificate for such fiscal quarter was timely delivered) (the “Equity Cure Period “), be included in the calculation of Consolidated EBITDA solely for purposes of determining compliance with the Fixed Charge Coverage Ratio for the applicable fiscal quarter and applicable subsequent periods that include such fiscal quarter (any such equity contribution so included in the calculation of Consolidated EBITDA, a “Specified Equity Contribution”); provided that (a) in each four fiscal quarter period, there shall be a period of two fiscal quarters in which no Specified Equity Contribution is made, (b) Specified Equity Contributions shall not be made in respect of consecutive fiscal quarters, (c) only four Specified Equity Contributions may be made during the term of the ABL |
B-11
Facility, (d) the amount of any Specified Equity Contribution shall not exceed the amount required to cause the Borrower to be in compliance with such Fixed Charge Coverage Ratio, (e) all such Specified Equity Contributions will be disregarded for all purposes other than determining compliance with the Fixed Charge Coverage Ratio, including, without limitation, for purposes of determining any financial ratio based conditions, pricing, or availability of any baskets with respect to the covenants contained in the ABL Facility Documentation, and (f) there shall be no pro forma or other reduction in indebtedness (via cash netting or otherwise) with the proceeds of any Specified Equity Contribution for determining compliance with the Financial Covenants for any four quarter period that includes the fiscal quarter in which such Specified Equity Contribution is made. No borrowings shall be permitted during the Equity Cure Period. | |
Events of Default: | Limited to the following (applicable to Holdings, the Borrower and its Subsidiaries), in each case with customary exceptions, limitations and qualifications to be mutually agreed, and otherwise consistent with the ABL Documentation Principles: nonpayment of principal when due; nonpayment of interest, fees, or other amounts after a five day grace period; failure to deliver the Borrowing Base Certificate (subject to a 3 day cure period for monthly deliveries and 1 day cure period for weekly deliveries), failure to comply with the cash management covenant during a Cash Dominion Period and the use of proceeds covenant, cross-default and cross-acceleration to other material debt; provided that with respect to an event of default under the First Lien Term Loan Facility and the A-2 Tranche shall only be after the 60th day after such event of default has occurred and is continuing; violation of negative covenants, the Financial Covenants, or certain affirmative reporting covenants; material inaccuracy of representations and warranties; violation of other covenants subject to grace periods of 30 days; bankruptcy and insolvency events; material judgments; dissolution; certain ERISA and other pension events subject to a Material Adverse Effect standard; change of control (to be defined); actual or asserted (by any Loan Party) invalidity of any material Guarantee, any material portion of the security interest; proceedings; and subordinated indebtedness. |
Voting: | Amendments and waivers of the ABL Facility Documentation will require the approval of the ABL Administrative Agent and ABL Lenders (the “Required ABL Lenders”) holding more than 50% of the aggregate amount of loans and commitments under the ABL Facility and, in addition: (a) the consent of each affected Lender shall be required with respect to (i) increases in, or extensions of, commitments of such Lender, (ii) reductions of principal, interest (other than default interest), premiums, or fees, (iii) reductions in the amount of, or extensions of, scheduled amortization or final maturity, and (iv) modifications of the pro rata sharing provisions, the pro rata repayment provisions or any other provision of a Loan Document in a manner that would alter (or have the effect of altering) the pro rata allocation among the ABL Lenders of any payments, disbursements, or setoffs; (b) the consent of 100% of the ABL Lenders will be required with respect to (i) modifications to any of the voting percentages applicable thereto, (ii) increases in advance rates under the definition of Borrowing Base (provided that the foregoing shall not impair the ability of the ABL Administrative Agent to add, remove, reduce or increase reserves against the Borrowing Base assets in its Permitted Discretion) and (iii) a release of a material portion of the Guarantors or a release of (or subordination of liens on) a material portion of the Collateral, in each case, in any transaction or series of related transactions (other than in connection with permitted asset sales, permitted dispositions, permitted mergers, permitted liquidations or dissolutions, or as otherwise permitted in the ABL Facility Documentation); and (c) the consent of the ABL Administrative Agent will be required to amend, modify, or otherwise affect the rights and duties of the ABL Administrative Agent. |
B-12
The ABL Facility Documentation shall contain customary provisions for replacing non-consenting ABL Lenders in connection with amendments and waivers requiring the consent of the ABL Administrative Agent and all relevant ABL Lenders so long as the ABL Administrative Agent and relevant ABL Lenders holding at least 50% of the aggregate amount of the loans and commitments under the ABL Facility have consented thereto (the “Yank-A-Bank Right”). | |
Yield Protection and Increased Costs: | Usual and customary for facilities and transactions of this type, including customary tax gross-up provisions (including, without limitation, with respect to the Dodd-Frank Wall Street Reform and Consumer Protection Act, Basel III, and NAIC requests, directives, or guidelines). |
Defaulting Lenders: | Usual and customary for facilities and transactions of this type, including, without limitation, with respect to customary European Union “bail-in” provisions. |
Assignments and Participations: | The ABL Lenders will be permitted to assign loans and commitments with the consent of (a) the Borrower unless a Specified Event of Default has occurred and is continuing or 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 such assignment unless it shall object thereto by written notice to the ABL Administrative Agent within ten business days after having received notice thereof; and (b) the ABL Administrative Agent (unless such assignment is to a Lender, an affiliate of a Lender, or an approved fund), in the case of each of (a) and (b), such consent not to be unreasonably withheld or delayed. Unless otherwise agreed by the ABL Administrative Agent and the Borrower, each assignment (except to other ABL Lenders or their affiliates or approved funds) will be in a minimum amount of $1.0 million (or, if less, the full amount of the assignee’s interests in the ABL Facility). The ABL Administrative Agent will receive a processing and recordation fee of $3,500, payable by the assignor and/or the assignee, with each assignment. |
B-13
The ABL Lenders will be permitted to participate loans and commitments subject to customary terms and conditions. Voting rights of participants shall be limited to matters in respect of (a) increases in commitments, (b) reductions of principal, interest (other than default interest), or fees, (c) extensions of scheduled amortization or final maturity, and (d) releases of all or substantially all of the Collateral or all or substantially all of the Guarantees. | |
Neither the Borrower, the Sponsor, any other direct or indirect equity holder of Holdings, any affiliate of any of the foregoing, nor any person owning or controlling any trade debt or Indebtedness of any Loan Party (other than the ABL Facility) shall be permitted to purchase any assignments or participations of loans or commitments under the ABL Facility, and any assignments or participations to any such person shall be void ab initio. | |
Notwithstanding the foregoing, unless a Specified Event of Default has occurred and is continuing, assignments and participations will not be permitted to (a) any person that has been separately identified in writing by you or the Borrower to us on or prior to the date hereof, (b) those persons who are competitors of you, the Target and your and their subsidiaries that are separately identified in writing by you or the Borrower to us from time to time, and (c) in the case of each of clauses (a) and (b), any of their respective affiliates (which, for the avoidance of doubt, shall not include any bona fide debt investment funds that are affiliates of the persons referenced in clause (b) above, unless separately identified by you pursuant to clause (a) above) that are either (i) identified in writing by you or the Borrower from time to time or (ii) readily identifiable on the basis of such affiliate’s name (clauses (a), (b) and (c) above, collectively “Disqualified Lenders”). | |
Expenses and Indemnification: | Customary for facilities and transactions of this type and consistent with the ABL Documentation Principles. |
Governing Law and Forum: | New York and Borough of Manhattan. |
Counsel to ABL Administrative Agent: | Sidley Austin LLP. |
B-14
CONFIDENTIAL | ANNEX I TO EXHIBIT B |
Interest Rates: | The interest rates under the ABL Facility will be, at the option of the Borrower (a) Adjusted LIBOR plus the Applicable Margin or (b) ABR plus the Applicable Margin. |
As used herein: | |
“Adjusted LIBOR” means the London interbank offered rate, adjusted for statutory reserve requirements; provided that Adjusted LIBOR shall be no less than 1.50% per annum. The LIBOR replacement language in respect of the Adjusted LIBOR rate shall be consistent with customary ARRC language for transactions of this type. | |
“ABR” means the highest of (a) the prime rate announced by The Wall Street Journal, (b) the Federal Funds Rate plus 0.50% per annum, (c) one-month Adjusted LIBOR (taking into account any floor) plus 1.00% per annum, and (d) 2.50% per annum. | |
“Applicable Margin” means (i) 3.00% per annum, in the case of Adjusted LIBOR loans, and (ii) 2.00% per annum, in the case of ABR loans. | |
Adjusted LIBOR borrowings may be made for interest periods of 1, 2, 3, or 6 months, as selected by the Borrower. | |
Interest on loans and all fees will be payable in arrears on the basis of a 360-day year (calculated on the basis of actual number of days elapsed); provided that interest on ABR loans will be payable in arrears on the basis of a 365-day year (or a 366-day year in a leap year), in each case calculated on the basis of the actual number of days elapsed. Interest will be payable on Adjusted LIBOR loans on the last day of the applicable interest period and upon prepayment, and on ABR loans quarterly and upon prepayment. | |
Default Rate: | Upon and during the continuance of any event of default, the applicable interest rate plus 2.00% per annum, and with respect to any amount other than principal (including interest), the interest rate applicable to ABR loans plus 2.00% per annum. |
Unused Line Fee: | 0.50% per annum (subject to adjustment based on utilization level) on the undrawn portion of ABL Commitment Amount, payable to non-Defaulting Lenders quarterly in arrears after the Closing Date and upon the termination of the ABL Commitment Amounts, calculated based on the number of days elapsed in a 360-day year. |
B-I-1
CONFIDENTIAL | EXHIBIT C |
Project Buckeye
A-1 Tranche Term Loan Facility
Summary of Terms and Conditions
Capitalized terms used but not defined in this Exhibit C shall have the meanings set forth in the Commitment Letter to which this Exhibit C is attached or the other Exhibits to the Commitment Letter.
Borrower: | Lead Borrower and MergerSub (collectively, the “Borrower”). |
GACP: | GACP II, L.P. (“GACP”). |
Sole Lead Arranger and Bookrunner: | GACP (in such capacity, the “Lead Arranger”). |
Term Loan Administrative Agent: | GACP Finance Co., LLC will act as the sole administrative agent (collectively, in such capacities, the “Term Loan Administrative Agent” and together with the ABL Administrative Agent, the “Administrative Agents”) for the Term Loan Lenders (as defined below). |
Term Loan Collateral Agent: | An entity to be mutually agreed will act as the sole collateral agent (collectively, in such capacity, the “Term Loan Collateral Agent”) for the Term Loan Lenders (as defined below). |
Transactions: | As described in Exhibit A to the Commitment Letter. |
First Lien Term Loan Facility: | A senior secured first lien term loan facility in an aggregate principal amount of up to $600.0 million (plus, at the Borrower’s election, an additional amount sufficient to fund any upfront fees or OID in respect of the Facilities pursuant to the “market flex” provisions of the Fee Letter) (the “First Lien Term Loan Facility”), which shall be composed of (i) an A-1 Tranche in an aggregate principal amount of $400.0 million (the “A-1 Tranche”) and (ii) an A-2 Tranche in an aggregate principal amount of $200.0 million (the “A-2 Tranche”). |
Loans under the First Lien Term Loan Facility (the “First Lien Term Loans”) will be available to the Borrower in U.S. dollars. | |
Term Loan Lenders: | GACP and such other lenders that become party to the Term Loan Documentation from time to time (in such capacity, the “Term Loan Lenders” and together with the ABL Lenders, the “Lenders”). |
Purpose: | The proceeds of loans under the First Lien Term Loan Facility will be used (i) on the Closing Date, to finance the Acquisition and the Refinancing and to pay the Transaction Costs and (ii) after the Closing Date, for working capital and other general corporate purposes. |
C-1
Availability: | The First Lien Term Loan Facility must be drawn in a single drawing concurrently with the consummation of the Acquisition and the Refinancing. Amounts prepaid under the First Lien Term Loan Facility may not be reborrowed. |
Interest Rates and Fees: | As set forth on Annex I hereto. |
Maturity and Amortization: | The First Lien Term Loan Facility will mature on the fifth anniversary of the Closing Date and will amortize in aggregate annual amounts equal to $25.0 million, payable in equal quarterly installments commencing on the last day of the first full fiscal quarter ending after the Closing Date. |
A final balloon payment equal to the remaining balance of the First Lien Term Loan Facility shall be payable at maturity. | |
Guarantees: | All obligations of the Borrower under the First Lien Term Loan Facility will be unconditionally guaranteed by the same Guarantors that guarantee the ABL Facility. |
Collateral: | Subject to the limitations set forth below and the Certain Funds Provision, obligations of the Loan Parties in respect of the First Lien Term Loan Facility will be secured by a valid and perfected security interest on all Collateral of the Loan Parties. |
The Loan Parties shall be required to use commercially reasonable efforts to deliver collateral access agreements in customary form and substance reasonably satisfactory to the Term Loan Administrative Agent and the Term Loan Collateral Agent in respect of certain material leased real properties to be agreed. No security agreements or pledge agreements governed under the laws of any non-United States jurisdiction shall be required and no filing or other action outside of the United States to create or perfect a security interest therein in any asset shall be required, in each case, unless the total assets or Consolidated EBITDA attributable to subsidiaries located in a jurisdiction outside the United States exceed thresholds to be agreed (subject to Tax Principles, to be agreed). | |
Subject to the limitations set forth in this section and subject to the Certain Funds Provision, the obligations under the First Lien Term Loan Facility will be secured by: (i) a perfected first priority security interest in the Collateral (other than the ABL Collateral and the Excluded Assets) (the “Term Collateral”), and (ii) a perfected second priority security interest in the ABL Collateral. |
C-2
All the above-described pledges, security interests and mortgages shall be created on terms, and pursuant to documentation, consistent with the Term Loan Documentation Principles. Notwithstanding the foregoing, the requirements of the preceding paragraphs of this “Collateral” section shall be, as of the Closing Date, subject to the Certain Funds Provision. | |
Deposit Accounts and Securities Accounts: | Deposit accounts and securities accounts held by the Loan Parties (other than Excluded Accounts) shall be subject to customary “springing” control agreements in form and substance reasonably acceptable to the Term Loan Administrative Agent and the Term Loan Collateral Agent among the depository bank, the applicable Loan Party and the Term Loan Administrative Agent and the Term Loan Collateral Agent, in form and substance satisfactory to the Term Loan Administrative Agent within 30 days following the Closing Date (or, for deposit accounts or securities accounts acquired after the Closing Date (other than Excluded Accounts), following the opening or acquisition of such accounts) (or, in each case, such later date agreed to by the Term Loan Administrative Agent) for all deposit accounts and securities accounts of the Loan Parties (other than Excluded Accounts). |
Term Loan Documentation: | The definitive documentation for the First Lien Term Loan Facility, including all the above-described pledges, security interests, and mortgages (the “Term Loan Documentation” and, together with the ABL Facility Documentation, the “Facilities Documentation”) shall be based on the documentation for the credit facility governed by the Credit Agreement, dated as of October 23, 2019 (as amended through the date hereof, the “Precedent Credit Agreement”), by and among, inter alia, Sears Holdco, as holdings, Sears Borrower, as borrower, Guggenheim Credit Services, LLC, as administrative agent, and the lenders party thereto, in each case, with (i) modifications to remove the revolving facility; (ii) materiality qualifications and other exceptions that give effect to and/or permit the Transactions, (iii) reasonable modifications to the operational and agency provisions to reflect (A) the operational and strategic requirements of Holdings and its respective subsidiaries (after giving effect to the Transactions) in light of their size, geographic locations, industries, business and practices, operations, and financial accounting and (B) changes in law or accounting standards since the date of the Precedent Credit Agreement, (iv) modifications consistent with this Term Sheet and (v) modifications to reflect the term loan and unitranche nature of the First Lien Term Loan Facility including, without limitation, debt caps, voting rights (which voting rights may be inconsistent with the provisions under the caption “Voting” below), buyout rights, enforcement standstills, waterfalls, waterfall triggers and bankruptcy rights, in each case, on a basis consistent with that certain Agreement Among Lenders, dated as of January 28, 2019, among GACP II L.P., GACP Finance Co., LLC and the other parties party thereto with such modifications as are reasonably required by the Commitment Parties, which may be documented under the Loan Documents and not in a separate agreement among lenders. To the extent that any representations and warranties made on the Closing Date are qualified by “Material Adverse Effect”, for the purposes of such representations and warranties, the definition thereof shall be “Material Adverse Effect” as defined in the Acquisition Agreement. The foregoing shall be referred to as the “Term Loan Documentation Principles”. |
C-3
The relative rights and priorities in the Collateral for the secured parties in the ABL Facility and the First Lien Term Loan Facility will be set forth in the in an intercreditor agreement (the “Intercreditor Agreement”) which shall be based on the intercreditor agreement, dated as of November 30, 2018, which was separately identified prior to the date hereof, with such modifications as may be mutually agreed. | |
Mandatory Prepayments: | Subject to the Intercreditor Agreement, the Term Loans under the First Lien Term Loan Facility shall be prepaid with: |
(a) a percentage to be mutually agreed of the quarterly excess cash flow (to be defined as mutually agreed, “Excess Cash Flow”); provided that voluntary prepayments of First Lien Term Loans shall reduce excess cash flow payments on a dollar-for-dollar basis (except to the extent made with the proceeds of indebtedness); | |
(b) 100% of the net cash proceeds of all non-ordinary course asset sales or other dispositions of property (including, without limitation, insurance and condemnation proceeds) by the Loan Parties and their subsidiaries (other than any Excluded Liberty/VSI Entities except to the extent (x) the Liberty Facility or the credit facilities to which the VSI Entities are subject, as applicable, has been repaid in full and terminated or (y) the Liberty Facility or such other credit facilities permit the applicable Excluded Liberty/VSI Entities to distribute the proceeds of such asset sales or other dispositions to equityholders that are not Excluded Liberty/VSI Entities (to the extent of such distribution)), subject to customary reinvestment rights so long as no default or event of default has occurred and is continuing at the time of such disposition; | |
(c) 100% of the net cash proceeds of issuances of debt obligations of the Loan Parties and their subsidiaries (other than any Excluded Liberty/VSI Entities) after the Closing Date (other than permitted debt); | |
(d) 100% of the net cash proceeds of Specified Equity Contributions; and | |
(e) 100% of the net cash proceeds of Extraordinary Receipts (to be defined in a manner to be mutually agreed) in excess of an amount to be agreed in any fiscal year. |
C-4
The above described mandatory prepayments shall be applied to each installment of the principal balance of the A-1 Tranche (x), with respect to mandatory prepayments made within one year of the Closing Date, ratably in direct order of maturity thereof until paid in full and (y) with respect to mandatory prepayments made on or after the first anniversary of the Closing Date, ratably in inverse order of maturity thereof until paid in full; provided that certain mandatory prepayments may be declined by the Lenders and, to the extent so declined, shall be first offered to the other Lenders who did not decline such prepayments and, to the extent declined by such other Lenders, may be retained by the Borrower. | |
Voluntary Prepayments/Reductions in Commitments:
|
After the first anniversary of the Closing Date, voluntary prepayments of borrowings under the First Lien Term Loan Facility will be permitted at any time, in minimum principal amounts to be agreed upon, subject to the payment of the Call Premium, subject to reimbursement of the Term Loan Lenders’ redeployment costs in the case of a prepayment of Adjusted LIBOR loans other than on the last day of the relevant interest period. |
Representations and Warranties: | Limited to the following (applicable to the Loan Parties and their subsidiaries (other than any Excluded Liberty/VSI Entities)), in each case with customary exceptions, limitations and qualifications to be mutually agreed and otherwise consistent with the Term Loan Documentation Principles: organization; requisite power and authority; qualification; capital stock and ownership with respect to subsidiaries; due authorization; no conflict; governmental consents; binding obligation; financial statements; projections; no material adverse effect since the Closing Date; adverse proceedings, etc.; payment of material taxes; properties; environmental matters; governmental regulation; margin stock; employee matters; employee benefit plans; certain fees; solvency; compliance with statues, etc.; intellectual property; inventory and equipment; insurance; bank accounts and securities accounts; security interests; PATRIOT Act; OFAC/sanctions; FCPA, anti-money laundering, anti-bribery; disclosure; use of proceeds; chief executive offices; and franchising matters. |
Conditions Precedent to Borrowing: | The availability of the initial borrowing under the First Lien Term Loan Facility shall only be subject solely to (a) the delivery of a customary borrowing notice (which, for the avoidance of doubt, shall not require a certification (x) as to the accuracy of any representations and warranties other than the Specified Representations and the Specified Acquisition Agreement Representations or (y) as to the absence of any default or Event of Default under the Term Loan Documentation) and (b) the conditions set forth in Exhibit D hereto. |
C-5
Affirmative Covenants: | Limited to the following (applicable to the Loan Parties and their subsidiaries (other than any Excluded Liberty/VSI Entities)), in each case with customary exceptions, limitations and qualifications to be mutually agreed, and otherwise consistent with the Term Loan Documentation Principles: financial statements and other reports, management discussion and analysis; existence; payment of material taxes; maintenance of properties; insurance; cash management and springing cash dominion upon an event of default; inspections; lender meetings and conference calls; compliance with laws; environmental; subsidiaries; additional material owned real estate assets; further assurances; use of proceeds; and franchising matters. |
Negative Covenants: | Limited to the following (applicable to the Loan Parties and their subsidiaries (other than, except as otherwise expressly described below, any Excluded Liberty/VSI Entities)), in each case with customary exceptions, limitations and qualifications to be mutually agreed, and otherwise consistent with the Term Loan Documentation Principles: indebtedness (which shall prohibit any refinancing of indebtedness under that certain Credit Agreement, dated as of May 16, 2019 (the “Liberty Facility”), among Franchise Group Intermediate L 2, LLC, as the borrower (the “Liberty Borrower”), CIBC Bank USA, as the administrative agent, and the lenders and other parties party thereto, with the proceeds of indebtedness without the consent of the Term Loan Administrative Agent (unless such refinancing indebtedness is revolving indebtedness secured only by the receivables of the Liberty Borrower and its subsidiaries and is not secured by any assets other than the such receivables)); liens; equitable lien; no further negative pledges; restricted junior payments; restrictions on distributions and dividends (subject to the exception below and permitting among other items, customary tax distributions); investments; fundamental changes, dispositions of assets, acquisitions; disposal of subsidiary interests; sales and lease-backs; transactions with affiliates; conduct of business; customary passive holding company covenant with respect to Holdings; changes to organizational documents; accounting methods; deposit accounts and securities accounts; prepayments of certain indebtedness for borrowed money or junior indebtedness; anti-terrorism laws; and franchising matters. |
Notwithstanding the foregoing, following the Closing Date, the Borrower may make quarterly dividends (the “Permitted Dividends”) in cash to Holdings, and concurrently therewith, Holdings (and any direct or indirect parent thereof) may make quarterly dividends in cash to its direct or indirect investors and owners in an aggregate amount not exceeding an amount to be determined in respect of such fiscal quarter so long as (a) no default or event of default shall be occurred or be continuing or would result from such dividend and (b) such Permitted Dividend shall be subject to the satisfaction of certain other conditions to be agreed. |
C-6
Financial Covenants: | Limited to: |
(a) a minimum Fixed Charge Coverage Ratio (to be defined in a manner to be mutually agreed of the Loan Parties of not less than levels to be agreed based on a financial model to be agreed; and | |
(b) a maximum Total Leverage Ratio (to be defined in a manner to be mutually agreed) of the Loan Parties of not greater than levels to be agreed based on a financial model to be agreed. | |
The Financial Covenants will be tested quarterly at the end of each fiscal quarter (commencing with the first full fiscal quarter of the Borrower ending after the Closing Date). | |
For purposes of determining compliance with the Financial Covenants, a cash equity contribution (which shall be common equity or otherwise in a form reasonably acceptable to the Term Loan Administrative Agent) in the Borrower after the end of the relevant fiscal quarter and on or prior to the day that is ten business days after the earlier of the date on which the compliance certificate was delivered to the Term Loan Administrative Agent in respect of such fiscal quarter and the date on which the compliance certificate was required to be delivered to the Term Loan Administrative Agent in respect of such fiscal quarter will, at the request of the Borrower (so long as the compliance certificate for such fiscal quarter was timely delivered), be included in the calculation of Consolidated EBITDA solely for purposes of determining compliance with the Financial Covenants for the applicable fiscal quarter and applicable subsequent periods that include such fiscal quarter (any such equity contribution so included in the calculation of Consolidated EBITDA, a “Specified Equity Contribution “); provided that (a) in each four fiscal quarter period, there shall be a period of two fiscal quarters in which no Specified Equity Contribution is made, (b) Specified Equity Contributions shall not be made in respect of consecutive fiscal quarters, (c) only four Specified Equity Contributions may be made during the term of the Facilities, (d) the amount of any Specified Equity Contribution shall not exceed the amount required to cause the Borrower to be in compliance with such Financial Covenant, (e) all Specified Equity Contributions will be disregarded for all purposes other than determining compliance with the Financial Covenants, including, without limitation, for purposes of determining any financial ratio based conditions, pricing, or availability of any baskets with respect to the covenants contained in the Term Loan Documentation, (f) the proceeds of such Specified Equity Contribution shall be required to be used to repay the First Lien Term Loan Facility as described above under “Mandatory Prepayments” and (g) there shall be no pro forma or other reduction in indebtedness (via cash netting or otherwise) with the proceeds of any Specified Equity Contribution for determining compliance with the Financial Covenants for the fiscal quarter with respect to which the Specified Equity Contribution was made; provided that the mandatory prepayment of the First Lien Term Loan Facility with the proceeds of such Specified Equity Contribution shall be given effect in subsequent fiscal quarters. |
C-7
Events of Default: | Limited to the following (applicable to Holdings, the Borrower and its Subsidiaries), in each case with customary exceptions, limitations and qualifications to be mutually agreed, and otherwise consistent with the Term Loan Documentation Principles: nonpayment of principal when due; nonpayment of interest, fees, or other amounts after a five day grace period; cross-default and cross-acceleration to other material debt; violation of negative covenants, the Financial Covenants, or certain affirmative reporting covenants; material inaccuracy of representations and warranties; violation of other covenants subject to grace periods of 30 days; bankruptcy and insolvency events; material judgments; dissolution; certain ERISA and other pension events subject to a Material Adverse Effect standard; change of control (to be defined); actual or asserted (by any Loan Party) invalidity of any material Guarantee, any material portion of the security interest; proceedings; and subordinated indebtedness. |
Voting: | Amendments and waivers of the Term Loan Documentation will require the approval of the Term Loan Administrative Agent and Term Loan Lenders (the “Required Term Lenders”) holding more than 50% of the aggregate amount of loans and commitments under the First Lien Term Loan Facility and, in addition: (a) the consent of each affected Term Loan Lender shall be required with respect to (i) increases in, or extensions of, commitments of such Term Loan Lender, (ii) reductions of principal, interest (other than default interest), premiums, or fees, (iii) reductions in the amount of, or extensions of, scheduled amortization or final maturity, and (iv) modifications of the pro rata sharing provisions, the pro rata repayment provisions or any other provision of a Loan Document in a manner that would alter (or have the effect of altering) the pro rata allocation among the Term Loan Lenders of any payments, disbursements, or setoffs; (b) the consent of 100% of the Term Loan Lenders will be required with respect to (i) modifications to any of the voting percentages applicable thereto and (ii) a release of a material portion of the Guarantors or a release of (or subordination of liens on) a material portion of the Collateral, in each case, in any transaction or series of related transactions (other than in connection with permitted asset sales, permitted dispositions, permitted mergers, permitted liquidations or dissolutions, or as otherwise permitted in the Term Loan Documentation); and (c) the consent of the Term Loan Administrative Agent will be required to amend, modify, or otherwise affect the rights and duties of the Term Loan Administrative Agent. |
C-8
The Term Loan Documentation shall contain customary provisions for replacing non-consenting Term Loan Lenders in connection with amendments and waivers requiring the consent of the Term Loan Administrative Agent and all relevant Term Loan Lenders so long as the Term Loan Administrative Agent and relevant Term Loan Lenders holding at least 50% of the aggregate amount of the loans and commitments under the First Lien Term Loan Facility have consented thereto (the “Yank-A-Bank Right”). | |
Yield Protection and Increased Costs: | Usual and customary for facilities and transactions of this type, including customary tax gross-up provisions (including, without limitation, with respect to the Dodd-Frank Wall Street Reform and Consumer Protection Act, Basel III, and NAIC requests, directives, or guidelines). |
Defaulting Lenders: | Usual and customary for facilities and transactions of this type, including, without limitation, with respect to customary European Union “bail-in” provisions. |
Assignments and Participations: | The Term Loan Lenders will be permitted to assign loans and commitments with the consent of (a) the Borrower unless a Specified Event of Default (as defined below) has occurred and is continuing or such assignment is to a Term Loan Lender, an affiliate of a Term Loan Lender, or an approved fund; provided that the Borrower shall be deemed to have consented to any such assignment unless it shall object thereto by written notice to the Term Loan Administrative Agent within ten business days after having received notice thereof; and (b) the Term Loan Administrative Agent (unless such assignment is to a Term Loan Lender, an affiliate of a Term Loan Lender, or an approved fund), in the case of each of (a) and (b), such consent not to be unreasonably withheld or delayed. Unless otherwise agreed by the Term Loan Administrative Agent and the Borrower, each assignment (except to other Term Loan Lenders or their affiliates or approved funds) will be in a minimum amount of $1.0 million (or, if less, the full amount of the assignee’s interests in the First Lien Term Loan Facility). The Term Loan Administrative Agent will receive a processing and recordation fee of $3,500, payable by the assignor and/or the assignee, with each assignment. |
The Term Loan Lenders will be permitted to participate loans and commitments subject to customary terms and conditions. Voting rights of participants shall be limited to matters in respect of (a) increases in commitments, (b) reductions of principal, interest (other than default interest), or fees, (c) extensions of scheduled amortization or final maturity, and (d) releases of all or substantially all of the Collateral or all or substantially all of the Guarantees. |
C-9
Neither the Borrower, the Sponsor, any other direct or indirect equity holder of Holdings, any affiliate of any of the foregoing, nor any person owning or controlling any trade debt or Indebtedness of any Loan Party (other than the First Lien Term Loan Facility) shall be permitted to purchase any assignments or participations of loans or commitments under the First Lien Term Loan Facility, and any assignments or participations to any such person shall be void ab initio. | |
Notwithstanding the foregoing, unless a Specified Event of Default has occurred and is continuing, assignments and participations will not be permitted to (a) any person that has been separately identified in writing by you or the Borrower to us on or prior to the date hereof, (b) those persons who are competitors of you, the Target and your and their subsidiaries that are separately identified in writing by you or the Borrower to us from time to time, and (c) in the case of each of clauses (a) and (b), any of their respective affiliates (which, for the avoidance of doubt, shall not include any bona fide debt investment funds that are affiliates of the persons referenced in clause (b) above, unless separately identified by you pursuant to clause (a) above) that are either (i) identified in writing by you or the Borrower from time to time or (ii) readily identifiable on the basis of such affiliate’s name (clauses (a), (b) and (c) above, collectively “Disqualified Lenders”). | |
“Specified Event of Default” shall mean any payment or bankruptcy event of default and any event of default arising from failure to comply with the Financial Covenants. | |
Expenses and Indemnification: | Customary for facilities and transactions of this type and consistent with the Term Loan Documentation Principles. |
Governing Law and Forum: | New York and Borough of Manhattan. |
Counsel to Term Loan Administrative Agent: | Sidley Austin LLP. |
C-10
CONFIDENTIAL | ANNEX I TO EXHIBIT C |
Interest Rates: | The interest rates under the First Lien Term Loan Facility will be, at the option of the Borrower (a) Adjusted LIBOR plus the Applicable Margin or (b) ABR plus the Applicable Margin. |
As used herein: | |
“Adjusted LIBOR” means the London interbank offered rate, adjusted for statutory reserve requirements; provided that Adjusted LIBOR shall be no less than 1.50% per annum. The LIBOR replacement language in respect of the Adjusted LIBOR rate shall be consistent with customary ARRC language for transactions of this type. | |
“ABR” means the highest of (a) the prime rate announced by The Wall Street Journal, (b) the Federal Funds Rate plus 0.50% per annum, (c) one-month Adjusted LIBOR (taking into account any floor) plus 1.00% per annum, and (d) 2.50% per annum. | |
“Applicable Margin” means with respect to the A-1 Tranche, (i) 5.50% per annum, in the case of Adjusted LIBOR loans, and (ii) 4.50% per annum, in the case of ABR loans. | |
Adjusted LIBOR borrowings may be made for interest periods of 1, 2, 3, or 6 months, as selected by the Borrower. | |
Interest on loans and all fees will be payable in arrears on the basis of a 360-day year (calculated on the basis of actual number of days elapsed); provided that interest on ABR loans will be payable in arrears on the basis of a 365-day year (or a 366-day year in a leap year), in each case calculated on the basis of the actual number of days elapsed. Interest will be payable on Adjusted LIBOR loans on the last day of the applicable interest period (and at the end of each three months, in the case of interest periods longer than three months) and upon prepayment, and on ABR loans quarterly and upon prepayment. | |
Default Rate: | Upon and during the continuance of any event of default, the applicable interest rate plus 2.00% per annum, and with respect to any amount other than principal (including interest), the interest rate applicable to ABR loans plus 2.00% per annum. |
C-I-1
Call Premium: | If all or any portion of the principal balance of any First Lien Term Loan is paid in whole or in part for any reason at any time after the first anniversary of the Closing Date and prior to the to be agreed anniversary of the Closing Date (including, whether voluntary and whether before or after acceleration of the obligations in respect of the First Lien Term Loan Facility or the commencement of any insolvency proceeding, but in any event including, without limitation, any such prepayment in connection with (i) a change of control, (ii) an acceleration of the obligations in respect of the First Lien Term Loan Facility as a result of the occurrence of an event of default, (iii) foreclosure and sale of, or collection of, the Collateral, (iv) sale of the Collateral in any insolvency proceeding, (v) the restructure, reorganization, or compromise of the obligations in respect of the First Lien Term Loan Facility by the confirmation of a plan of reorganization or any other plan of compromise, restructure, or arrangement in any insolvency proceeding, or (vi) the termination of the First Lien Term Loan Facility for any reason, but excluding (a) amortization payments and (b) mandatory prepayments (other than mandatory prepayments from the proceeds of indebtedness), the Borrower shall pay to the applicable Term Loan Lenders a call premium (the “Call Premium”) in an amount equal to percentages to be mutually agreed of the amount repaid or prepaid, to the extent such repayment or prepayment occurs following the first anniversary of the Closing Date and on or prior to the to be agreed anniversary of the Closing Date. If the Yank-A-Bank Right is exercised by the Borrower, the Term Loan Lender that is replaced shall be entitled to the Call Premium in respect of its First Lien Term Loans. |
Without limiting the generality of the foregoing, it is understood and agreed that if the obligations under the Term Loan Documentation are accelerated on or prior to the to be agreed anniversary of the Closing Date for any reason, including because of default, the commencement of any insolvency proceeding or other proceeding pursuant to any applicable debtor relief laws, sale, disposition, or encumbrance (including that by operation of law or otherwise), the Call Premium, determined as of the date of acceleration, will also be due and payable as though said obligations were voluntarily prepaid as of such date and shall constitute part of the obligations, in view of the impracticability and extreme difficulty of ascertaining actual damages and by mutual agreement of the parties as to a reasonable calculation of each Term Loan Lender’s lost profits as a result thereof. The Call Premium payable in accordance with the immediately preceding sentence shall be presumed to be the liquidated damages sustained by each Term Loan Lender as the result of the early termination, and the Borrower agrees that it is reasonable under the circumstances. The Call Premium shall also be payable in the event the obligations (and/or the credit agreement evidencing the obligations) are satisfied or released by foreclosure (whether by power of judicial proceeding), deed in lieu of foreclosure, or by any other means. BORROWER EXPRESSLY WAIVES THE PROVISIONS OF ANY PRESENT OR FUTURE STATUTE OR LAW THAT PROHIBITS OR MAY PROHIBIT THE COLLECTION OF THE FOREGOING CALL PREMIUM IN CONNECTION WITH ANY SUCH ACCELERATION. The Borrower expressly agrees that: (A) the Call Premium is reasonable and is the product of an arm’s length transaction between sophisticated business people, ably represented by counsel, (B) the Call Premium shall be payable notwithstanding the then prevailing market rates at the time payment is made, (C) there has been a course of conduct between the Term Loan Lenders and Borrower giving specific consideration in this transaction for such agreement to pay the Call Premium, and (D) Borrower shall be estopped hereafter from claiming differently than as agreed to in this paragraph. The Borrower expressly acknowledges that its agreement to pay the Call Premium as herein described is a material inducement to the Term Loan Lenders to provide the term loan commitments and make the term loans under the First Lien Term Loan Facility. |
C-I-2
CONFIDENTIAL | EXHIBIT D |
Project Buckeye
Summary of Additional Conditions Precedent
Capitalized terms used but not defined in this Exhibit D shall have the meanings set forth in the Commitment Letter to which this Exhibit D is attached and the other Exhibits to the Commitment Letter. In the case of any such capitalized term that is subject to multiple and differing definitions, the appropriate meaning thereof in this Exhibit D shall be determined by reference to the context in which it is used.
Subject to the Certain Funds Provision in all respects, the initial borrowings under the Facilities shall be subject to the following conditions precedent:
1. The execution and delivery by the Borrower and the Guarantors of the ABL Facility Documentation consistent with the Term Sheets and the Commitment Letter (including, without limitation and the security agreements) which shall, in each case, be in accordance with the terms of the Commitment Letter and the Term Sheets and subject in all respects to the Certain Funds Provision and the ABL Documentation Principles set forth in the Commitment Letter.
2. The execution and delivery by the Borrower and the Guarantors of the Term Loan Facility Documentation consistent with the Term Sheets and the Commitment Letter (including, without limitation and the security agreements) which shall, in each case, be in accordance with the terms of the Commitment Letter and the Term Sheets and subject in all respects to the Certain Funds Provision and the Term Loan Documentation Principles set forth in the Commitment Letter.
3. The Acquisition shall have been consummated substantially simultaneously with the initial borrowings under the Facilities in accordance with the Acquisition Agreement (and no provision of the Acquisition Agreement shall have been waived, amended, supplemented, or otherwise modified (including any consents thereunder) in a manner materially adverse to the Lenders without the consent of the Lead Arranger (such consent not to be unreasonably withheld, delayed, or conditioned)) (it being understood that (i) any increase in the consideration for the Acquisition shall not be deemed to be materially adverse to the interests of the Lenders so long as such increase in consideration (x) is pursuant to any purchase price or similar adjustment provisions set forth in the Acquisition Agreement as of the date hereof or (y) is not funded with additional indebtedness, (ii) any reduction in the purchase price consideration of 25% or less shall be deemed not to be adverse to the Lenders so long as such reduction (x) is pursuant to any purchase price or similar adjustment provisions set forth in the Acquisition Agreement as of the date hereof, (y) is shall be allocated solely to the Term Facilities with (a) 75% of such reduction further allocated to the First Lien Term Loan Facility and (b) 25% of such reduction further allocated to the A-2 Tranche, (iii) any consent, waiver, amendment, supplement, or other modification in respect of the third party beneficiary rights applicable to the Administrative Agent, the Commitment Parties or the Lenders or in the governing law without the prior written consent of the Commitment Parties shall be deemed to be materially adverse to the interests of the Lenders, and (iv) any consent, waiver, amendment, supplement, or other modification to the definition of “Material Adverse Effect” without the prior written consent of the Commitment Parties shall be deemed to be materially adverse to the interests of the Lenders.
4. The Refinancing shall have been consummated substantially simultaneously with the initial borrowings under the Facilities.
D-1
5. The ABL Administrative Agent and the Term Loan Collateral Agent, as applicable, shall have received, subject to the Certain Funds Provision to the extent applicable, (a) subject to the Intercreditor Agreement, all documents and instruments required to create and perfect the ABL Administrative Agent’s and the Term Loan Collateral Agent’s, as applicable, security interest in the Collateral, (b) a customary certificate attesting to the solvency of the Borrower and its subsidiaries on the Closing Date on a consolidated basis in the form attached as Annex I hereto, and (c) customary legal opinions, organizational documents, customary evidence of authorization, customary officers’ certificates, and customary insurance certificates, in each case under this clause (c) relating solely to the Loan Parties as of the Closing Date.
6. The Borrower and each of the Guarantors shall have provided no less than 3 business days prior to the Closing Date the documentation and other information to the Lenders that are reasonably requested by the Lenders no later than 10 days prior to the Closing Date under the applicable “know-your-customer” rules and regulations, including, without limitation, the PATRIOT Act.
7. All accrued costs, fees, and expenses (including, without limitation, legal fees and expenses and the fees and expenses of any other advisors) and other compensation due and payable to the Administrative Agent, the Lead Arranger, and the Lenders and required by the Commitment Letter or the Fee Letter to be paid on the Closing Date shall have been paid, in the case of expenses, to the extent a reasonably detailed invoice has been delivered to the Borrower at least 2 business days prior to the Closing Date (provided that the foregoing amounts may, at the Borrower’s option, be offset against the proceeds of the Facilities funded on the Closing Date).
8. The Specified Representations and, to the extent required by the Certain Funds Provision, the Specified Acquisition Agreement Representations shall be true and correct in all material respects (provided that any such representation or warranty that is qualified as to “materiality,” “material adverse effect,” or similar language shall be true and correct in all respects (after giving effect to any such qualification therein)).
9. Since the date of the Acquisition Agreement, there shall not have occurred a Material Adverse Effect (as defined in the Acquisition Agreement).
10. The Lead Arranger shall have received (a) all financial statements required to be delivered on or after the date hereof and prior to the Closing Date under the Sears Facility and (b) all financial statements required to be delivered on or after the date hereof and prior to the Closing Date under the Buddy’s Facility, (c) the unaudited consolidated balance sheets and related statements of income, changes in equity, and cash flows of the Target, in each case, for each fiscal quarter ending after December 31, 2018 and ended at least 45 days prior to the Closing Date; and (d) an unaudited pro forma consolidated balance sheet and income statement of the Borrower and its subsidiaries as of the date of the most recent consolidated balance sheet delivered pursuant to the preceding clause (c).
D-2
CONFIDENTIAL | ANNEX I TO EXHIBIT D |
FORM OF
SOLVENCY CERTIFICATE
[ ], 2019
This Solvency Certificate is delivered pursuant to Section [ ] of the Credit Agreement dated as of [ ], 2019, among [ ] (the “Credit Agreement”). Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement.
The undersigned hereby certifies, solely in his capacity as an officer of the Borrower and not in his individual capacity, as follows:
1. I am the [Chief Financial Officer] of the Borrower. I am familiar with the Transactions, and have reviewed the Credit Agreement, financial statements referred to in Section [ ] of the Credit Agreement and such documents and made such investigation as I have deemed relevant for the purposes of this Solvency Certificate.
2. As of the date hereof, immediately after giving effect to the consummation of the Transactions, on and as of such date (a)(i) the sum of the debt (including contingent liabilities) of the Borrower and its Subsidiaries (on a consolidated basis) does not exceed the present fair saleable value of the present assets of the Borrower and its Subsidiaries (on a consolidated basis), (ii) the capital of the Borrower and its Subsidiaries (on a consolidated basis) is not unreasonably small in relation to its business as contemplated on the Closing Date, and (iii) of the Borrower and its Subsidiaries have not incurred and do not intend to incur, or believe (nor should they reasonably believe) that they will incur, debts beyond their ability to pay such debts as they become due (whether at maturity or otherwise), and (b) the Borrower and its Subsidiaries (on a consolidated basis) are “solvent” within the meaning given that term and similar terms under applicable laws relating to fraudulent transfers and conveyances. For purposes of the foregoing, the amount of any contingent liability at any time shall be computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability (irrespective of whether such contingent liabilities meet the criteria for accrual under Statement of Financial Accounting Standard No. 5).
This Solvency Certificate is being delivered by the undersigned officer only in his capacity as [Chief Financial Officer] of the Borrower and not individually and the undersigned shall have no personal liability to the Administrative Agent or the Lenders with respect thereto.
[Remainder of Page Intentionally Left Blank]
D-I-1
IN WITNESS WHEREOF, the undersigned has executed this Solvency Certificate on the date first written above.
[ ] | ||
By: | ||
Name: | ||
Title: | [Chief Financial Officer] |
D-I-2
Exhibit 10.2
EXECUTION VERSION
LIMITED GUARANTY
THIS LIMITED GUARANTY (this “Guaranty”) is made as of February 19, 2020 by B. Riley Financial, Inc. (the “Guarantor”), in favor of BTC Holdings Fund I, LLC, BTC Holdings Fund I-B, LLC and BTC Holdings SC Fund LLC (collectively, “Blue Torch”).
RECITALS
A. Franchise Group Intermediate Holdco, LLC, a Delaware limited liability company (“Lead Borrower”), as a Borrower, Franchise Group Merger Sub AF, INC., a Delaware corporation (“Merger Sub”), as a Borrower (which, on February 14, 2020, was merged with and into American Freight Group, Inc., a Delaware corporation (“AFGI”), with AFGI surviving such merger as a Borrower), certain other Subsidiaries of Lead Borrower from time to time party thereto as Borrowers (collectively with Lead Borrower and AFGI, the “Borrowers”), the lenders from time to time party thereto (each of such lenders, together with its successors and permitted assigns, is referred to hereinafter as a “Lender”), Kayne Solutions Fund I, L.P., in its capacity as collateral agent (the “Collateral Agent”) and GACP Finance Co., LLC, (“GACP”) in its capacity as administrative agent (the “Administrative Agent” and, together with the Collateral Agent, collectively, the “Agent”), have entered into that certain Credit Agreement, dated as of February 14, 2020 (as amended, restated, supplemented or otherwise modified and in effect from time to time as permitted hereunder, the “Credit Agreement”; capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the Credit Agreement).
B. The Guarantor is a direct or indirect owner of FACP and will benefit directly and indirectly from Blue Torch joining the Credit Agreement as a Tranche A-1 Term Lender.
C. As an inducement to and as one of the conditions precedent to the agreement of Blue Torch to join the Credit Agreement as a Tranche A-1 Term Lender, Blue Torch has required the execution and delivery of this Guaranty, whereby the Guarantor shall guarantee the payment when due of all Guaranteed Obligations (as defined below).
AGREEMENT
NOW, THEREFORE, in order to induce Blue Torch to join the Credit Agreement as a Tranche A-1 Term Lender, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Guarantor hereby agrees as follows:
1. Guaranty. The Guarantor guarantees to Blue Torch the full and prompt payment and performance, when due, whether upon demand, maturity, by required prepayment, acceleration or otherwise, and at all times thereafter, of all Guaranteed Obligations which may now be or may hereafter become due and owing. For purposes hereof, “Guaranteed Obligations” means (a) all Obligations in respect of Tranche A-1 Term Loans, including principal, interest, fees, premiums, indemnities and other amounts, payable to Blue Torch as a holder of Tranche A-1 Term Loans under the Credit Agreement or the other Loan Documents and (b) all Obligations in respect of Protective Advances, including principal, interest, fees, premiums, indemnities and other amounts, payable to the Agents by Blue Torch under the Credit Agreement or the other Loan Documents, in each case, including without limitation all interest, fees and other amounts that accrue after the commencement of an Insolvency Proceeding, regardless of whether allowed or allowable in whole or in part as a claim in any Insolvency Proceeding); provided, however, that the Guarantor’s liability under this Guaranty shall be limited to the sum of (i) $50,000,000 plus (ii) the principal amount of all Protective Advances payable to the Agents by Blue Torch, plus (iii) the amount of interest, fees, premiums, indemnities and other amounts owing in respect of the amounts described in the foregoing clauses (i) and (ii), plus (iv) the amount of all Expenses (as defined below) (the amount described in the foregoing clauses (i) through (iv) being referred to herein as the “Guaranty Cap”). The Guarantor hereby agrees to pay or reimburse all fees, costs and expenses (including, without limitation, all court costs and attorneys’ fees, costs and expenses) paid or incurred by Blue Torch (1) collecting, enforcing or endeavoring to collect or enforce all or any part of the Guaranteed Obligations from, or in prosecuting any action against, the Guarantor in connection with this Guaranty and (2) preserving, protecting or defending the enforceability of this Guaranty or Blue Torch’s rights hereunder (the amounts described in the foregoing clauses (1) and (2) are collectively referred to herein as the “Expenses”; the Expenses and the Guaranteed Obligations are collectively referred to herein as the “B. Riley Obligations”).
2. Payment of Obligations. Upon the occurrence of any Guarantor Event of Default (as defined below), at any time, and from time to time, the Guarantor shall pay to Blue Torch promptly (and in any event within five (5) Business Days) after the Guarantor’s receipt of written demand therefor and in immediately available funds, all of the Guaranteed Obligations then due and outstanding up to the amount of the Guaranty Cap.
3. Guaranty Provisions.
3.01 Obligations Unconditional. The obligations of the Guarantor under this Guaranty are absolute and unconditional, irrespective of the validity or enforceability of the Loan Documents, or any other agreement or instrument referred to herein or therein, or any substitution, release or exchange of any other guaranty of or security for any of the Obligations or the Tranche A-1 Term Loans, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Section that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances and shall not be released, discharged or in any way affected or impaired by any thing, event, happening, matter, circumstance or condition whatsoever (whether or not the Guarantor shall have any knowledge or notice thereof or shall consent thereto), other than payment in full of the Obligations, which might otherwise constitute a legal or equitable discharge or defense of a guarantor. In furtherance of the foregoing and without limiting the generality thereof, the Guarantor agrees as follows:
(a) This Guaranty is a guaranty of payment and performance when due and not of collection.
(b) The obligations of the Guarantor hereunder are independent of the obligations of the Borrowers and any one or more of the Loan Parties under the other Loan Documents to which they are a party and a separate action or actions may be brought and prosecuted against the Guarantor whether or not any action is brought against the Borrowers or any other Loan Party and whether or not the Borrowers or any other Loan Party is joined in any such action or actions.
(c) Payment, performance or completion by the Guarantor, or any other obligor, of a portion, but not all, of the Obligations shall in no way limit, affect, modify or abridge the Guarantor’s liability hereunder for any portion of the Guaranteed Obligations which have not been paid, performed or completed. Without limiting the generality of the foregoing, if Blue Torch is awarded a judgment in any suit brought to enforce the Guarantor’s or any other obligor’s covenants to pay any of the Obligations, such judgment shall not be deemed to release the Guarantor from its covenant hereunder to pay any of the Guaranteed Obligations that are not the subject of such suit, and such judgment shall not, except to the extent satisfied by such Guarantor, limit, affect, modify or abridge such Guarantor’s liability hereunder in respect of the Guaranteed Obligations.
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(d) The Agents and the Lenders (subject to the terms of the Loan Documents), upon such terms as the Agents or the Lenders, as the case may be, deem appropriate, may (i) renew, extend, accelerate, increase the rate of interest on, or otherwise change the time, place, manner or terms of payment or performance under the Loan Documents, (ii) settle, compromise, release or discharge, or accept or refuse any offer of performance with respect to, or substitutions for, the Obligations or any Loan Document and/or subordinate the payment of the same to the payment of any other obligations; (iii) request and accept other guaranties of any of the Borrowers’ obligations under the Loan Documents and take and hold security for the payment or performance of this Guaranty or the Loan Documents; (iv) release, surrender, exchange, substitute, compromise, settle, rescind, waive, alter, subordinate or modify, with or without consideration, any security for payment or performance of the Borrowers’ obligations under the Loan Documents, any other guaranties of the Obligations, or any other obligation of any Person with respect to the Obligations; (v) enforce and apply any security now or hereafter held by or for the benefit of Blue Torch in respect of this Guaranty or the Obligations and direct the order or manner of sale thereof, and to bid at any such sale, or exercise any other right or remedy that the Agents and the Lenders may have against any such security, in each case as in its discretion may determine consistent with any applicable security agreement, including without limitation foreclosure on any such security pursuant to one or more judicial or non-judicial sales, even though such action operates to impair or extinguish any right of reimbursement or subrogation or other right or remedy of the Guarantor against the Borrowers or Affiliates of any Borrower or any security for the Obligations; and (vi) exercise any other rights available to them under the Loan Documents or otherwise. The Guarantor authorizes the Agents at any time in its discretion to direct the order and manner of any sale of all or any part of any security now or later held for the Obligations and to bid at any such sale, to apply any payments or recoveries from the Borrowers, the Guarantor or any other source, and any proceeds of any security, to the Obligations in such manner, order and priority as set forth in the Credit Agreement (whether or not those obligations are guaranteed by this Guaranty or secured at the time of the application). The Agents and the Lenders may take any of the foregoing actions upon any terms and conditions as the Agents or the Lenders, as the case may be, may elect, without giving notice to, or making any demand upon, the Guarantor, and without affecting the validity or enforceability of this Guaranty, or giving rise to any reduction, limitation, impairment, discharge or termination of the Guarantor’s liability hereunder.
(e) Except as otherwise expressly provided in this Guaranty, this Guaranty and the obligations of the Guarantor hereunder shall be valid and enforceable and shall not be subject to any reduction, limitation, impairment, discharge or termination for any reason (other than payment in full of the B. Riley Obligations), including without limitation the occurrence of any of the following, whether or not the Guarantor shall have had notice or knowledge of any of them: (i) any failure or omission to assert or enforce, or agreement or election not to assert or enforce, or the stay or enjoining, by order of court, by operation of law or otherwise, of the exercise or enforcement of, any claim or demand or any right, power or remedy (whether arising under the Loan Documents, at law, in equity or otherwise) with respect to the Obligations or the Loan Documents, or with respect to any other guaranty of or security for the payment or performance of the Obligations; (ii) any rescission, waiver, amendment or modification of, or any consent to departure from, any of the terms or provisions (including without limitation provisions relating to events of default) of the Loan Documents or of any other guaranty or security for the Obligations, in each case whether or not in accordance with the terms of the Loan Documents or any agreement relating to such other guaranty or security; (iii) the application of payments received from any source (other than payments received pursuant to this Guaranty or the other Loan Documents or from the proceeds of any security for the Guaranteed Obligations except to the extent such security also serves as collateral for indebtedness other than the Guaranteed Obligations) to the payment of indebtedness other than the Obligations, even though the Agents and Lenders might have elected to apply such payment to any part or all of the Obligations; (iv) the consent of the Agents and Lenders to the change, reorganization or termination of the ownership structure or existence of any Borrower or any of its Affiliates and to any corresponding restructuring of the Obligations, including, without limitation, the Tranche A-1 Term Loans; (v) any failure to perfect or continue perfection of a security interest in any collateral which secures any of the Obligations; (vi) the acquisition or transfer of title to any real property covered by any mortgage to any Agent, any Lender, any Affiliate of any Lender or any designee of any Lender (including, without limitation, any purchaser through foreclosure, deed in lieu or otherwise); (vii) any act or event which might otherwise discharge, reduce, limit or modify any of the Guarantor’s obligations under this Guaranty; (viii) any waiver, extension, modification, forbearance, delay or other act or omission of the Agents and Lenders, or their failure to proceed promptly or otherwise as against any Borrower, any other Loan Party or the Guarantor, any other obligor or any security; (ix) any action, omission or circumstance which might increase the likelihood that the Guarantor may be called upon to perform under this Guaranty or which might affect the rights or remedies of the Guarantor as against any Borrower or Affiliates of any Borrower; (x) any dealings occurring at any time between any Borrower and the Agents and Lenders, whether relating to the Obligations or otherwise; and (xi) any other act or thing or omission, or delay to do any other act or thing, which may or might in any manner or to any extent vary the risk of the Guarantor as an obligor in respect of the Obligations.
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3.02 Waivers by the Guarantors. The Guarantor hereby waives, for the benefit of Blue Torch, to the fullest extent permitted by applicable law:
(i) any right to require Blue Torch or any other Person, as a condition of payment or performance by the Guarantor, to (A) proceed against the Borrowers, any other Loan Party or any other Person, (B) proceed against or exhaust any security held from the Borrowers, any other Loan Party, the Guarantor or any other Person, (C) proceed against or have resort to any balance of any deposit account or credit on the books of Blue Torch or any other Person in favor of the Borrowers, any other Loan Party or any other Person, or (D) pursue any other remedy in the power of Blue Torch or any other Person whatsoever;
(ii) any defense arising by reason of the incapacity, lack of authority or any disability or other defense of the Borrowers, including, without limitation, any defense based on or arising out of the lack of validity or the unenforceability of the Obligations or any agreement or instrument related thereto or by reason of the cessation of the liability of the Borrowers from any cause other than payment and performance in full of the Obligations;
(iii) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal;
(iv) any defense based upon any errors or omissions in the administration of the Tranche A-1 Term Loans or any other Obligations;
(v) (A) any principles or provisions of law, statutory or otherwise, which are or might be in conflict with the terms of this Guaranty and any legal or equitable discharge of the Guarantor’s obligations hereunder (other than payment and performance of the B. Riley Obligations in full), (B) the benefit of any statute of limitations affecting the Guarantor’s liability hereunder or the enforcement hereof, (C) any rights to set-offs, recoupments and counterclaims which may at any time be available to or be asserted by any Borrower or any other Person against Blue Torch or any other Person, including without limitation any defenses available to a surety (all of which defenses are hereby waived), and (D) promptness, diligence and any requirement that Blue Torch or any other Person protect, secure, perfect or insure any security interest or lien or any property subject thereto;
(vi) except as otherwise expressly required under Sections 2 hereof, notices, demands, presentments, protests, notices of protest, notices of dishonor and notices of any action or inaction, notices of default under the other Loan Documents, this Guarnty or any agreement or instrument related thereto, notices of any renewal, extension or modification of the Obligations or any agreement related thereto, notices of any extension of credit to the Borrowers and any right to consent to any thereof;
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(vii) any release, discharge, modification, impairment or limitation of the liability of the Borrowers to Blue Torch or any other Person, whether consented to by Blue Torch or any other Person, consensual or arising by operation of law or any proceedings in bankruptcy or reorganization or from any other cause;
(viii) any defense based on any rejection or disaffirmance of the Obligations, or any part thereof, or any security held therefor, in any such proceedings in bankruptcy or reorganization;
(ix) any defense based on any action taken or omitted by Blue Torch or any other Person in any proceedings in bankruptcy or reorganization involving any Borrower, any other Loan Party or any other Person, including without limitation any election to have their claim allowed as being secured, partially secured or unsecured, any extension of credit by Blue Torch to any Borrower in any proceedings in bankruptcy or reorganization and the taking and holding by Blue Torch of any security for any such extension of credit; and
(x) any defense or benefits that may be derived from or afforded by law which limit the liability of or exonerate guarantors or sureties, or which may conflict with the terms of this Guaranty, other than payment and performance of the B. Riley Obligations in full.
3.03 Reinstatement. The obligations of the Guarantor under this Guaranty shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of any Borrower, another Loan Party or the Guarantor in respect of the Obligations is rescinded or must be otherwise restored by any holder of the Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise.
3.04 Guarantor’s Rights of Subrogation, Contribution, Etc. The Guarantor hereby waives, until the Termination Date, any claim, right or remedy, direct or indirect, that the Guarantor now has or may hereafter have against any Borrower or any other Loan Party, or any of their respective assets, in connection with this Guaranty or the performance by the Guarantor of its obligations hereunder, in each case whether such claim, right or remedy arises in equity, under contract, by statute, under common law or otherwise and, including without limitation, (i) any right of subrogation, reimbursement or indemnification that the Guarantor now has or may hereafter have against the Borrowers or any other Loan Party, (ii) any right to enforce, or to participate in, any claim, right or remedy that Blue Torch now has or may hereafter have against any Borrower or any other Loan Party, and (iii) any benefit of, and any right to participate in, any collateral or security now or hereafter held by or on behalf of Blue Torch. In addition, until the Termination Date, the Guarantor shall withhold exercise of any right of contribution which the Guarantor may have against any other guarantor of the Obligations. The Guarantor further agrees that, to the extent the waiver or agreement to withhold the exercise of its right of subrogation, reimbursement, indemnification and contribution as set forth herein is found by a court of competent jurisdiction to be void or voidable for any reason, any rights of subrogation, reimbursement or indemnification the Guarantor may have against any Borrower or any other Loan Party, or against any collateral or security, and any rights of contribution the Guarantor may have against any other guarantor, shall be junior and subordinate to any rights Blue Torch (or any Agent or any Lender) may have against the Borrowers and the Loan Parties, to all right, title and interest Blue Torch (or any Agent or any Lender) may have in any such collateral or security, and to any right Blue Torch (or any Agent or any Lender) may have against such other guarantor. If any amount shall be paid to the Guarantor on account of any such subrogation, reimbursement, indemnification or contribution rights at any time prior to the Termination Date, such amount shall be held in trust for Blue Torch and shall forthwith be paid over to Blue Torch to be credited and applied against the Guaranteed Obligations, whether matured or unmatured, in accordance with the terms hereof. The Guarantor agrees that it is not a surety and waives any right that it may have as a surety to require that Blue Torch commence action against any Borrower, any other Loan Party or any other Person or against any of the Collateral.
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3.05 Subordination of Other Obligations. Any Indebtedness of any Borrower or any other Loan Party now or hereafter held by the Guarantor is hereby subordinated in right of payment to the prior payment and performance in full of the Guaranteed Obligations, and any such Indebtedness collected or received by the Guarantor after a Guarantor Event of Default has occurred and is continuing shall be held in trust for Blue Torch and shall forthwith be paid over to Blue Torch to be credited and applied against the Guaranteed Obligation, whether matured or unmatured, but without affecting, impairing or limiting in any manner the liability of the Guarantor under any other provision of this Guaranty.
3.06 Remedies.
(a) The Guarantor agrees that, notwithstanding anything set forth in this Guaranty to the contrary, if for whatever reason, Blue Torch is prevented by applicable law or the terms of any subordination agreement from exercising any of its rights to receive payment from the Borrowers of all or any part of the Guaranteed Obligations, to collect interest on all or any part of the Guaranteed Obligations or to enforce or exercise any other right or remedy with respect to all or any part of the Guaranteed Obligations, or is prevented from taking any action to realize on all or any part of the collateral securing the Guaranteed Obligations or the liabilities of the Borrowers, and any such occurrence results in, or occurs during the continuance of, a Guarantor Event of Default, the Guarantor agrees to pay to Blue Torch, within five (5) Business Days after receipt of written demand therefor and in immediately available funds, the amount that would otherwise have been due and payable had such rights and remedies been permitted to be exercised by Blue Torch up to Guaranty Cap.
(b) All of the remedies set forth in this Guaranty and/or provided for in any of the Loan Documents or at law (including without limitation the right of set-off) or in equity shall be equally available to Blue Torch, and the choice by Blue Torch of one such alternative over another shall not be subject to question or challenge by the Guarantor or any other Person, nor shall any such choice be asserted as a defense, setoff, or failure to mitigate damages in any action, proceeding, or counteraction by Blue Torch to recover or seek any other remedy under this Guaranty, nor shall any such choice preclude Blue Torch from subsequently electing to exercise a different remedy; provided that only Blue Torch (or any Affiliate or Related Fund of Blue Torch) shall be entitled to enforce this Guaranty.
3.07 Continuing Guaranty. This Guaranty is a continuing guaranty and shall remain in effect until the date that the B. Riley Obligations have been paid in full (the “Termination Date”), and the Guarantor irrevocably waives any right to revoke this Guaranty, or the continuing nature hereof, as to future transactions giving rise to any Guaranteed Obligations or any Expenses payable hereunder (subject to the Guaranty Cap).
3.08 Assumption of Risk Regarding Loan Parties’ Financial Condition. Before signing this Guaranty, the Guarantor investigated the financial condition and business operations of the Borrowers and the other Loan Parties and such other matters as the Guarantor deemed appropriate to assure themselves of the Borrowers’ and other Loan Parties’ ability to discharge their respective obligations under the Loan Documents. The Guarantor assumes full responsibility for keeping fully informed of the financial condition of the Borrowers and the other Loan Parties and all other circumstances affecting the Borrowers’ and the other Loan Parties’ ability to perform their respective obligations to Blue Torch, and agree that Blue Torch will not have any duty to report to the Guarantor any information which it receives about the Borrowers’ or any Loan Party’s financial condition or any circumstances bearing on the Borrowers’ or any Loan Party’s ability to perform.
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4. Representations and Warranties. The Guarantor hereby represents and warrants to Blue Torch as of the date hereof that:
4.01 No Breach. None of the execution and delivery of this Guaranty, the
consummation of the transactions herein contemplated or compliance by the Guarantor with the terms and provisions hereof will conflict with or result in a breach of, or require any consent under any applicable law or regulation, or any order, writ, injunction or decree of any court or governmental authority or agency, or any agreement or instrument to which the Guarantor is a party or by which it is bound or to which it is subject or any of the Guarantor’s Organizational Documents, or constitute a default under any such agreement, instrument, or Organizational Documents, or result in the creation or imposition of any lien upon any of the revenues or assets of the Guarantor pursuant to the terms of any such agreement, instrument or Organizational Documents.
4.02 Action. This Guaranty has been duly and validly executed and delivered by the Guarantor and constitutes its legal, valid and binding obligation, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws of general application affecting the enforcement of creditors’ rights.
4.03 Litigation. There are no legal or arbitration proceedings or any proceedings by or before any governmental authority, now pending or (to the knowledge of the Guarantor) threatened against the Guarantor which could cause (a) a material impairment of the ability of the Guarantor, taken as a whole, to perform any of its obligations hereunder, (b) a material adverse effect upon the legality, validity, binding effect or enforceability against the Guarantor of this Guaranty, or (c) a material impairment of the ability of Blue Torch to enforce this Guaranty (the foregoing clauses (a) through (c), each, a “Material Adverse Effect”).
4.04 Organization. The Guarantor is validly existing and in good standing under the laws of its jurisdiction of organization; and the Guarantor is duly qualified to do business in each jurisdiction where, because of the nature of its activities or properties, such qualification is required, except for such jurisdictions where the failure to so qualify could not reasonably be expected to have a Material Adverse Effect.
4.05 Authorization. The Guarantor is duly authorized to execute and deliver this Guaranty and perform its obligations hereunder.
4.06 Solvency. Immediately after giving effect to this Guaranty, (a)(i) the debt (including without limitation contingent liabilities) of the Guarantor does not exceed the present fair saleable value of the present assets of the Guarantor, (ii) the capital of the Guarantor is not unreasonably small in relation to its business as contemplated on the date hereof, and (iii) the Guarantor has not incurred and does not intend to incur, or believe (nor should reasonably believe) that it will incur, debts beyond its ability to pay such debts as they become due (whether at maturity or otherwise), and (b) the Guarantor is “solvent” within the meaning given that term and similar terms under applicable laws relating to fraudulent transfers and conveyances. For purposes of this Section 4.06, the amount of any contingent liability at any time shall be computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability (irrespective of whether such contingent liabilities meet the criteria for accrual under Statement of Financial Accounting Standard No. 5).
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5. Covenants. The Guarantor covenants to Blue Torch that, until the Termination Date:
5.01 Compliance with Laws. The Guarantor will comply with the requirements of all applicable laws, rules, regulations and orders of governmental or regulatory authorities if failure to comply with such requirements could reasonably be expected to have a Material Adverse Effect (either individually or in the aggregate), except to the extent being contested in good faith and by proper proceedings and against which adequate reserves are being maintained.
5.02 Litigation. The Guarantor will promptly give Blue Torch notice of all legal or arbitral proceedings, and of all proceedings by or before any governmental or regulatory authority or agency, affecting the Guarantor, except proceedings which could not reasonably be expected to have a Material Adverse Effect.
5.03 Preservation of Existence, Etc. Guarantor will (i) preserve and maintain its separate existence, (ii) preserve and maintain all rights, franchises, licenses and privileges necessary to the conduct of its business, and (iii) maintain its qualification to do business in each jurisdiction where the nature of its business makes such qualification necessary, in each case of the foregoing clauses (ii) and (iii), except where the failure to do so could not reasonably be expected to have a Material Adverse Effect.
5.04 Fundamental Changes. Guarantor will not dissolve, liquidate, or wind up its affairs, or be a party to any transaction of merger or consolidation in which Guarantor merges or consolidates with or into another Person, unless Guarantor is the surviving entity.
5.05 Maintenance of Capital. The Guarantor shall retain and maintain sufficient capital or access to capital to satisfy its obligations under this Guaranty.
5.06 Further Assurances. At any time or from time to time upon the request of Blue Torch, the Guarantor will, at its expense, promptly execute, acknowledge, and deliver such further documents and do such other acts and things as Blue Torch may reasonably request in order to effect fully the purposes of this Guaranty. In furtherance and not in limitation of the foregoing, the Guarantor shall take such actions as Blue Torch may reasonably request from time to time to ensure that the Guaranteed Obligations are guaranteed by the Guarantor.
6. Guarantor Event of Default. Any or each of the following shall constitute an event of default (each, a “Guarantor Event of Default”):
6.01 Payment or Bankruptcy Event of Default. An Event of Default shall occur under Section 8.01(a), Section 8.01(f) and/or Section 8.01(g) of the Credit Agreement.
6.02 Covenants. The Guarantor shall fail to perform or comply with any term or condition contained in Section 5 or any other section of this Guaranty.
6.03 Representations and Warranties. Any representation, warranty or other certification made or deemed made by or on behalf of the Guarantor under Section 4 or otherwise under or in connection with this Guaranty, or any report, certificate, financial statement or other document furnished or deemed furnished pursuant to or in connection with this Guaranty, shall prove to have been incorrect in any material respect (without duplication of any materiality qualification therein) when made or deemed made.
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6.04 Acceleration. An Event of Default shall occur under the Credit Agreement and/or the other Loan Documents and all or any portion of the Obligations shall become or be declared due and payable (or subject to compulsory repurchase or redemption) or shall require the prepayment, redemption, repurchase or defeasance of, or cause any Loan Party or any of their respective Subsidiaries to make any offer to prepay, redeem, repurchase or defease all or any portion of, the Obligations prior to the stated maturity of all or such portion of the Obligations.
6.05 Involuntary Bankruptcy; Appointment of Receiver, etc. (i) A court of competent jurisdiction shall enter a decree or order for relief in respect of the Guarantor in an involuntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency, or similar law now or hereafter in effect, which decree or order is not stayed, or any other similar relief shall be granted under any applicable federal or state law, or (ii) an involuntary case shall be commenced against the Guarantor under the Bankruptcy Code or under any other applicable bankruptcy, insolvency, or similar law now or hereafter in effect, or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian, or other officer having similar powers over the Guarantor, or over all or a substantial part of its property, shall have been entered, or there shall have occurred the involuntary appointment of an interim receiver, trustee, or other custodian of the Guarantor for all or a substantial part of its property, or a warrant of attachment, execution, or similar process shall have been issued against any substantial part of the property of the Guarantor, and any such event described in this clause (ii) shall continue for 60 days without having been dismissed, bonded, or discharged.
6.06 Voluntary Bankruptcy; Appointment of Receiver, etc. (i) The Guarantor shall have an order for relief entered with respect to it or shall commence a voluntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency, or similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee, or other custodian for all or a substantial part of its property, or the Guarantor shall make any assignment for the benefit of creditors or (ii) the Guarantor shall be unable, or shall fail generally, or shall admit in writing its inability, to pay its debts as such debts become due, or the Board (or similar governing body) of the Guarantor (or any committee thereof with authority therefor) shall adopt any resolution or otherwise authorize any action to approve any of the actions referred to herein or in Section 6.05.
6.07 Invalidity. (i) This Guaranty for any reason shall cease to be in full force and effect (other than in accordance with its terms) or shall be declared to be null and void or the Guarantor shall repudiate its obligations hereunder or (ii) the Guarantor shall contest the validity or enforceability of this Guaranty in writing or deny in writing that it has any further liability under this Guaranty.
7. Miscellaneous.
7.01 Governing Law. THIS GUARANTY SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
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7.02 Forum Selection; Consent to Jurisdiction. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS GUARANTY, SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED THAT NOTHING IN THIS GUARANTY SHALL BE DEEMED OR OPERATE TO PRECLUDE BLUE TORCH FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION FOR PURPOSES OF ENFORCING A FINAL JUDGMENT OF ANY SUCH COURT. EACH OF THE GUARANTOR AND BLUE TORCH HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE. EACH OF THE GUARANTOR AND BLUE TORCH FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. EACH OF THE GUARANTOR AND BLUE TORCH HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
7.03 Waiver of Jury Trial. EACH OF THE GUARANTOR AND BLUE TORCH HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS GUARANTY AND ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY LENDING RELATIONSHIP EXISTING IN CONNECTION WITH ANY OF THE FOREGOING, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
7.04 Notices. All notices, requests, demands, statements, authorizations, approvals, directions, consents and other communications provided for herein shall be given or made in writing and shall be deemed sufficiently given or served for all purposes as of the date (a) when hand delivered, (b) four (4) days after being sent by postage pre-paid registered or certified mail, return receipt requested, (c) one (1) Business Day after being sent by reputable overnight courier service (with delivery evidenced by written receipt and charges prepaid), or (d) by facsimile, when sent, with confirmation in each case addressed to the intended recipient at the “Address for Notices” specified on the signature pages hereto; or, as to any party, at such other address as shall be designated by such party in a notice to each other party. Notices and other communications to Blue Torch hereunder may be delivered or furnished by electronic communications pursuant to procedures approved by Blue Torch. Blue Torch and the Guarantor may, each 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.
7.05 Amendments, Etc. The terms of this Guaranty may be waived, modified and amended only by an instrument in writing duly executed by Blue Torch and the Guarantor. Any such waiver, modification or amendment shall be binding upon Blue Torch and the Guarantor.
7.06 Successors and Assigns. This Guaranty shall be binding upon and inure to the benefit of the respective successors and permitted assigns of the Guarantor and Blue Torch; provided that neither Blue Torch nor the Guarantor may assign or transfer its rights or obligations hereunder without the prior written consent of the other party hereto (and any such purported assignment or transfer shall be null and void); provided further that Blue Torch may assign or transfer its rights hereunder to an Affiliate or a Related Fund of Blue Torch without consent from the Guarantor.
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7.07 Captions. The captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Guaranty.
7.08 Counterparts. This Guaranty may be executed in multiple counterparts, each of which shall be an original and all of which, when taken together, shall constitute one and the same agreement among the parties. Delivery of an executed counterpart of this Guaranty by facsimile or other electronic means shall be equally as effective as delivery of a manually executed counterpart hereof. Any party hereto delivering an executed counterpart hereof by facsimile or other electronic means shall also deliver a manually executed counterpart hereof, but the failure to so deliver a manually executed counterpart hereof shall not affect the validity, enforceability or binding effect hereof.
7.09 Severability. If any provision of this Guaranty shall be held by any court of competent jurisdiction to be unlawful, void or unenforceable for any reason as to any Person or circumstance, such provision or provisions shall be deemed severable from and shall in no way affect the enforceability and validity of the remaining provisions of this Guaranty.
7.10 No Waiver. No failure on the part of Blue Torch to exercise, no delay in exercising, and no course of dealing with respect to, any right or remedy hereunder will operate as a waiver, thereof; nor will any single or partial exercise or any right or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right or remedy.
[Signature Page Follows]
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IN WITNESS WHEREOF, this Guaranty has been duly executed as of the day and year first set forth above.
GUARANTOR: | B. RILEY FINANCIAL, INC. | |
By: | /s/ Bryant R. Riley | |
Name: | Bryant R. Riley | |
Title: | Co-Chief Executive Officer |
Signature Page to Limited Guaranty
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BTC HOLDNGS FUND I, LLC | |||
By: Blue Torch Credit Opportunities Fund I LP, its sole member | |||
By: Blue Torch Credit Opportunities GP LLC, its general partner | |||
By: | /s/ kevin Genda | ||
Name: | Kevin Genda | ||
Title: | Authorized signer |
BTC HOLDINGS FUND I-B, LLC | |||
by: Blue Torch Credit Opportunities Fund I LP, its sole member | |||
by: Blue Torch Credit Opportunities GP LLC, its general partner | |||
By: | /s/ kevin Genda | ||
Name: | Kevin Genda | ||
Title: | Authorized signer | ||
BTC HOLDINGS SC FUND LLC | |||
by: Blue Torch Credit Opportunities SC Master Fund LP, its sole member | |||
by: Blue Torch Credit Opportunities SC GP LLC, its General Partner | |||
By | /s/ Kevin Genda | ||
Name: | Kevin Genda | ||
Title: | Authorized signer |
Signature
Page to Limited Guaranty
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Notice Addresses:
Blue Torch
c/o Blue
Torch Capital
430 Park Avenue
New York NY 10022
Attention: Vuk Djunic
E-mail: VDjunic@bluetorchcapital.com
Telephone: 212-503-5860
With a copy (which shall not constitute notice) to:
Dechert LLP
Three Bryant Park
1095 Avenue of the Americas
New York, New York 10036-6797
Attention: Jay Alicandri
Email: Jay.Alicandri@dechert.com
Telephone: (212) 698-3800
Grantor
B. Riley Financial, Inc.
21255 Burbank Blvd., Suite 400
Woodland Hills, CA 91367
Attn: Alan Forman
E-mail: aforman@brileyfin.com
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Exhibit 10.3
EXECUTION VERSION
LIMITED GUARANTY
THIS LIMITED GUARANTY (this “Guaranty”) is made as of February 14, 2020 by B. Riley Financial, Inc. (the “Guarantor”), in favor of CIBC BANK USA, as administrative agent (in such capacity, the “Administrative Agent”) for the financial institutions that are or may from time to time become parties to the Credit Agreement (as hereafter defined).
RECITALS
A. Franchise Group Intermediate L 2, LLC, a Delaware limited liability company (the “Borrower”), the financial institutions that are or may from time to time become parties thereto as lenders (the “Lenders”) and the Administrative Agent are parties to that certain Credit Agreement, dated as of May 16, 2019 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), pursuant to which the Lenders agreed to extend credit and make certain financial accommodations available to the Borrower (the “Loans”). Capitalized terms not otherwise defined herein shall have the meanings specified in the Credit Agreement.
B. Certain Affiliates of the Borrower (the “Borrower Affiliates”) are entering into that certain Credit Agreement, dated as of February 14, 2020 (as amended, restated, supplemented or otherwise modified from time to time, the “GACP Credit Agreement”), by and among Franchise Group Intermediate Holdco, LLC, as a borrower, the other “Borrowers” referred to therein, the “Guarantors” referred to therein, the lenders from time to time party thereto, GACP Finance Co., LLC, as administrative agent (“GACP”), and Kayne Solutions Fund, L.P., as collateral agent (together with GACP and the lenders thereunder, the “GACP Secured Parties”).
C. The Borrower has requested that the Administrative Agent and the Lenders consent to a second lien on the Collateral in favor of the GACP Secured Parties (the “Second Lien”), in order to induce the GACP Secured Parties to enter into the GACP Credit Agreement and extend credit to the Borrower Affiliates thereunder.
D. The Guarantor is a direct or indirect owner of GACP and will benefit directly and indirectly from the Second Lien.
E. As an inducement to and as one of the conditions precedent to the agreement of the Administrative Agent and the Lenders to enter into an amendment to the Credit Agreement of even date herewith (the “Sixth Credit Agreement Amendment”) and certain related transactions, including the consent to the Second Lien, the Administrative Agent and the Lenders have required the execution and delivery of this Guaranty, whereby the Guarantor shall guarantee the payment when due of all Guaranteed Obligations (as defined below), including, without limitation, all principal, interest, and other amounts that shall be at any time payable by the Borrower under the Credit Agreement or the other Loan Documents.
AGREEMENT
NOW, THEREFORE, in order to induce the Lenders to consummate the transactions contemplated by and related to the Sixth Credit Agreement Amendment, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Guarantor hereby agrees as follows:
1. Guaranty. The Guarantor guarantees the full and prompt payment and performance, when due, whether upon demand, maturity, by required prepayment, acceleration or otherwise, and at all times thereafter, of all of the Secured Obligations which may now be or may hereafter become due and owing (the “Obligations”); provided, however, the Guarantor’s liability under this Guaranty shall be limited to the sum of $125,000,000 (the “Guaranteed Obligations”). The Guarantor hereby agrees to pay all reasonable and documented out-of-pocket fees, costs and expenses (including, without limitation, all court costs and reasonable attorneys’ fees and costs and expenses) paid or incurred by the Administrative Agent in: (1) endeavoring to collect all or any part of the Guaranteed Obligations from, or in prosecuting any action against, the Guarantor in accordance with the terms hereof and (2) preserving, protecting or defending the enforceability of this Guaranty or its rights hereunder (all such costs and expenses are referred to herein collectively as the “Expenses”) (the Guaranteed Obligations together with the Expenses shall be collectively referred to herein as the “B. Riley Obligations”).
2. Payment of Obligations. Upon the occurrence of any Event of Default pursuant to Section 8.1(a) or Section 8.1(b) of the Credit Agreement, at any time, and from time to time, the Guarantor shall pay to the Administrative Agent promptly (and in any event within five (5) Business Days) after the Guarantor’s receipt of written demand therefor and in immediately available funds, all of the Obligations then due and outstanding up to the amount of the Guaranteed Obligations at such time.
3. Guaranty Provisions.
3.01 Obligations Unconditional. The obligations of the Guarantor under this Guaranty are absolute and unconditional, irrespective of the validity or enforceability of the Loan Documents, or any other agreement or instrument referred to herein or therein, or any substitution, release or exchange of any other guaranty of or security for any of the Obligations or the Loans, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Section that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances and shall not be released, discharged or in any way affected or impaired by any thing, event, happening, matter, circumstance or condition whatsoever (whether or not the Guarantor shall have any knowledge or notice thereof or shall consent thereto), other than payment in full, which might otherwise constitute a legal or equitable discharge or defense of a guarantor. In furtherance of the foregoing and without limiting the generality thereof, the Guarantor agrees as follows:
(a) This Guaranty is a guaranty of payment and performance when due and not of collection.
(b) The obligations of the Guarantor hereunder are independent of the obligations of the Borrower and any one or more of the Loan Parties under the other Loan Documents to which they are a party and a separate action or actions may be brought and prosecuted against the Guarantor whether or not any action is brought against the Borrower or any other Loan Party and whether or not the Borrower or any other Loan Party is joined in any such action or actions.
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(c) Payment, performance or completion by the Guarantor, or any other guarantor, of a portion, but not all, of the Guaranteed Obligations shall in no way limit, affect, modify or abridge the Guarantor’s liability for any portion of the Guaranteed Obligations which has not been paid, performed or completed. Without limiting the generality of the foregoing, if the Administrative Agent or any Lender is awarded a judgment in any suit brought to enforce the Guarantor’s or any other guarantor’s covenants to pay any of the Guaranteed Obligations, such judgment shall not be deemed to release the Guarantor from its covenant to pay any of the Guaranteed Obligations that is not the subject of such suit, and such judgment shall not, except to the extent satisfied by such Guarantor, limit, affect, modify or abridge such Guarantor’s liability hereunder in respect of the Guaranteed Obligations.
(d) The Administrative Agent and the Lenders (subject to the terms of the Loan Documents), upon such terms as the Required Lenders or the Lenders, as the case may be, deem appropriate, may (i) renew, extend, accelerate, increase the rate of interest on, or otherwise change the time, place, manner or terms of payment or performance under the Loan Documents, (ii) settle, compromise, release or discharge, or accept or refuse any offer of performance with respect to, or substitutions for, the Obligations or any Loan Document and/or subordinate the payment of the same to the payment of any other obligations; (iii) request and accept other guaranties of any of the Borrower’s obligations under the Loan Documents and take and hold security for the payment or performance of this Guaranty or the Loan Documents; (iv) release, surrender, exchange, substitute, compromise, settle, rescind, waive, alter, subordinate or modify, with or without consideration, any security for payment or performance of the Borrower’s obligations under the Loan Documents, any other guaranties of the Obligations, or any other obligation of any Person with respect to the Obligations; (v) enforce and apply any security now or hereafter held by or for the benefit of the Administrative Agent and the Lenders in respect of this Guaranty or the Obligations and direct the order or manner of sale thereof, and to bid at any such sale, or exercise any other right or remedy that the Administrative Agent and the Lenders may have against any such security, in each case as in its discretion may determine consistent with any applicable security agreement, including foreclosure on any such security pursuant to one or more judicial or non-judicial sales, even though such action operates to impair or extinguish any right of reimbursement or subrogation or other right or remedy of the Guarantor against the Borrower or Borrower Affiliates or any security for the Obligations; and (vi) exercise any other rights available to them under the Loan Documents. The Guarantor authorizes the Administrative Agent at any time in its discretion to direct the order and manner of any sale of all or any part of any security now or later held for the Obligations and to bid at any such sale, to apply any payments or recoveries from the Borrower, the Guarantor or any other source, and any proceeds of any security, to the Obligations in such manner, order and priority as set forth in the Credit Agreement (whether or not those obligations are guaranteed by this Guaranty or secured at the time of the application). The Administrative Agent and the Lenders may take any of the foregoing actions upon any terms and conditions as the Required Lenders or the Lenders, as the case may be, may elect, without giving notice to, or making any demand upon, the Guarantor, and without affecting the validity or enforceability of this Guaranty, or giving rise to any reduction, limitation, impairment, discharge or termination of the Guarantor’s liability hereunder.
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(e) Except as otherwise expressly provided in this Guaranty, this Guaranty and the obligations of the Guarantor hereunder shall be valid and enforceable and shall not be subject to any reduction, limitation, impairment, discharge or termination for any reason (other than payment in full of the B. Riley Obligations or termination pursuant to Section 3.07 hereof), including without limitation the occurrence of any of the following, whether or not the Guarantor shall have had notice or knowledge of any of them: (i) any failure or omission to assert or enforce, or agreement or election not to assert or enforce, or the stay or enjoining, by order of court, by operation of law or otherwise, of the exercise or enforcement of, any claim or demand or any right, power or remedy (whether arising under the Loan Documents, at law, in equity or otherwise) with respect to the Obligations or the Loan Documents, or with respect to any other guaranty of or security for the payment or performance of the Obligations; (ii) any rescission, waiver, amendment or modification of, or any consent to departure from, any of the terms or provisions (including without limitation provisions relating to events of default) of the Loan Documents or of any other guaranty or security for the Obligations, in each case whether or not in accordance with the terms of the Loan Documents or any agreement relating to such other guaranty or security; (iii) the application of payments received from any source (other than payments received pursuant to this Guaranty or the other Loan Documents or from the proceeds of any security for the Obligations except to the extent such security also serves as collateral for indebtedness other than the Obligations) to the payment of indebtedness other than the Loans, even though the Lenders might have elected to apply such payment to any part or all of the Obligations; (iv) the consent of the Required Lenders or the Lenders, as the case may be, to the change, reorganization or termination of the ownership structure or existence of the Borrower or any of its Affiliates and to any corresponding restructuring of the Loans, including, without limitation, the Obligations; (v) any failure to perfect or continue perfection of a security interest in any collateral which secures any of the Obligations; (vi) the acquisition or transfer of title to any real property covered by any Mortgage to the Administrative Agent, any Lender, any Affiliate of any Lender or any designee of any Lender (including, without limitation, any purchaser through foreclosure, deed in lieu or otherwise); (vii) any act or event which might otherwise discharge, reduce, limit or modify any of the Guarantor’s obligations under this Guaranty; (viii) any waiver, extension, modification, forbearance, delay or other act or omission of the Lenders, or their failure to proceed promptly or otherwise as against the Borrower, any other Loan Party or the Guarantor or any security; (ix) any action, omission or circumstance which might increase the likelihood that the Guarantor may be called upon to perform under this Guaranty or which might affect the rights or remedies of the Guarantor as against the Borrower or Borrower Affiliates; (x) any dealings occurring at any time between the Borrower and the Lenders, whether relating to the Obligations or otherwise; and (xi) any other act or thing or omission, or delay to do any other act or thing, which may or might in any manner or to any extent vary the risk of the Guarantor as obligors in respect of the Guaranteed Obligations.
3.02 Waivers by the Guarantors. The Guarantor hereby waives, for the benefit of the Administrative Agent and the Lenders, to the fullest extent permitted by applicable law:
(i) any right to require the Administrative Agent or any Lender, as a condition of payment or performance by the Guarantor, to (A) proceed against the Borrower, any other Loan Party or any other Person, (B) proceed against or exhaust any security held from the Borrower, any other Loan Party, the Guarantor or any other Person, (C) proceed against or have resort to any balance of any deposit account or credit on the books of any Lender in favor of the Borrower, any other Loan Party or any other Person, or (D) pursue any other remedy in the power of the Administrative Agent or any Lender whatsoever;
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(ii) any defense arising by reason of the incapacity, lack of authority or any disability or other defense of the Borrower, including, without limitation, any defense based on or arising out of the lack of validity or the unenforceability of the Obligations or any agreement or instrument related thereto or by reason of the cessation of the liability of the Borrower from any cause other than payment and performance in full of the Obligations or termination pursuant to Section 3.07 hereof;
(iii) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal;
(iv) any defense based upon the Administrative Agent’s or any Lender’s errors or omissions in the administration of the Loans;
(v) (A) any principles or provisions of law, statutory or otherwise, which are or might be in conflict with the terms of this Guaranty and any legal or equitable discharge of the Guarantor’s obligations hereunder (other than payment, performance and completion of the B. Riley Obligations in full or termination pursuant to Section 3.07 hereof), (B) the benefit of any statute of limitations affecting the Guarantor’s liability hereunder or the enforcement hereof, (C) any rights to set-offs, recoupments and counterclaims which may at any time be available to or be asserted by the Borrower or any other Person against the Administrative Agent or any Lender, including without limitation any defenses available to a surety (all of which defenses are hereby waived), and (D) promptness, diligence and any requirement that the Administrative Agent or any Lender protect, secure, perfect or insure any security interest or lien or any property subject thereto;
(vi) except as otherwise expressly required under Sections 1, 2 and 3.07 hereof, notices, demands, presentments, protests, notices of protest, notices of dishonor and notices of any action or inaction, notices of default under the other Loan Documents or any agreement or instrument related thereto, notices of any renewal, extension or modification of the Obligations or any agreement related thereto, notices of any extension of credit to the Borrower and any right to consent to any thereof;
(vii) any release, discharge, modification, impairment or limitation of the liability of the Borrower to the Administrative Agent or any Lender, whether consented to by the Administrative Agent, the Required Lenders or the Lenders, as the case may be, consensual or arising by operation of law or any proceedings in bankruptcy or reorganization or from any other cause;
(viii) any defense based on any rejection or disaffirmance of the Obligations, or any part thereof, or any security held therefor, in any such proceedings in bankruptcy or reorganization;
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(ix) any defense based on any action taken or omitted by the Administrative Agent or any Lender in any proceedings in bankruptcy or reorganization involving the Borrower or other Loan Party, including any election to have their claim allowed as being secured, partially secured or unsecured, any extension of credit by any Lender to the Borrower in any proceedings in bankruptcy or reorganization and the taking and holding by the Administrative Agent or any Lender of any security for any such extension of credit; and
(x) any defense or benefits that may be derived from or afforded by law which limit the liability of or exonerate guarantors or sureties, or which may conflict with the terms of this Guaranty, other than payment or performance of the B. Riley Obligations in full or termination pursuant to Section 3.07 hereof.
3.03 Reinstatement. The obligations of the Guarantor under this Guaranty shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of the Borrower, another Loan Party or the Guarantor in respect of the Obligations is rescinded or must be otherwise restored by any holder of the Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise.
3.04 Guarantor’s Rights of Subrogation, Contribution, Etc. The Guarantor hereby waives, until the Termination Date, any claim, right or remedy, direct or indirect, that the Guarantor now has or may hereafter have against the Borrower or any other Loan Party, or any of their respective assets, in connection with this Guaranty or the performance by the Guarantor of its obligations hereunder, in each case whether such claim, right or remedy arises in equity, under contract, by statute, under common law or otherwise and, including without limitation, (i) any right of subrogation, reimbursement or indemnification that the Guarantor now has or may hereafter have against the Borrower or any other Loan Party, (ii) any right to enforce, or to participate in, any claim, right or remedy that the Administrative Agent or any Lender now has or may hereafter have against any Borrower or any other Loan Party, and (iii) any benefit of, and any right to participate in, any collateral or security now or hereafter held by or on behalf of the Administrative Agent or any Lender. In addition, until the Termination Date, the Guarantor shall withhold exercise of any right of contribution which the Guarantor may have against any other guarantor of the Obligations. The Guarantor further agrees that, to the extent the waiver or agreement to withhold the exercise of its right of subrogation, reimbursement, indemnification and contribution as set forth herein is found by a court of competent jurisdiction to be void or voidable for any reason, any rights of subrogation, reimbursement or indemnification the Guarantor may have against the Borrower or any other Loan Party, or against any collateral or security, and any rights of contribution the Guarantor may have against any other guarantor, shall be junior and subordinate to any rights the Administrative Agent or the Lenders may have against the Borrower and the Loan Parties, to all right, title and interest the Administrative Agent or the Lenders may have in any such collateral or security, and to any right the Administrative Agent or any Lender may have against such other guarantor. If any amount shall be paid to the Guarantor on account of any such subrogation, reimbursement, indemnification or contribution rights at any time prior to the Termination Date, such amount shall be held in trust for the Administrative Agent and the Lenders and shall forthwith be paid over to the Administrative Agent to be credited and applied against the Obligations, whether matured or unmatured, in accordance with the terms hereof. The Guarantor agrees that it is not a surety and waives any right that it may have as a surety to require that the Administrative Agent commence action against the Borrower, any other Loan Party or any other person or against any of the Collateral.
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3.05 Subordination of Other Obligations. Any Indebtedness of the Borrower or any other Loan Party now or hereafter held by the Guarantor is hereby subordinated in right of payment to the Obligations, and any such Indebtedness collected or received by the Guarantor after an Event of Default pursuant to Section 8.1(a) or 8.1(b) of the Credit Agreement has occurred and is continuing shall be held in trust for the Administrative Agent and the Lenders and shall forthwith be paid over to the Administrative Agent to be credited and applied against the Guaranteed Obligations if any are then due but without affecting, impairing or limiting in any manner the liability of the Guarantor under any other provision of this Guaranty.
3.06 Remedies.
(a) The Guarantor agrees that, notwithstanding anything set forth in this Guaranty to the contrary, if for whatever reason, the Administrative Agent or any Lender is prevented by applicable law or the terms of any subordination agreement from exercising any of its rights to receive payment from the Borrower of all or any part of the Obligations, to collect interest on all or any part of the Obligations or to enforce or exercise any other right or remedy with respect to all or any part of the Obligations, or is prevented from taking any action to realize on all or any part of the collateral securing the Obligations or the liabilities of the Borrower and such occurrence results in, or occurs during the continuance of, an Event of Default pursuant to Section 8.1(a) or Section 8.1(b) of the Credit Agreement, the Guarantor agrees to pay to the Administrative Agent, within five (5) Business Days after receipt of written demand therefor and in immediately available funds, the amount that would otherwise have been due and payable had such rights and remedies been permitted to be exercised by the Administrative Agent up to the amount of the Guaranteed Obligations at such time.
(b) All of the remedies set forth in this Guaranty and/or provided for in any of the Loan Documents or at law (including without limitation the right of set-off) or in equity shall be equally available to the Administrative Agent and any Lender, and the choice by the Administrative Agent of one such alternative over another shall not be subject to question or challenge by the Guarantor or any other Person, nor shall any such choice be asserted as a defense, setoff, or failure to mitigate damages in any action, proceeding, or counteraction by the Administrative Agent or any Lender to recover or seek any other remedy under this Guaranty, nor shall any such choice preclude the Administrative Agent or any Lender from subsequently electing to exercise a different remedy; provided that only the Administrative Agent shall be entitled to enforce this Guaranty.
3.07 Continuing Guaranty. This Guaranty is a continuing guaranty and shall remain in effect until the earlier of (a) the date that the Guaranteed Obligations and Expenses have been paid in full and (b) June 30, 2020 (such earlier date, the “Termination Date”); provided, however, that if the Administrative Agent has exercised any of its rights or remedies hereunder prior to June 30, 2020, the Termination Date shall be the date in clause (a).
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3.08 Assumption of Risk Regarding Loan Parties’ Financial Condition. Before signing this Guaranty, the Guarantor investigated the financial condition and business operations of the Borrower and the other Loan Parties and such other matters as the Guarantor deemed appropriate to assure themselves of the Borrower’s and other Loan Parties’ ability to discharge their respective obligations under the Loan Documents. The Guarantor assumes full responsibility for keeping fully informed of the financial condition of the Borrower and the other Loan Parties and all other circumstances affecting the Borrower’s and the other Loan Parties’ ability to perform their respective obligations to the Lenders, and agree that none of the Administrative Agent or any of the Lenders will have any duty to report to the Guarantor any information which it receives about the Borrower’s or any Loan Party’s financial condition or any circumstances bearing on the Borrower’s or any Loan Party’s ability to perform.
3.09 [Reserved].
4. Representations and Warranties. The Guarantor hereby represents and warrants to the Administrative Agent as of the date hereof that:
4.01 No Breach. None of the execution and delivery of this Guaranty, the consummation of the transactions herein contemplated or compliance by the Guarantor with the terms and provisions hereof will conflict with or result in a breach of, or require any consent under any applicable law or regulation, or any order, writ, injunction or decree of any court or governmental authority or agency, or any agreement or instrument to which the Guarantor is a party or by which it is bound or to which it is subject, or constitute a default under any such agreement or instrument, or result in the creation or imposition of any lien upon any of the revenues or assets of the Guarantor pursuant to the terms of any such agreement or instrument.
4.02 Action. This Guaranty has been duly and validly executed and delivered by the Guarantor and constitutes its legal, valid and binding obligation, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws of general application affecting the enforcement of creditors’ rights.
4.03 Litigation. Except as disclosed to the Lenders in writing prior to the date of this Guaranty, there are no legal or arbitration proceedings or any proceedings by or before any Governmental Authority, now pending or (to the knowledge of the Guarantor) threatened against the Guarantor which could cause (a) a material impairment of the ability of the Guarantor, taken as a whole, to perform any of its obligations hereunder, (b) a material adverse effect upon the legality, validity, binding effect or enforceability against the Guarantor of this Guaranty, or (c) a material impairment of the ability of the Administrative Agent to enforce this Guaranty (the foregoing clauses (a) through (c), each, a “Material Adverse Effect”).
4.04 Organization. The Guarantor is validly existing and in good standing under the laws of its jurisdiction of organization; and the Guarantor is duly qualified to do business in each jurisdiction where, because of the nature of its activities or properties, such qualification is required, except for such jurisdictions where the failure to so qualify could not reasonably be expected to have a Material Adverse Effect.
4.05 Authorization. The Guarantor is duly authorized to execute and deliver this Guaranty and perform its obligations hereunder.
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5. Covenants. The Guarantor covenants to the Lender that, until the Termination Date:
5.01 Compliance with Laws. The Guarantor will comply with the requirements of all applicable laws, rules, regulations and orders of governmental or regulatory authorities if failure to comply with such requirements would reasonably be expected to have a Material Adverse Effect (either individually or in the aggregate), except to the extent being contested in good faith and by proper proceedings and against which adequate reserves are being maintained.
5.02 Litigation. The Guarantor will promptly give the Administrative Agent notice of all legal or arbitral proceedings, and of all proceedings by or before any governmental or regulatory authority or agency, affecting the Guarantor, except proceedings which would not reasonably be expected to have a Material Adverse Effect.
6. No Waiver. No failure on the part of the Administrative Agent or any Lender to exercise, no delay in exercising, and no course of dealing with respect to, any right or remedy hereunder will operate as a waiver, thereof; nor will any single or partial exercise or any right or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right or remedy.
7. Miscellaneous.
7.01 Governing Law. THIS GUARANTY SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
7.02 Forum Selection; Consent to Jurisdiction. ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE THE ADMINISTRATIVE AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION FOR PURPOSES OF ENFORCING A FINAL JUDGMENT OF ANY SUCH COURT. EACH OF THE GUARANTOR AND THE ADMINISTRATIVE AGENT HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE. EACH OF THE GUARANTOR AND THE ADMINISTRATIVE AGENT FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. EACH OF THE GUARANTOR AND THE ADMINISTRATIVE AGENT HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
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7.03 Waiver of Jury Trial. EACH OF THE GUARANTOR, ADMINISTRATIVE AGENT AND EACH LENDER HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS GUARANTY AND ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY LENDING RELATIONSHIP EXISTING IN CONNECTION WITH ANY OF THE FOREGOING, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
7.04 Notices. All notices, requests, demands, statements, authorizations, approvals, directions, consents and other communications provided for herein shall be given or made in writing and shall be deemed sufficiently given or served for all purposes as of the date (a) when hand delivered, (b) four (4) days after being sent by postage pre-paid registered or certified mail, return receipt requested, (c) one (1) Business Day after being sent by reputable overnight courier service (with delivery evidenced by written receipt and charges prepaid), or (d) by facsimile, when sent, with confirmation in each case addressed to the intended recipient at the “Address for Notices” specified on the signature pages hereto; or, as to any party, at such other address as shall be designated by such party in a notice to each other party. Notices and other communications to the Administrative Agent hereunder may be delivered or furnished by electronic communications pursuant to procedures approved by the Administrative Agent. The Administrative Agent and the Guarantor may, each 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.
7.05 Amendments, Etc. The terms of this Guaranty may be waived, modified and amended only by an instrument in writing duly executed by the Administrative Agent and the Guarantor. Any such waiver, modification or amendment shall be binding upon the Administrative Agent and the Guarantor.
7.06 Successors and Assigns. This Guaranty shall be binding upon and inure to the benefit of the respective successors and assigns of the Guarantor and the Administrative Agent (provided, however, that the Guarantor shall not assign or transfer its rights or obligations hereunder without the prior written consent of the Administrative Agent). Without notice to or the consent of the Guarantor, the Administrative Agent and the Lenders may disclose any and all information in its possession concerning the Guarantor, this Guaranty and any security for this Guaranty to any actual or prospective purchaser, assignee or pledgee of any participation or other interest in the Loans, the Obligations and this Guaranty so long as such actual or prospective purchaser, assignee or pledgee agrees to be bound by the terms of Section 10.14 of the Credit Agreement.
7.07 Captions. The captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Guaranty.
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7.08 Counterparts. This Guaranty may be executed in multiple counterparts, each of which shall be an original and all of which, when taken together, shall constitute one and the same agreement among the parties. Delivery of an executed counterpart of this Guaranty by facsimile or other electronic means shall be equally as effective as delivery of a manually executed counterpart hereof. Any party hereto delivering an executed counterpart hereof by facsimile or other electronic means shall also deliver a manually executed counterpart hereof, but the failure to so deliver a manually executed counterpart hereof shall not affect the validity, enforceability or binding effect hereof.
7.09 Severability. If any provision of this Guaranty shall be held by any court of competent jurisdiction to be unlawful, void or unenforceable for any reason as to any Person or circumstance, such provision or provisions shall be deemed severable from and shall in no way affect the enforceability and validity of the remaining provisions of this Guaranty.
7.10 Authority of the Administrative Agent. The Guarantor acknowledges that the rights and responsibilities of the Administrative Agent under this Guaranty with respect to any action taken by the Administrative Agent or the exercise or non- exercise by the Administrative Agent of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Guaranty shall, as between the Administrative Agent and the Lenders, be governed by the Credit Agreement and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Administrative Agent and the Guarantor, the Administrative Agent shall be conclusively presumed to be acting as agent for the Lenders with full and valid authority so to act or refrain from acting, and the Guarantor shall be under no obligation, or entitlement, to make any inquiry respecting such authority.
[Signature Page Follows]
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IN WITNESS WHEREOF, this Guaranty has been duly executed as of the day and year first set forth above.
GUARANTOR: | B. RILEY FINANCIAL, INC. | |
By: | /s/ Bryant R. Riley | |
Name: | Bryant R. Riley | |
Title: | Co-Chief Executive Officer |
Signature Page to Limited Guaranty
ADMINISTRATIVE AGENT: | ||
CIBC BANK USA, as Administrative Agent | ||
By: | /s/ Javier Gutierrez | |
Name: | Javier Gutierrez | |
Title: | Managing Director |
Signature Page to Limited Guaranty
Notice Addresses:
CIBC Bank USA
120 S. LaSalle Street
Chicago, IL 60603
Attn: Javier Gutierrez
Tel: 786-749-3097
E-mail: javier.gutierrez2@cibc.com
B. Riley Financial, Inc.
21255 Burbank Blvd., Suite 400
Woodland Hills, CA 91367
Attn: Alan Forman
E-mail: aforman@brileyfin.com
Exhibit 10.4
Portions of this exhibit marked by [***] have been omitted pursuant to Rule 601(b)(10) of Regulation S-K. The omitted information is not material and, if publicly disclosed, would likely cause competitive harm to the registrant.
AMENDMENT NO. 20 TO CREDIT AGREEMENT
This AMENDMENT NO. 20 TO CREDIT AGREEMENT (this “Amendment”), dated as of January 31, 2020, is among BABCOCK & WILCOX ENTERPRISES, INC., a Delaware corporation (the “Borrower”), BANK OF AMERICA, N.A., in its capacity as administrative agent for the Lenders (as defined in the Credit Agreement described below) (in such capacity, the “Administrative Agent”), and each of the Lenders party hereto, and, for purposes of Sections 1, 4, 7, 8 and 10 hereof, acknowledged and agreed by certain Subsidiaries of the Borrower, as Guarantors.
W I T N E S S E T H:
WHEREAS, the Borrower, the Administrative Agent and the Lenders have entered into that certain Credit Agreement, dated as of May 11, 2015 (as amended by Amendment No. 1 to Credit Agreement, dated as of June 10, 2016, Amendment No. 2 to Credit Agreement, dated as of February 24, 2017, Amendment No. 3 to Credit Agreement, dated as of August 9, 2017, Amendment No. 4 to Credit Agreement, dated as of September 20, 2017, Amendment No. 5 to Credit Agreement, dated as of March 1, 2018, Amendment No. 6 to Credit Agreement, dated as of April 10, 2018, Consent and Amendment No. 7 to Credit Agreement, dated as of June 1, 2018, Amendment No. 8 to Credit Agreement, dated as of August 9, 2018, Amendment No. 9 and Consent to Credit Agreement, dated as of September 14, 2018, Amendment No. 10 to the Credit Agreement, dated as of September 28, 2018, Amendment No. 11 to the Credit Agreement, dated as of October 4, 2018, Amendment No. 12 to the Credit Agreement, dated as of October 31, 2018, Amendment No. 13 to the Credit Agreement, dated as of December 19, 2018, Amendment No. 14 to the Credit Agreement, dated as of January 15, 2019, Amendment No. 15 and Limited Waiver to the Credit Agreement, dated as of March 19, 2019, Amendment No. 16 to the Credit Agreement, dated as of April 5, 2019, Amendment No. 17 to the Credit Agreement, dated as of August 7, 2019, Amendment No. 18 to the Credit Agreement, dated as of December 31, 2019, and Amendment No. 19 to the Credit Agreement, dated as of January 17, 2020 and from time to time further amended, supplemented, restated, amended and restated or otherwise modified, the “Credit Agreement”; capitalized terms used in this Amendment not otherwise defined herein shall have the respective meanings given thereto in the Credit Agreement (as amended hereby), pursuant to which the Revolving Credit Lenders have provided the Revolving Credit Facility to the Borrower and the Term Loan Lenders have provided the Term Loan Facility to the Borrower; and
WHEREAS, the Borrower has requested that (i) the Administrative Agent and the Required Lenders agree to, among other items, add an additional term loan tranche under the existing Term Loan Facility and the extension of credit and related obligations and liabilities arising from time to time thereunder shall be on a subordinated basis to the Revolving Credit Facility and (ii) the Administrative Agent, the L/C Issuers and the Revolving Credit Lenders agree to extend certain of their commitments upon the occurrence of certain events by amending and restating the Credit Agreement substantially in accordance with the Term Sheet attached hereto as Annex A (the “Refinancing Term Sheet”), and the Lenders and L/C Issuers signatory hereto are willing to consent to effect such amendments on the terms and conditions contained in this Amendment.
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NOW, THEREFORE, in consideration of the premises and further valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
1. | Initial Amendments to the Credit Agreement. |
The Credit Agreement is, effective as of the Amendment No. 20 Effective Date (as defined below), hereby amended as follows:
(a) | The
Credit Agreement shall be amended by deleting the stricken text (indicated textually in the same manner as the following example: |
(b) | Schedule 2.01 (Commitments and Applicable Percentages) to the Credit Agreement is hereby amended and restated in its entirety in the form set out on Annex C hereto. |
(c) | Exhibit A (Committed Loan Notice) to the Credit Agreement is hereby amended and restated in its entirety in the form set out on Annex D hereto. |
(d) | Exhibit E-1 (Assignment and Assumption) to the Credit Agreement is hereby amended and restated in its entirety in the form set out on Annex E hereto. |
2. | Joinder |
From and after the Amendment No. 20 Effective Date, pursuant to Section 10.01 of the Credit Agreement, each Tranche A-4 Term Loan Lender and Tranche A-5 Term Loan Lender executing this Amendment shall become a party to the Credit Agreement (to the extent not already a party) and have the rights and obligations of a Term Loan Lender thereunder and under the other Loan Documents and shall be bound by the provisions thereof.
3. | Subsequent Amendment and Restatement to the Credit Agreement |
(a) | Upon the occurrence of each “Conditions Precedent to the Refinancing Transaction” set forth on Annex F hereto, the Administrative Agent, the Lenders and the L/C Issuers hereby agree to amend and restate the Credit Agreement substantially in accordance with the terms and conditions set forth in the Refinancing Term Sheet and in form and substance satisfactory to the Administrative Agent and the Loan Parties. |
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(b) | Notwithstanding the above, nothing in this Section 3 shall be deemed a consent by the Administrative Agent, any Lender or any L/C Issuer to any amendment, waiver or modification to the Credit Agreement if the consent of the Administrative Agent, such Lender or such L/C Issuer would be required under Section 10.01 of the Credit Agreement, except to the extent expressly set forth in the Refinancing Term Sheet. |
(c) | Condition precedent 5 [Flood Diligence] listed on Annex F hereto shall not be waived without the consent of each Revolving Credit Lender. |
(d) | Upon the satisfaction of condition precedent 18 [Return of Certain Letters of Credit] listed on Annex F hereto, Credit Agricole Corporate and Investment Bank and its affiliates shall be deemed to have been removed in its capacity as L/C Issuer under the Credit Agreement, and Credit Agricole Corporate and Investment Bank consents to such removal. |
4. | Additional Agreements and Acknowledgments |
(a) | The Borrower agrees to pay, or cause to be paid, to the Administrative Agent, for the account of each Revolving Credit Lender who consented to this Amendment by executing and delivering to the Administrative Agent a signature page hereto on or prior to the Amendment No. 20 Effective Date, an amendment fee equal to 100 basis points (1.00%) of the portion of the Revolving Credit Facility held by such consenting Revolving Credit Lender as of the Amendment No. 20 Effective Date which fees shall be earned on the Amendment No. 20 Effective Date and shall be payable in immediately available funds upon the Amendment No. 20 Effective Date (the fees under this Section 4(a)(i), the “Amendment Fees”). |
(b) | The Borrower and the other Loan Parties shall promptly provide the Administrative Agent and advisors to the Lenders with any information (financial or otherwise) that the Administrative Agent or advisors to the Lenders reasonably request, including, without limitation, projections, forecasts, budgets and information regarding liquidity, cash flow, proposed financing activities (equity or debt) and proposed corporate transactions (including, any contemplated sales or mergers); provided, that the Borrower shall notify the Administrative Agent whether or not such information constitutes material non-public information. |
(c) | Each of the Borrower and the other Loan Parties hereby jointly and severally agrees, on demand, to reimburse the Administrative Agent and the Revolving Credit Lenders for all reasonable and out-of-pocket costs and expenses of the Administrative Agent and the Revolving Credit Lenders related to or in connection with this Amendment and any documents, agreements or instruments referred to herein, including, without limitation, the reasonable fees and out-of-pocket expenses of Freshfields Bruckhaus Deringer US LLP (the “Agent’s Legal Advisor”), FTI, and any consultants, including any engineering consultant, attorneys or other professionals retained by the Administrative Agent and/or the Lenders in connection with the Loan Documents, including without limitation, in connection with (i) the negotiation and preparation of this Amendment, the enforcement of their rights and remedies under this Amendment, and (ii) the negotiation, documentation and analysis related to any “work out,” amendment to the Credit Agreement, or restructuring of the Obligations, or any of the Loan Documents (in each case, whether or not incurred prior to the date of this Amendment). All such fees, costs and expenses shall constitute Obligations under the Credit Agreement secured by the Collateral under the Security Instruments. Nothing in this Amendment shall be intended or construed to hold the Administrative Agent, the Revolving Credit Lenders or any other Secured Party liable or responsible for any expense, liability or obligation of any kind or nature whatsoever (including, without limitation, attorneys’ fees and expenses, other professionals’ fees and expenses, wages, salaries, payroll taxes, withholdings, benefits or other amounts payable by or on behalf of the Loan Parties). |
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(d) | The Borrower, the Administrative Agent, and the Required Lenders reaffirm their agreement to negotiate in good faith modifications to (i) clause (e) of Section 7.03 (Investments) to limit the amount of Investments made by any Loan Party in any Foreign Subsidiary and (ii) clause (h) of Section 7.04 (Asset Sales), clause (b) of Section 7.05 (Restricted Payments), and clauses (a) and (b) of Section 7.06 (Fundamental Changes) to limit certain transactions with Foreign Security Providers. The Borrower reaffirms that the Borrower shall not, and shall cause its Subsidiaries not to, engage in any transactions with respect to its Foreign Subsidiaries outside of the ordinary course of business or outside of past practice prior to the effectiveness of such modifications (other than the Borrower or its Subsidiaries entry into and performance of its obligations under the Vølund Settlement Agreements (as defined below)). |
(e) | As soon as commercially reasonable and in no event later than 15 days after the date hereof (or such longer period as permitted by the Administrative Agent in its sole discretion), the Borrower shall open and maintain the Recovery Event Proceeds Account (as defined in the Credit Agreement, as amended by Amendment No. 20) with the Administrative Agent. |
(f) | The Borrower and the other Loan Parties each acknowledge and agree that the breach or failure to comply in any respect with the terms and conditions of this Section 4 shall constitute an immediate Event of Default under Section 8.01 of the Credit Agreement. |
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5. | Effectiveness; Conditions Precedent. |
The amendments contained herein shall only be effective upon the satisfaction or waiver of each of the following conditions precedent (the date of satisfaction or waiver, the “Amendment No. 20 Effective Date”):
(a) | the Administrative Agent shall have received each of the following documents or instruments in form and substance acceptable to the Administrative Agent: |
(i) | counterparts of this Amendment executed by the Loan Parties, the Administrative Agent, the Tranche A-4 Term Loan Lenders, the Tranche A-5 Term Loan Lenders, the Required Lenders, each Revolving Credit Lender and each L/C Issuer, in its capacity as L/C Issuer; |
(ii) | a certificate of the chief financial officer or treasurer of the Borrower certifying that as of the Amendment No. 20 Effective Date (A) all of the representations and warranties in this Amendment are true and correct in all material respects (or, to the extent any such representation and warranty is modified by a materiality or Material Adverse Effect standard, in all respects) as of such date (except to the extent that such representations and warranties expressly relate to an earlier date, in which case they shall be true and correct in all material respects (or, to the extent any such representation and warranty is modified by a materiality or Material Adverse Effect standard, in all respects) as of such earlier date), (B) no Default shall exist on, or would result from the occurrence of, the Amendment No. 20 Effective Date and (C) that since December 31, 2018, there have not occurred any facts, circumstances, changes, developments or events (other than with respect to the Vølund Projects located at [***] including but not limited to the Borrower or its Subsidiaries’ entry into and performance of its obligations under the settlement agreements with respect to the Vølund Projects located at [***] (the “Vølund Settlement Agreements”)) which, individually or in the aggregate, have constituted or would reasonably be expected to result in, a Material Adverse Effect; |
(iii) | a certificate of the secretary or assistant secretary of each of the Loan Parties that are Domestic Subsidiaries certifying and confirming that (i) attached thereto is a true, correct and complete copy of resolutions duly adopted by the board of directors (or similar governing body) of each such Loan Party, authorizing the execution, delivery and performance of the Amendment and the Loan Documents to which such Loan Party is a party, or is to be, a party, and that such resolutions have not been amended, rescinded or otherwise modified and are in full force and effect in the form adopted; (ii) a true, correct and complete copy of the certificate of incorporation or certificate of formation (or the equivalent organizational documents) of each such Loan Party, together with any amendments thereto, was previously delivered to the Administrative Agent on or prior to April 5, 2019 or is attached thereto, and that the certified charter has not been revoked, amended, rescinded or modified and remains in full force and effect as of the date thereof; (iii) a true, correct, and complete copy of the bylaws, partnership agreement or operation agreement (or the equivalent governing documentation) of each such Loan Party, together with any amendments thereto, was previously delivered to the Administrative Agent on or prior to April 5, 2019 or is attached thereto, and that the bylaws have not been revoked, amended, rescinded or modified and remain in full force and effect as of the date hereof; and (iv) attached thereto is a true, correct and complete list of names, offices and true signatures of the duly qualified, acting and elected or appointed officers of each such Loan Party authorized to sign the Amendment and the Loan Documents to which the such Loan Party is, or is to be, a party and the other agreements, instruments and documents to be delivered by such Loan Party pursuant to the Amendment and the Loan Documents; |
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(iv) | such documents and certifications as the Administrative Agent may reasonably require to evidence that each Loan Party that are Domestic Subsidiaries that each such Loan Party is validly existing and in good standing in its jurisdiction of organization; |
(v) | satisfactory opinions of each of the Loan Parties’ counsel, including the Loan Parties’ in-house counsel, regarding due execution, enforceability and non-contravention of law, in form and substance satisfactory to the Administrative Agent (which opinions shall also retroactively cover the above described scope with respect to Amendment No. 17, Amendment No. 18 and Amendment No. 19 to the extent not previously delivered); |
(vi) | a solvency certificate, executed by a Responsible Officer of the Borrower in form and substance reasonably acceptable to the Administrative Agent, which, among other things, shall certify that the Borrower will be Solvent as of the date hereof; |
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(vii) | a funds flow memorandum, in form and substance reasonably acceptable to the Administrative Agent, detailing the flow of funds in respect to the Tranche A-4 Term Loan Borrowing; |
(viii) | a duly executed copy of a backstop financing commitment letter, between Borrower and B. Riley FBR, Inc., in form and substance satisfactory to the Administrative Agent and the Required Lenders, which fully backstops additional refinancing for the Borrower’s receipt of net cash proceeds of at least $200,000,000 (inclusive of proceeds used to repay Revolving Credit Loans on the effective date of the Refinancing (as defined in the Refinancing Term Sheet)), structured as set forth in the Refinancing Term Sheet. |
(b) | without prejudice to, or limiting the Borrower’s obligations under, Section 10.04 (Expenses; Indemnity; Damage Waiver) of the Credit Agreement, all outstanding fees, costs and expenses due to the Administrative Agent and the Revolving Credit Lenders, including on account of the Agent’s Legal Advisor and FTI, shall have been paid in full to the extent that the Borrower has received an invoice therefor (with reasonable and customary supporting documentation) at least two Business Days prior to the Amendment No. 20 Effective Date (without prejudice to any post-closing settlement of such fees, costs and expenses to the extent not so invoiced); |
(c) | The Administrative Agent shall have received, on account of each Revolving Credit Lender who consented to this Amendment, the Amendment Fees; |
(d) | Each Tranche A-4 Term Loan Lender shall have made the full amount of its Tranche A-4 Term Loan available to the Administrative Agent in Same Day Funds at the Administrative Agent’s Office not later than 1:00 p.m. Eastern time (or such later time as the Administrative Agent may agree in its sole discretion) on the Business Day specified for such Term Loan Borrowing in the applicable Committed Loan Notice; |
(e) | All outstanding fees, costs and expenses in connection with the Amendment due to the Tranche A-4 Term Loan Lenders’ and the Tranche A-5 Term Loan Lender’s advisors and legal counsel, up to an amount not to exceed $20,000, shall have been paid to the extent that the Borrower has received an invoice thereof (with reasonable and customary supporting documentation) and without prejudice to any post-closing settlement of such fees, costs and expenses to the extent not so invoiced; and |
(f) | each of the representations and warranties made by the Borrower in Section 4 hereof shall be true and correct; |
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The Administrative Agent agrees that it will, upon the satisfaction or waiver of the conditions contained in this Section 5, promptly provide written notice to the Borrower, and the Lenders of the effectiveness of this Amendment.
6. | Representations and Warranties. |
In order to induce the Administrative Agent and the Lenders to enter into this Amendment, the Borrower represents and warrants to the Administrative Agent and the Lenders, for itself and for each other Loan Party, as follows:
(a) | that both immediately prior to and immediately after giving effect to this Amendment, no Default or Event of Default exists; |
(b) | the representations and warranties contained in the Credit Agreement (as amended hereby) are true and correct in all material respects on and as of the date hereof (except to the extent that such representations and warranties (i) specifically refer to an earlier date, in which case they shall be true and correct in all material respects as of such earlier date and (ii) contain a materiality or Material Adverse Effect qualifier, in which case such representations and warranties shall be true and correct in all respects); |
(c) | the execution, delivery and performance by the Borrower and the other Loan Parties of this Amendment and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate, limited liability company or partnership action, including the consent of shareholders, partners and members where required, do not contravene any Loan Party or any of its Subsidiaries’ respective Constituent Documents, do not violate any Requirement of Law applicable to any Loan Party or any order or decree of any Governmental Authority or arbiter applicable to any Loan Party and do not require the consent of, authorization by, approval of, notice to, or filing or registration with, any Governmental Authority or any other Person in order to be effective and enforceable; |
(d) | this Amendment has been duly executed and delivered on behalf of the Borrower and the other Loan Parties; |
(e) | this Amendment constitutes a legal, valid and binding obligation of the Borrower and the other Loan Parties enforceable against the Borrower and the other Loan Parties in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, Debtor Relief Laws or similar laws affecting the enforcement of creditors’ rights generally and by general principles of equity; and |
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(f) | as of the date hereof, all Liens, security interests, assignments and pledges encumbering the Collateral, created pursuant to and/or referred to in the Credit Agreement or the other Loan Documents, are valid, enforceable, duly perfected to the extent required by the Loan Documents, non-avoidable, first priority liens, security interests, assignments and pledges (subject to Liens permitted by Section 7.02 of the Credit Agreement), continue unimpaired, are in full force and effect and secure and shall continue to secure all of the obligations purported to be secured in the respective Security Instruments pursuant to which such Liens were granted. |
7. | Consent, Acknowledgement and Reaffirmation of Indebtedness and Liens. |
By its execution hereof, each Loan Party, in its capacity under each of the Loan Documents to which it is a party (including the capacities of debtor, guarantor, grantor and pledgor, as applicable, and each other similar capacity, if any, in which such party has granted Liens on all or any part of its properties or assets, or otherwise acts as an accommodation party, guarantor, indemnitor or surety with respect to all or any part of the Obligations), hereby:
(a) | expressly consents to the amendments and modifications to the Credit Agreement effected hereby; |
(b) | expressly confirms and agrees that, notwithstanding the effectiveness of this Amendment, each Loan Document to which it is a party is, and all of the obligations and liabilities of such Loan Party to the Administrative Agent, the Lenders and each other Secured Party contained in the Loan Documents to which it is a party (in each case, as amended and modified by this Amendment), are and shall continue to be, in full force and effect and are hereby reaffirmed, ratified and confirmed in all respects and, without limiting the foregoing, agrees to be bound by and abide by and operate and perform under and pursuant to and comply fully with all of the terms, conditions, provisions, agreements, representations, undertakings, warranties, indemnities, guaranties, grants of security interests and covenants contained in the Loan Documents; |
(c) | to the extent such party has granted Liens or security interests on any of its properties or assets pursuant to any of the Loan Documents to secure the prompt and complete payment, performance and/or observance of all or any part of its Obligations to the Administrative Agent, the Lenders, and/or any other Secured Party, acknowledges, ratifies, remakes, regrants, confirms and reaffirms without condition, all Liens and security interests granted by such Loan Party to the Administrative Agent for their benefit and the benefit of the Lenders, pursuant to the Credit Agreement and the other Loan Documents, and acknowledges and agrees that all of such Liens and security interests are intended and shall be deemed and construed to continue to secure the Obligations under the Loan Documents, as amended, restated, supplemented or otherwise modified and in effect from time to time, including but not limited to, the Loans made by, and Letters of Credit provided by, the Administrative Agent and the Lenders to the Borrower and/or the other Loan Parties under the Credit Agreement, and all extensions renewals, refinancings, amendments or modifications of any of the foregoing; |
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(d) | agrees that this Amendment shall in no manner impair or otherwise adversely affect any of the Liens and security interests granted in or pursuant to the Loan Documents; and |
(e) | acknowledges and agrees that: (i) the Guaranty and any obligations incurred thereunder, have been provided in exchange for “reasonably equivalent value” (as such term is used under the Bankruptcy Code and applicable state fraudulent transfer laws) and “fair consideration” (as such term is used under applicable state fraudulent conveyance laws) and (ii) each grant or perfection of a Lien or security interest on any Collateral provided in connection with Loan Documents, this Amendment and/or any negotiations with the Administrative Agent and/or the Lenders in connection with a “workout” of the Obligations is intended to constitute, and does constitute, a “contemporaneous exchange for new value” (as such term is used in Section 547 of the Bankruptcy Code). |
8. | Releases; Waivers. |
(a) | By its execution hereof, each Loan Party (on behalf of itself and its Affiliates) and its successors-in-title, legal representatives and assignees and, to the extent the same is claimed by right of, through or under any Loan Party, for its past, present and future employees, agents, representatives, officers, directors, shareholders, and trustees (each, a “Releasing Party” and collectively, the “Releasing Parties”), does hereby remise, release and discharge, and shall be deemed to have forever remised, released and discharged, the Administrative Agent, the Lenders and each of the other Secured Parties, and the Administrative Agent’s, each Lenders’ and each other Secured Party’s respective successors-in-title, legal representatives and assignees, past, present and future officers, directors, affiliates, shareholders, trustees, agents, employees, consultants, experts, advisors, attorneys and other professionals and all other persons and entities to whom any of the foregoing would be liable if such persons or entities were found to be liable to any Releasing Party, or any of them (collectively hereinafter, the “Lender Parties”), from any and all manner of action and actions, cause and causes of action, claims, charges, demands, counterclaims,suits, covenants, controversies, damages, judgments, expenses, liens, claims of liens, claims of costs, penalties, attorneys’ fees, or any other compensation, recovery or relief on account of any liability, obligation, demand or cause of action of whatever nature, whether in law, equity or otherwise (including, without limitation, any so called “lender liability” claims, claims for subordination (whether equitable or otherwise), interest or other carrying costs, penalties, legal, accounting and other professional fees and expenses and incidental, consequential and punitive damages payable to third parties, or any claims arising under 11 U.S.C. §§ 541-550 or any claims for avoidance or recovery under any other federal, state or foreign law equivalent), whether known or unknown, fixed or contingent, joint and/or several, secured or unsecured, due or not due, primary or secondary, liquidated or unliquidated, contractual or tortious, direct, indirect, or derivative, asserted or unasserted, foreseen or unforeseen, suspected or unsuspected, now existing, heretofore existing or which may heretofore have accrued against any of the Lender Parties under the Credit Agreement or any of the other Loan Documents, whether held in a personal or representative capacity, and which are based on any act, fact, event or omission or other matter, cause or thing occurring at or from any time prior to and including the date hereof, in all cases of the foregoing in any way, directly or indirectly arising out of, connected with or relating to the Credit Agreement or any other Loan Document and the transactions contemplated thereby, and all other agreements, certificates, instruments and other documents and statements (whether written or oral) related to any of the foregoing (each, a “Claim” and collectively, the “Claims”), in each case, other than Claims arising from Lender Parties’ gross negligence, fraud, or willful misconduct. Each Releasing Party further stipulates and agrees with respect to all Claims, that it hereby waives, to the fullest extent permitted by applicable law, any and all provisions, rights, and benefits conferred by any applicable U.S. federal or state law, or any principle of common law, that would otherwise limit a release or discharge of any unknown Claims pursuant to this Section 8. |
(b) | By its execution hereof, each Loan Party hereby (i) acknowledges and confirms that there are no existing defenses, claims, subordinations (whether equitable or otherwise), counterclaims or rights of recoupment or setoff against the Administrative Agent, the Lenders or any other Secured Parties in connection with the Obligations or in connection with the negotiation, preparation, execution, performance or any other matters relating to the Credit Agreement, the other Loan Documents or this Amendment and (ii) expressly waives any setoff, counterclaim, recoupment, defense or other right that such Loan Party now has against the Administrative Agent, any Lender or any of their respective affiliates, whether in connection with this Amendment, the Credit Agreement and the other Loan Documents, the transactions contemplated by this Amendment or the Credit Agreement and the Loan Documents, or any agreement or instrument relating thereto. |
10
9. | Entire Agreement. |
This Amendment, the Credit Agreement (including giving effect to the amendments set forth in Section 1 above), and the other Loan Documents (collectively, the “Relevant Documents”), set forth the entire understanding and agreement of the parties hereto in relation to the subject matter hereof and supersedes any prior negotiations and agreements among the parties relating to such subject matter. No promise, condition, representation or warranty, express or implied, not set forth in the Relevant Documents shall bind any party hereto, and no such party has relied on any such promise, condition, representation or warranty. Each of the parties hereto acknowledges that, except as otherwise expressly stated in the Relevant Documents, no representations, warranties or commitments, express or implied, have been made by any party to any other party in relation to the subject matter hereof or thereof. None of the terms or conditions of this Amendment may be changed, modified, waived or cancelled orally or otherwise, except in writing and in accordance with Section 10.01 of the Credit Agreement.
10. | Full Force and Effect of Credit Agreement. |
This Amendment is a Loan Document (and the Borrower and the other Loan Parties agree that the “Obligations” secured by the Collateral shall include any and all obligations of the Loan Parties under this Amendment). Except as expressly modified hereby, all terms and provisions of the Credit Agreement and all other Loan Documents remain in full force and effect and nothing contained in this Amendment shall in any way impair the validity or enforceability of the Credit Agreement or the Loan Documents, or alter, waive, annul, vary, affect, or impair any provisions, conditions, or covenants contained therein or any rights, powers, or remedies granted therein. This Amendment shall not constitute a modification of the Credit Agreement or any of the other Loan Documents or a course of dealing with Administrative Agent or the Lenders at variance with the Credit Agreement or the other Loan Documents such as to require further notice by Administrative Agent or any Lender to require strict compliance with the terms of the Credit Agreement and the other Loan Documents in the future, except in each case as expressly set forth herein. The Borrower acknowledges and expressly agrees that Administrative Agent and the Lenders reserve the right to, and do in fact, require strict compliance with all terms and provisions of the Credit Agreement and the other Loan Documents (subject to any qualifications set forth therein), as amended herein.
11
11. | Counterparts; Effectiveness. |
This Amendment 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. Except as provided in Section 5 above, this Amendment 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 Amendment by facsimile, electronic email or other electronic imaging means (e.g., “pdf” or “tif”) shall be effective as delivery of a manually executed counterpart of this Amendment.
12. | Governing Law; Jurisdiction; Waiver of Jury Trial. |
THIS AMENDMENT AND ANY CLAIMS, CONTROVERSY, DISPUTE OR CAUSE OF ACTION (WHETHER IN CONTRACT OR TORT OR OTHERWISE) BASED UPON, ARISING OUT OF OR RELATING TO THIS AMENDMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. Sections 10.04, 10.14 and 10.15 of the Credit Agreement are hereby incorporated herein by this reference.
13. | Severability. |
If any provision of this Amendment is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Amendment shall not be affected or impaired thereby and (b) the parties shall endeavour 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.
14. | References. |
All references in the Credit Agreement to “this Agreement”, “hereunder”, “hereof” or words of like import referring to the Credit Agreement and each reference to the “Credit Agreement”, (or the defined term “Agreement”, “thereunder”, “thereof” of words of like import referring to the Credit Agreement) in the other Loan Documents shall mean and be a reference to the Credit Agreement as amended hereby and giving effect to the amendments contained in this Amendment.
12
15. | Successors and Assigns. |
This Amendment shall be binding upon the Borrower, the Lenders and the Administrative Agent and their respective successors and assigns, and shall inure to the benefit of the Borrower, the Lenders and the Administrative Agent and the respective successors and assigns of the Borrower, the Lenders and the Administrative Agent.
16. | Lender Acknowledgment. |
Each Lender that has signed this Amendment shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required hereunder 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 Amendment No. 20 Effective Date specifying its objection thereto.
17. | Amendments. |
In addition to any consent required pursuant to Section 3, this Amendment may be amended, supplemented or otherwise modified only by a written agreement signed by the Borrower, the other Loan Parties, the Administrative Agent and the Required Lenders and none of the provisions hereof may be waived without the prior written consent of the Administrative Agent and the Required Lenders.
[Signature pages follow]
13
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be made, executed and delivered by their duly authorized officers as of the day and year first above written.
BABCOCK & WILCOX ENTERPRISES, INC.
By: | /s/ Dwayne M. Petish | |
Name: | Dwayne M. Petish | |
Title: | Treasurer |
Acknowledged and Agreed for purposes of Sections 1, 4, 7, 8 and 10 of the Amendment:
AMERICON EQUIPMENT SERVICES, INC.
AMERICON, LLC
BABCOCK & WILCOX CONSTRUCTION CO., LLC
BABCOCK & WILCOX EBENSBURG POWER, LLC
BABCOCK & WILCOX EQUITY INVESTMENTS, LLC
BABCOCK & WILCOX HOLDINGS, LLC
BABCOCK & WILCOX INDIA HOLDINGS, INC.
BABCOCK & WILCOX INTERNATIONAL SALES AND SERVICE CORPORATION
BABCOCK & WILCOX INTERNATIONAL, INC.
BABCOCK & WILCOX POWER GENERATION GROUP CANADA CORP.
BABCOCK & WILCOX SPIG, INC.
BABCOCK & WILCOX TECHNOLOGY, LLC
BABCOCK & WILCOX DE MONTERREY, S.A. DE C.V.
DELTA POWER SERVICES, LLC
DIAMOND OPERATING CO., INC.
DIAMOND POWER AUSTRALIA HOLDINGS, INC.
[Babcock & Wilcox Enterprises, Inc.
Amendment No. 20 to Credit Agreement Signature Page]
DIAMOND POWER CHINA HOLDINGS, INC.
DIAMOND POWER EQUITY INVESTMENTS, INC.
DIAMOND POWER INTERNATIONAL, LLC
DPS ANSON, LLC
DPS BERLIN, LLC
DPS CADILLAC, LLC
DPS FLORIDA, LLC
DPS GREGORY, LLC
DPS MECKLENBURG, LLC
DPS PIEDMONT, LLC
EBENSBURG ENERGY, LLC
O&M HOLDING COMPANY
POWER SYSTEMS OPERATIONS, INC.
SOFCO EFS HOLDINGS LLC
THE BABCOCK & WILCOX COMPANY
By: | /s/ Dwayne M. Petish | |
Name: | Dwayne M. Petish | |
Title: | Treasurer |
EBENSBURG INVESTORS LIMITED PARTNERSHIP
By: BABCOCK & WILCOX EBENSBURG POWER, LLC, as General Partner
By: | /s/ Dwayne M. Petish | |
Name: | Dwayne M. Petish | |
Title: | Treasurer |
BABCOCK & WILCOX DE MONTERREY, S.A. DE C.V.
By: | /s/ Victor Alfonso Muñoz Pérez | |
Name: | Victor Alfonso Muñoz Pérez | |
Title: | Authorized Person |
[Babcock & Wilcox Enterprises, Inc.
Amendment No. 20 to Credit Agreement Signature Page]
Administrative Agent:
BANK OF AMERICA, N.A., as Administrative Agent
By: | /s/ Bridgett J. Manduk Mowry | |
Name: | Bridgett J. Manduk Mowry | |
Title: | Vice President |
[Babcock
& Wilcox Enterprises, Inc.
Amendment No. 20 to Credit Agreement Signature Page]
Lenders:
BANK OF AMERICA, N.A., as Lender and Swing Line Lender
By: | /s/ Stefanie Tanwar | |
Name: | Stefanie Tanwar | |
Title: | Director |
[Babcock
& Wilcox Enterprises, Inc.
Amendment No. 20 to Credit Agreement Signature Page]
BANK OF AMERICA, N.A., as L/C Issuer
By: | /s/ Stefanie Tanwar | |
Name: | Stefanie Tanwar | |
Title: | Director |
[Babcock
& Wilcox Enterprises, Inc.
Amendment No. 20 to Credit Agreement Signature Page]
BANK OF AMERICA CREDIT PRODUCTS, INC.,
as Lender
By: | /s/ Miles Hanes | |
Name: | Miles Hanes | |
Title: | AVP |
[Babcock
& Wilcox Enterprises, Inc.
Amendment No. 20 to Credit Agreement Signature Page]
B. RILEY FBR, INC., as Lender
By: | /s/ Bryant Riley | |
Name: | Bryant Riley | |
Title: | Chairman and Co-CEO |
[Babcock & Wilcox Enterprises, Inc.
Amendment No. 20 to Credit Agreement Signature Page]
B. RILEY FINANCIAL, INC., as Lender
By: | /s/ Bryant Riley | |
Name: | Bryant Riley | |
Title: | Chairman and Co-CEO |
[Babcock & Wilcox Enterprises, Inc.
Amendment No. 20 to Credit Agreement Signature Page]
THE BANK OF NOVA SCOTIA, as Lender
By: | /s/ Hiliary Lai | |
Name: | Hiliary Lai | |
Title: | Senior Manager |
By: | /s/ Rocco Fabiano | |
Name: | Rocco Fabiano | |
Title: | Vice President |
[Babcock & Wilcox Enterprises, Inc.
Amendment No. 20 to Credit Agreement Signature Page]
BBVA USA, as Lender
By: | /s/ Bruce Bingham | |
Name: | Bruce Bingham | |
Title: | Vice President |
[Babcock & Wilcox Enterprises, Inc.
Amendment No. 20 to Credit Agreement Signature Page]
BNP PARIBAS, as Lender
By: | /s/ Pierre Nicholas Rogers | |
Name: | Pierre Nicholas Rogers | |
Title: | Managing Director |
By: | /s/ Joseph Mack | |
Name: | Joseph Mack | |
Title: | Vice President |
[Babcock & Wilcox Enterprises, Inc.
Amendment No. 20 to Credit Agreement Signature Page]
BNP PARIBAS, as L/C Issuer
By: | /s/ Pierre Nicholas Rogers | |
Name: | Pierre Nicholas Rogers | |
Title: | Managing Director |
By: | /s/ Amy Kirshner | |
Name: | Amy Kirshner | |
Title: | Managing Director |
[Babcock & Wilcox Enterprises, Inc.
Amendment No. 20 to Credit Agreement Signature Page]
CITIZENS BANK, N.A., as Lender
By: | /s/ David W. Stack | |
Name: | David W. Stack | |
Title: | Senior Vice President |
[Babcock & Wilcox Enterprises, Inc.
Amendment No. 20 to Credit Agreement Signature Page]
CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK, as Lender
By: | /s/ Yurly A. Tsyganov | |
Name: | Yurly A. Tsyganov | |
Title: | Director |
By: | /s/ Ronald E. Spitzer | |
Name: | Ronald E. Spitzer | |
Title: | Managing Director |
[Babcock & Wilcox Enterprises, Inc.
Amendment No. 20 to Credit Agreement Signature Page]
CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK, as L/C Issuer
By: | /s/ Yurly A. Tsyganov | |
Name: | Yurly A. Tsyganov | |
Title: | Director |
By: | /s/ Ronald E. Spitzer | |
Name: | Ronald E. Spitzer | |
Title: | Managing Director |
[Babcock & Wilcox Enterprises, Inc.
Amendment No. 20 to Credit Agreement Signature Page]
HANCOCK WHITNEY BANK, as Lender
By: | /s/ Eric K. Sander | |
Name: | Eric K. Sander | |
Title: | Vice President |
[Babcock & Wilcox Enterprises, Inc.
Amendment No. 20 to Credit Agreement Signature Page]
JPMORGAN CHASE BANK NA, as Lender
By: | /s/ Phillip D. Martin | |
Name: | Phillip D. Martin | |
Title: | Managing Director |
[Babcock & Wilcox Enterprises, Inc.
Amendment No. 20 to Credit Agreement Signature Page]
JPMORGAN CHASE BANK NA, as L/C Issuer
By: | /s/ Phillip D. Martin | |
Name: | Phillip D. Martin | |
Title: | Managing Director |
[Babcock & Wilcox Enterprises, Inc.
Amendment No. 20 to Credit Agreement Signature Page]
MUFG BANK, LTD., as Lender
By: | /s/ David Helffrich | |
Name: | David Helffrich | |
Title: | Director |
[Babcock & Wilcox Enterprises, Inc.
Amendment No. 20 to Credit Agreement Signature Page]
THE NORTHERN TRUST CO., as Lender
By: | /s/ Robert P. Veltman | |
Name: | Robert P. Veltman | |
Title: | Vice President |
[Babcock & Wilcox Enterprises, Inc.
Amendment No. 20 to Credit Agreement Signature Page]
PNC BANK, NATIONAL ASSOCIATION, as Lender
By: | /s/ Mark Starnes | |
Name: | Mark Starnes | |
Title: | Vice President |
[Babcock & Wilcox Enterprises, Inc.
Amendment No. 20 to Credit Agreement Signature Page]
TD BANK, N.A., as Lender
By: | /s/ Bethany Buitenhuys | |
Name: | Bethany Buitenhuys | |
Title: | Vice President |
[Babcock & Wilcox Enterprises, Inc.
Amendment No. 20 to Credit Agreement Signature Page]
TD BANK, N.A., as L/C Issuer
By: | /s/ Bethany Buitenhuys | |
Name: | Bethany Buitenhuys | |
Title: | Vice President |
[Babcock & Wilcox Enterprises, Inc.
Amendment No. 20 to Credit Agreement Signature Page]
U.S. BANK, N.A., as Lender
By: | /s/ David C. Heyson | |
Name: | David C. Heyson | |
Title: | Senior Vice President |
[Babcock & Wilcox Enterprises, Inc.
Amendment No. 20 to Credit Agreement Signature Page]
UNICREDIT BANK, as Lender
By: | /s/ Scott Obeck | |
Name: | Scott Obeck | |
Title: | Director | |
By: | /s/ Douglas Riahi | |
Name: | Douglas Riahi | |
Title: | Managing Director |
[Babcock & Wilcox Enterprises, Inc.
Amendment No. 20 to Credit Agreement Signature Page]
VINTAGE CAPITAL MANAGEMENT LLC, as Lender
By: | /s/ Brian Kahn | |
Name: | Brian Kahn | |
Title: | Manager |
[Babcock & Wilcox Enterprises, Inc.
Amendment No. 20 to Credit Agreement Signature Page]
WELLS FARGO BANK, N.A., as Lender
By: | /s/ Reginald Dawson | |
Name: | Reginald Dawson | |
Title: | Managing Director |
[Babcock & Wilcox Enterprises, Inc.
Amendment No. 20 to Credit Agreement Signature Page]
ANNEX A
Refinancing Term Sheet
[Please see attached]
[Babcock & Wilcox Enterprises, Inc.
Amendment No. 20 to Credit Agreement - Annex A]
Annex A
Refinancing Term Sheet
Existing Credit Agreement: | That certain Credit Agreement, dated as of May 11, 2015, as amended through Amendment No. 20, dated as of January 31, 2020, among the Borrower, each lender from time to time party thereto, and Bank of America, N.A., as Administrative Agent, Swing Line Lender and an L/C Issuer. Capitalized terms used but not defined herein shall have the meaning of such terms in the Existing Credit Agreement. |
Borrower: | Babcock & Wilcox Enterprises, Inc., a Delaware corporation. |
Guarantors: | The guarantors under the Existing Credit Agreement. The Borrower and the Guarantors are collectively referred to herein as the “Loan Parties”). |
Administrative Agent: | Bank of America, N.A., as the Administrative Agent under the Existing Credit Agreement. |
Refinancing: | On or prior to May 11, 2020, financing shall be provided to the Borrower (the date of such financing, “Refinancing Date”), in the form of Indebtedness and/or proceeds from the issuance of equity, in each case subject to terms and conditions to be determined (such financing, the “Refinancing”), including the following: |
– | At least $200,000,000 of new Indebtedness and/or equity financing upon the effectiveness of the A&R Credit Agreement; |
– | $143,000,000 of Term Loans (including the Tranche A-3 Term Loans and the term loans made pursuant to Amendment No. 20) will be continued or be refinanced with new Indebtedness and/or equity financing; |
– | All Indebtedness relating to the Refinancing (including (x) any Stock or Stock Equivalents that are mandatorily redeemable and (y) any Tranche A-3 Term Loans and term loans made pursuant to Amendment No. 20) shall not exceed $275,000,000 in aggregate principal amount (including Stock or Stock Equivalents that are mandatorily redeemable valued at its liquidation preference);1 |
– | All Indebtedness relating to the Refinancing (other than Stock and Stock Equivalents that are mandatorily redeemable and issued on terms satisfactory to the Administrative Agent) shall be on the same terms as the Term Loans under the Existing Credit Agreement (including, for the avoidance of doubt, the voting provisions and the prohibition on amortization); provided that (i) the maturity date shall be 6 months after the Extended Revolving Credit Facility Maturity Date (as defined below), (ii) the interest thereon shall not exceed 12% per annum, except as modified with the written consent of the Administrative Agent and the Required Lenders, and (iii) aggregate Cash Interest Expense with respect to such Indebtedness shall not exceed $6,000,000 in any fiscal quarter (subject to proration for the first fiscal quarter ending after the Refinancing Date), except as modified with the written consent of the Administrative Agent and the Required Lenders; |
1 | The $275,000,000 cap will not include [***] reimbursement obligations converted into term loans. |
– | No Stock and Stock Equivalents relating to the Refinancing shall be Disqualified Stock, and all such Stock and Stock Equivalents shall be issued on terms satisfactory to the Administrative Agent; and |
– | The Borrower shall not be permitted to add any incremental Indebtedness as credit extensions under the A&R Credit Agreement. |
In connection with the Refinancing, the Existing Credit Agreement, as amended by Amendment No. 20, shall be amended and restated (the “A&R Credit Agreement”).
Use of Proceeds: | The proceeds of the Refinancing shall be used on the Refinancing Date to repay in full the Borrower’s existing Revolving Credit Loans, and any Revolving Credit Commitment in excess of $195,000,000 shall be terminated. |
Existing Revolving Credit Facility: | After the use of proceeds of the Refinancing, the Revolving Credit Facility under the Existing Credit Agreement shall be available in an amount not to exceed $195,000,000, $30,000,000 in the form of commitments to extend Revolving Credit Loans (provided that use of the proceeds of such Revolving Credit Loans is limited to working capital purposes) and $165,000,000 available solely for existing and new Letters of Credit (the “L/C Commitment”), with an extended Revolving Credit Facility Maturity Date of January 1, 2022 (such date, the “Extended Revolving Credit Facility Maturity Date”). The Alternative Currency Sublimit shall be decreased to $100,000,000. Financial Letters of Credit shall be capped at an aggregate face value of $35,000,000. No Swing Line Borrowings shall be permitted. |
Letters of Credit: | The terms of the A&R Credit Agreement will permit Letters of Credit to remain outstanding with termination dates that extend up to 6 months past the Extended Revolving Credit Facility Maturity Date, so long as each such Letter of Credit is cash collateralized in an amount equal to 105% of face value of each such Letter of Credit on or before 95 days prior to the Extended Revolving Credit Facility Maturity Date, pursuant to documentation in form and substance reasonably satisfactory to each respective L/C Issuer, and prior to such Cash Collateralization, 105% of the aggregate amount to be drawn under such Letters of Credit will be deemed L/C Obligations.2 |
2 | Provisions will not affect availability under commitment for Revolving Credit Loans. |
2
The restrictions on Letter of Credit issuance enumerated in Section 2.03(a)(vii) of the Existing Credit Agreement shall be removed in the A&R Credit Agreement, provided that the aggregate face value of L/C Credit Extensions on account of the operations of SPIG S.p.A. and its subsidiaries and on account of Vølund Projects shall not exceed $90,000,000 in the aggregate.
Payment and Waiver of Fees: | Upon the consummation of the Refinancing a portion of outstanding Deferred Ticking Fee, the fees under Section 4(d)(i)(b) of Amendment No. 6 (the “Outstanding Amendment No. 6 Fees”) and the Other Amendment Fees (as defined under Amendment No. 16) shall be paid, waived or maintained, as applicable, as follows: |
(a) $8,902,999.87 of the aggregate amount of the outstanding Deferred Ticking Fees and Other Amendment Fees shall be waived;3
(b) an amount equal to $7,000,000 shall be paid in cash on the effective date of the A&R Credit Agreement (the “Amendment and Restatement Fees”), the payment of which will result in the partial satisfaction of (i) Deferred Ticking Fees and Other Amendment Fees in an amount equal to $2,250,000 after the partial waiver thereof described in clause (a) and (ii) Deferred Facility Fees outstanding in an amount equal to $4,750,000; and
(c) the remainder of the outstanding Deferred Ticking Fees and Other Amendment Fees shall be payable on the last day of the Availability Period with respect to the Revolving Credit Facility; provided that the Deferred Ticking Fees and Other Amendment Fees shall be waived in the amounts set forth below, if the Revolving Credit Facility Termination Date occurs on or before the date as set forth below:
Date | Aggregate Waived Amount |
December 31, 2020 | The remaining Deferred Ticking Fees and Other Amendment Fees |
January 31, 2021 | $8,662,500.00 |
3 | Unless specified, the Administrative Agent may apply waived amounts and payments to be applied to the aggregate Deferred Ticking Fees and Other Amendment Fees in its discretion. |
3
February 28, 2021 | $7,875,000.00 |
March 31, 2021 | $7,087,500.00 |
April 30, 2021 | $6,300,000.00 |
May 31, 2021 | $5,512,500.00 |
June 30, 2021 | $4,725,000.00 |
July 31, 2021 | $3,937,500.00 |
August 31, 2021 | $3,150,000.00 |
September 30, 2021 | $2,362,500.00 |
October 31, 2021 | $1,575,000.00 |
November 30, 2021 | $787,500.00 |
; provided that, if (A) the Borrow obtains a binding commitment or commitments for a refinancing the occurrence of which would result in the Revolving Credit Facility Termination Date, (B) such commitment or commitments are conditioned solely on such financing source’s or sources’ receipt of audited financial statements for the 2020 Fiscal Year, (C) the Borrower has delivered copies of such commitment or commitments to the Administrative Agent within one (1) Business Day of the latest effective date of such commitment or commitments and (D) the Revolving Credit Facility Termination Date actually occurs on or prior to March 31, 2021 as a result of such commitment or commitments, then the Revolving Credit Facility Termination Date will be deemed to have occurred, solely for the purposes of this clause (c), on the latest effective date of such commitment or commitments.
Further, upon the consummation of the Refinancing, the fee of $120,000 set forth under Section 2(b) of Amendment No. 11, dated as of October 4, 2018 shall be waived.
For the avoidance of doubt, the Deferred Facility Fee and Outstanding Amendment No. 6 Fees shall not be waived.
Interest/ Fees: | Applicable Rate with respect to: |
• | Revolving Credit Loans: L+5.00%; Base Rate + 4.00%. |
• | Letters of Credit: 4.00% (Financial and Performance) |
4
o | The portion of Letters of Credit with coverage in the Recovery Event Proceeds Account:4 1.50% |
Annual Facility Fee: None.
Mandatory Prepayments/Cash Collateralization: | Borrower shall make mandatory prepayments and cash collateralization payments relating to the receipt of Net Cash Proceeds from Asset Sales, Recovery Events and the issuance of certain Indebtedness consistent with the Existing Credit Agreement (for the avoidance of doubt, as if the Relief Period were in effect). For the avoidance of doubt, the Amended Credit Agreement shall not include the mandatory prepayment set forth in Section 2.05(b)(vi) of the Existing Credit Agreement (anti cash-hording) |
Mandatory prepayments will be applied in a manner substantially consistent with the Existing Credit Agreement (as amended by Amendment No. 20 and, for the avoidance of doubt, as if the Relief Period were in effect).
Commitment Reductions: | The commitments under Revolving Credit Facility/Letter of Credit facility shall be mandatorily reduced in the amount of the above described mandatory prepayments (other than with respect to mandatory prepayments relating to Recovery Events) in the same manner as set forth in the Existing Credit Agreement (for the avoidance of doubt, as if the Relief Period were in effect). |
Collateral: | To match the Collateral under the Existing Credit Agreement. |
Conditions Precedent to Closing: | For conditions precedent to the effectiveness of the A&R Credit Agreement, see Annex F to Amendment No. 20. |
Borrowing Conditions: | Customary conditions, to include no Default or Event of Default, and bringdown of representations and warranties. |
Representations and Warranties: | Substantially consistent with the representations and warranties under the Existing Credit Agreement. |
Affirmative Covenants: | Substantially consistent with the affirmative covenants under the Existing Credit Agreement, provided that: |
– | The A&R Credit Agreement will modify Section 6.29 (Variance and Cash Flow Reporting) such that, if average daily Liquidity for the most recent 2 fiscal quarters is above $80,000,000, (i) a Budget update will only be required every other month and (ii) only negative cumulative variances in excess of 10% for the period covered by the most recently delivered Budget will require explanation. Reporting requirements as set forth in the Existing Credit Agreement will be maintained during the periods such test is not satisfied. |
4 | As defined in the Existing Credit Agreement (as amended by Amendment No. 20). |
5
– | Section 6.28 (Consultant) and Section 6.33 (Chief Implementation Officer) will not be included in the A&R Credit Agreement. |
– | Section 6.31 (Information Updates) shall be modified to require (i) monthly advisor calls in lieu of bi-weekly calls and (ii) quarterly lender calls in lieu of monthly calls. |
Negative Covenants: | Substantially consistent with the negative covenants under the Existing Credit Agreement, provided that: |
– | The A&R Credit Agreement will modify Section 7.01(Indebtedness) to include a third party letter of credit basket in an aggregate amount not to exceed $50,000,000. Upon a drawing or maturing of such obligations with respect to such letters of credit, such obligations or funded guaranties in respect thereof shall be deemed to convert into last out secured term loans on the same terms as the Tranche A-3 Term Loans under the Existing Credit Agreement and, prior to any issuance, the Administrative Agent shall be satisfied with the compliance under any applicable “know your customer” and anti-money laundering rules and regulations, including the Patriot Act, of any applicant thereunder that may become a term lender upon such drawing or maturation pursuant to a joinder to the A&R Credit Agreement. |
– | The A&R Credit Agreement will be modified to permit the Refinancing, including modifications to the subordination provisions to permit cashless prepayments in connection with the Refinancing. |
– | The A&R Credit Agreement will modify Section 7.05 (Restricted Payments) to permit holders of Stock and Stock Equivalents in the Borrower to receive a cash dividend at the end of each fiscal quarter not to exceed $6,000,000, less the Interest Expense with respect to the Term Loan Facility for such fiscal quarter (subject to proration for the first fiscal quarter ending after the Refinancing Date), except as modified with the written consent of the Administrative Agent and the Required Lenders, subject to no continuing Default or Event of Default under the A&R Credit Agreement. |
– | The A&R Credit Agreement will delete Section 7.19 (Additional Charges [with respect to Vølund Projects]). |
– | The A&R Credit Agreement will further modify certain negative covenants as set forth in the chart attached hereto as Exhibit A. |
6
Financial Covenants: | The Borrower shall not permit (x) the Interest Coverage Ratio as of the last day of any fiscal quarter to be less than and (y) the gross leverage ratio as of the last day of any fiscal quarter to be more than the ratios set forth in the chart attached hereto as Exhibit B and further based on the principal amount of Indebtedness relating to the Refinancing outstanding on the Refinancing Date (including Stock or Stock Equivalents that are mandatorily redeemable valued at its liquidation preference). |
“Financial Covenant Debt” shall be modified to include Term Loan Indebtedness.
Equity Cure Rights: | For purposes of determining compliance with the financial covenants, any proceeds from equity issuances or cash equity contributions (which equity will be in the form of common equity or other “qualified” equity having terms reasonably acceptable to the Administrative Agent) made to the Borrower after the end of a fiscal quarter and on or prior to the day that is 10 Business Days after the day on which financial statements are required to be delivered for such fiscal quarter will, at the request of the Borrower, be included in the calculation of EBITDA solely for the purposes of determining compliance with the financial covenants at the end of such fiscal quarter and each applicable subsequent period that includes such quarter (any such equity contribution so included in the calculation of EBITDA, a “Specified Equity Contribution”); provided that (a) in each four consecutive fiscal quarter period there will be no more than 2 fiscal quarters in which a Specified Equity Contribution is made, (b) no more than 2 Specified Equity Contributions may be made prior to the Revolving Credit Facility Termination Date, (c) the amount of any Specified Equity Contribution in any period will be no greater than the amount required to cause the Borrower to be in compliance with the financial covenants for such period, (d) each Specified Equity Contribution shall increase EBITDA solely for the purposes of computing quarter-end compliance with the financial covenants and shall not be included for the purpose of determining the availability or amount of any covenant baskets or carve- outs, pricing or for any other purpose, (e) such Specified Equity Contribution shall not result in any reduction of indebtedness in the calculation of the financial covenants in the fiscal quarter in which the Specified Equity Contribution is made, (f) no Specified Equity Contribution held by the Borrower or any of its Subsidiaries shall qualify as “unrestricted cash or Cash Equivalents of the Borrower Parties” for the purpose of calculating minimum required Liquidity. |
Minimum Liquidity: | The A&R Credit Agreement shall modify Section 7.18 (Minimum Liquidity) to increase the minimum required Liquidity from $30,000,000 to $40,000,000. Further, the definition of Liquidity shall be modified to exclude cash of Non-Loan Parties in an amount in excess of $30,000,000. |
Board Seats: | The number of members of the board of directors of the Borrower (the “Board of Directors”) shall (i) shall either remain as 7 members and B. Riley shall have the right to elect 3 of such members or (ii) shall be reduced to 5 members and B. Riley shall have the right to elect 2 of such members. The A&R Credit Agreement shall modify the definition of Change of Control accordingly. |
7
Events of Default: | Substantially consistent with the events of default under the Existing Credit Agreement. |
Voting: | As set forth in the Existing Credit Agreement. |
Governing Law and Submission to Jurisdiction: | New York. |
Counsel to Borrower: | King & Spalding LLP |
Counsel to Administrative Agent: | Freshfields Bruckhaus Deringer US LLP |
8
Exhibit A
Negative Covenants Modification Chart
[Please see the attached]
9
EXHIBIT A
B&W Credit Agreement–Negative Covenants Modifications Chart
Section | Basket | Treatment |
Indebtedness | ||
7.01(d) |
Indebtedness in the form of: (i) Capital Lease Obligations and purchase money obligations for tangible property, (ii) of sale and leaseback and (iii) other secured Indebtedness (including secured Indebtedness incurred or assumed by the Borrower and its Subsidiaries in connection with a Permitted Acquisition). |
Maintain the Relief Period aggregate principal amount cap of all such Indebtedness outstanding at $50,000,000, which includes up to $10,000,000 of sale and leaseback Indebtedness to the extent permitted under Section 7.13. |
7.01(f(x)) | Intercompany Indebtedness owing to a Loan Party. | Limit intercompany Indebtedness owing to a Loan Party by a Foreign Subsidiary that is not a Loan Party to transactions that are ordinary course and consistent with past practice. |
7.01(i) | Unsecured Indebtedness of any Subsidiary (other than a Guarantor). |
To be capped at $15,000,000. The aggregate outstanding principal amount of all Indebtedness pursuant to Section 7.01(i) and Section 7.01(o) shall not exceed $25,000,000 at any time [existing cap $7,500,000]. |
7.01(o) | Unsecured Indebtedness of any Loan Party so long as at the time of incurrence of such Indebtedness (i) no Default has occurred and is continuing or would result therefrom and (ii) the Borrower and its Subsidiaries are in pro forma compliance with the financial covenants set forth in Section 7.16 (interest coverage and leverage ratios) immediately before and after giving effect to the incurrence of such Indebtedness. | The aggregate outstanding principal amount of all Indebtedness pursuant to Section 7.01(i) and Section 7.01(o) shall not exceed $25,000,000 at any time [existing cap $7,500,000]. |
Liens | ||
7.02(n) | Liens not otherwise permitted by Section 7.02 securing obligations. | The aggregate outstanding amount of all such obligations secured by such Liens shall not exceed $10,000,000 [existing cap $4,000,000]. |
Section | Basket | Treatment |
7.02(q) | Liens on cash or Cash Equivalents securing (i) reimbursement obligations in respect of Performance Guarantees and other similar obligations (including any obligation to make payments in connection with such performance, but excluding obligations for the payment of borrowed money) and (ii) Swap Contracts that are not speculative in nature. | Maintain the Relief Period aggregate principal amount cap of $25,000,000. |
Investments | ||
7.03(h) | Investments in connection with a Permitted Acquisition. | Such acquisitions require the following: (a) approval by board of Acquired Entity, (b) Acquired Entity shall be in an Eligible Line of Business, (c) compliance with guarantee/collateral requirements, (d) no Default, (e) pro forma compliance immediately before and after giving effect to the acquisition with a maximum leverage ratio of 4.00x [existing requirement is 0.25x within financial covenant maximum leverage ratio], provided that if the acquisition is directly funded by issuances of equity not mandatorily redeemable or equity contributions, solely pro forma compliance with the financial covenant set forth in Section 7.16(b) (leverage ratio) immediately before and after giving effect to the acquisition is required, (f) certificate as to compliance for all such acquisitions, (g) Borrower or guarantor is surviving party and (h) such acquisition is to be made by a Loan Party that is the Borrower or a Domestic Subsidiary. |
7.03(e) | Intercompany Investments in Wholly-Owned Subsidiaries. | Limit intercompany investments made by a Loan Party in a Foreign Subsidiary that is not a Loan Party to transactions that are ordinary course and consistent with past practice. |
7.03(l) | Other Investments not constituting Acquisitions by the Borrower or any Subsidiary made after the Closing Date. | The aggregate outstanding amount of all such Investments at any time shall not exceed $15,000,000 [existing cap of zero for investments made any time after the Amendment No. 3 Effective Date]. |
Asset Sales | ||
7.04(d(i)) | Asset Sales to the Borrower or any Guarantor. | Asset Sales between Loan Parties and Foreign Subsidiaries that are not Loan Parties shall not be permitted. |
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Section | Basket | Treatment |
7.04(i) | The Non-Cash Consideration with respect to the general Asset Sale basket. | Maintain the Relief Period prohibition on the use of Non-Cash Consideration basket. |
7.04(j) | Any single transaction or series of related transactions so long as neither such single transaction nor such series of related transactions involves assets having a Fair Market Value of more than $2,000,000. | Increase cap to $5,000,000. |
Miscellaneous | ||
7.08 | Transactions with Affiliates. | Transactions as described in the Refinancing Term Sheet. permitted. |
7.13 | Sale Leasebacks. | The Borrower shall not, and shall not permit any of its Subsidiaries to, enter into any sale and leaseback transaction unless (x) the Fair Market Value of all properties covered at any one time by all sale leaseback transactions does not exceed $10,000,000 and (y) limited to sale leaseback of the (i) Copley property and (ii) Esjberg facility |
7.21 | Use of Vølund Projects Letters of Credit: The Borrower and Subsidiaries shall not use any Letter of Credit issued on account of any Vølund Project for any purpose other than for credit support for the underlying insurance guaranties supported by such Letter of Credit and in existence on the Amendment No. 13 Effective Date without the consent of the Required Lenders. | Covenant to be deleted. |
3
Exhibit B
Gross Leverage Ratio
Refinancing Indebtedness | Less than or equal to $175,000,000 | Less than or equal to $200,000,000 | Less than or equal to $225,000,000 | Less than or equal to $250,000,000 | More than $250,000,000 |
June 30, 2020 | 5.50x | 6.25x | 7.00x | 7.50x | 8.25x |
September 30, 2020 | 4.50x | 5.00x | 5.40x | 6.00x | 6.50x |
December 31, 2020 | 3.25x | 3.75x | 4.25x | 4.50x | 5.00x |
March 31, 2021 | 3.00x | 3.25x | 3.75x | 4.00x | 4.50x |
June 30, 2021 | 2.75x | 3.00x | 3.50x | 3.75x | 4.00x |
September 30, 2021 | 2.40x | 2.65x | 3.00x | 3.30x | 3.70x |
December 31, 2021 | 2.40x | 2.65x | 3.00x | 3.30x | 3.70x |
Interest Coverage Ratio
Refinancing Indebtedness | Less than or equal to $175,000,000 | Less than or equal to $200,000,000 | Less than or equal to $225,000,000 | Less than or equal to $250,000,000 | More than $250,000,000 |
June 30, 2020 | 1.10x | 1.10x | 1.10x | 1.10x | 1.10x |
September 30, 2020 | 1.60x | 1.50x | 1.50x | 1.50x | 1.50x |
December 31, 2020 | 2.10x | 2.00x | 2.00x | 2.00x | 2.00x |
March 31, 2021 | 2.50x | 2.40x | 2.40x | 2.40x | 2.40x |
June 30, 2021 | 2.80x | 2.60x | 2.60x | 2.60x | 2.60x |
September 30, 2021 | 3.20x | 2.80x | 2.80x | 2.85x | 2.85x |
December 31, 2021 | 3.20x | 2.80x | 2.80x | 2.85x | 2.85x |
ANNEX B
Credit Agreement Amendments
CONFORMED
THROUGH DRAFT AMENDMENT NO. 19ANNEX B
DATED January 17,
2020
Published CUSIP Number: 056147AA1
Revolving Credit CUSIP Number: 05614TAB9
CREDIT AGREEMENT
dated as of May 11, 2015
(as amended through Amendment No. 19,20, dated
as of January 17,31, 2020)
among
BABCOCK & WILCOX ENTERPRISES, INC.,
as the Borrower,
BANK OF AMERICA, N.A.,
as Administrative Agent,
Swing Line Lender and an L/C Issuer,
and
The Other Lenders Party Hereto
BNP PARIBAS,
JPMORGAN CHASE BANK, N.A.,
WELLS FARGO BANK, NATIONAL ASSOCIATION and
CRÉDIT AGRICOLE CORPORATE AND INVESTMENT BANK,
as Co-Syndication Agents
BRANCH BANKING AND TRUST COMPANY,
CITIZENS BANK OF PENNSYLVANIA,
COMPASS BANK,
TD BANK, N.A.,
THE BANK OF TOKYO-MITSUBISHI UFJ, LTD. and
U.S. BANK NATIONAL ASSOCIATION,
as Co-Documentation Agents
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,
BNP PARIBAS SECURITIES CORP.,
J.P. MORGAN SECURITIES LLC,
WELLS FARGO SECURITIES, LLC and
CRÉDIT AGRICOLE CORPORATE AND INVESTMENT BANK,
as Joint Lead Arrangers and Joint Book Managers
TABLE OF CONTENTS
Section | Page | ||
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS | 1 | ||
1.01 | Defined Terms | 1 | |
1.02 | Other Interpretive Provisions | 61 | |
1.03 | Accounting Terms | 62 | |
1.04 | Rounding | 63 | |
1.05 | Exchange Rates; Currency Equivalents | 63 | |
1.06 | Alternative Currencies | 63 | |
1.07 | Times of Day; Rates | 64 | |
1.08 | Letter of Credit Amounts | 64 | |
1.09 | Surviving Provisions Perpetual | 64 | |
ARTICLE II THE COMMITMENTS AND CREDIT EXTENSIONS | 64 | ||
2.01 | Revolving Credit Loans | 64 | |
2.01A | Tranche A-1 Term Loans | 65 | |
2.01B | Tranche A-2 Term Loans | 65 | |
2.01C | Tranche A-3 Term Loans | 65 | |
2.01D | Tranche A-4 Term Loans | 65 | |
2.01E | Tranche A-5 Term Loans | 66 | |
2.02 | Borrowings, Conversions and Continuations of Loans | 66 | |
2.03 | Letters of Credit | 68 | |
2.04 | Swing Line Loans | 81 | |
2.05 | Prepayments | 84 | |
2.06 | Termination or Reduction of Commitments | 88 | |
2.07 | Repayment of Loans | 90 | |
2.08 | Interest | 90 | |
2.09 | Fees | 92 | |
2.10 | Computation of Interest and Fees | 94 | |
2.11 | Evidence of Debt | 94 | |
2.12 | Payments Generally; Administrative Agent’s Clawback | 95 | |
2.13 | Sharing of Payments by Lenders | 97 | |
2.14 | Increase in Revolving Credit Commitments | 98 | |
2.14A | Incremental Term Loans | 100 | |
2.15 | Cash Collateral | 102 | |
2.16 | Defaulting Lenders | 103 | |
ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY | 106 | ||
3.01 | Taxes | 106 | |
3.02 | Illegality | 112 | |
3.03 | Inability to Determine Rates | 112 | |
3.04 | Increased Costs; Reserves on Eurocurrency Rate Loans | 115 |
3.05 | Compensation for Losses | 117 | |
3.06 | Mitigation Obligations | 117 | |
3.07 | Survival | 118 | |
3.08 | No Payment to Term Loan Lenders | 118 | |
ARTICLE IV CONDITIONS PRECEDENT TO CREDIT EXTENSIONS | 118 | ||
4.01 | Conditions of Execution Date | 118 | |
4.02 | Conditions of Closing Date | 119 | |
4.03 | Conditions to Revolving Credit Extensions | 124 | |
4.04 | Conditions to the Initial Tranche A Term Loan Funding | 125 | |
4.05 | Conditions to Incremental Tranche A Term Loan Fundings | 126 | |
4.06 | Conditions to Tranche A-2 Term Loan Borrowing | 126 | |
4.07 | Conditions to Tranche A-3 Term Loan Borrowing | 126 | |
4.08 | Conditions to Tranche A-4 Term Loan Borrowing | 126 | |
4.09 | Conditions to Tranche A-5 Term Loan Borrowing | 126 | |
ARTICLE V REPRESENTATIONS AND WARRANTIES | 127 | ||
5.01 | Corporate Existence, Compliance with Law | 127 | |
5.02 | Corporate Power; Authorization; Enforceable Obligations | 127 | |
5.03 | Ownership of Borrower; Subsidiaries | 128 | |
5.04 | Financial Statements | 129 | |
5.05 | Material Adverse Change | 130 | |
5.06 | Solvency | 130 | |
5.07 | Litigation | 130 | |
5.08 | Taxes | 130 | |
5.09 | Full Disclosure | 130 | |
5.10 | Margin Regulations | 130 | |
5.11 | No Burdensome Restrictions; No Defaults | 131 | |
5.12 | Investment Company Act | 131 | |
5.13 | Use of Proceeds | 131 | |
5.14 | Insurance | 132 | |
5.15 | Labor Matters | 132 | |
5.16 | ERISA | 132 | |
5.17 | Environmental Matters | 134 | |
5.18 | Intellectual Property | 134 | |
5.19 | Title; Real Property | 134 | |
5.20 | Security Instruments | 136 | |
5.21 | OFAC | 136 | |
5.22 | Anti-Corruption Laws | 136 | |
5.23 | EEA Financial Institutions | 137 | |
5.24 | Budget | 137 | |
ARTICLE VI AFFIRMATIVE COVENANTS | 137 | ||
6.01 | Financial Statements | 137 | |
6.02 | Collateral Reporting Requirements | 139 | |
6.03 | Default and Certain Other Notices | 140 |
6.04 | Litigation | 141 | |
6.05 | Labor Relations | 141 | |
6.06 | Tax Returns | 141 | |
6.07 | Insurance | 141 | |
6.08 | ERISA Matters | 141 | |
6.09 | Environmental Matters | 142 | |
6.10 | Patriot Act Information | 143 | |
6.11 | Other Information | 143 | |
6.12 | Preservation of Corporate Existence, Etc. | 143 | |
6.13 | Compliance with Laws, Etc. | 143 | |
6.14 | Conduct of Business | 143 | |
6.15 | Payment of Taxes, Etc. | 143 | |
6.16 | Maintenance of Insurance | 144 | |
6.17 | Access | 144 | |
6.18 | Keeping of Books | 144 | |
6.19 | Maintenance of Properties, Etc. | 144 | |
6.20 | Application of Proceeds | 144 | |
6.21 | Environmental | 145 | |
6.22 | Additional Collateral and Guaranties | 147 | |
6.23 | Real Property | 148 | |
6.24 | Further Assurances | 149 | |
6.25 | Anti-Corruption Laws; Sanctions | 149 | |
6.26 | Cash Collateralization of Extended Letters of Credit | 149 | |
6.27 | Post Closing Deliveries | 150 | |
6.28 | Consultant | 150 | |
6.29 | Variance and Cash Flow Reporting | 151 | |
6.30 | Account Control Agreements | 151 | |
6.31 | Information Updates | 151 | |
6.32 | [Reserved] | 151 | |
6.33 | Chief Implementation Officer | 151 | |
6.34 | [Reserved] | 152 | |
6.35 | Net Cash Proceeds from Asset Sales | 152 | |
6.36 | Foreign Collateral; Pledges of Stock and Stock Equivalents | 152 | |
6.37 | 152 | ||
ARTICLE VII NEGATIVE COVENANTS | 153 | ||
7.01 | Indebtedness | 153 | |
7.02 | Liens | 155 | |
7.03 | Investments | 157 | |
7.04 | Asset Sales | 159 | |
7.05 | Restricted Payments | 160 |
7.06 | Fundamental Changes | 162 | |
7.07 | Change in Nature of Business | 162 | |
7.08 | Transactions with Affiliates | 162 | |
7.09 | Burdensome Agreements | 164 | |
7.10 | Form 10 | 164 | |
7.11 | Fiscal Year | 164 | |
7.12 | Use of Proceeds | 164 | |
7.13 | Sale Leasebacks | 164 | |
7.14 | No Speculative Transactions | 165 | |
7.15 | Anti-Corruption Laws | 165 | |
7.16 | Financial Covenants | 165 | |
7.17 | Sanctions | 166 | |
7.18 | Minimum Liquidity | 166 | |
7.19 | Additional Charges | 166 | |
7.20 | Capital Expenditures | 167 | |
7.21 | Use of Vølund Projects Letters of Credit | 167 | |
ARTICLE VIII EVENTS OF DEFAULT AND REMEDIES | 167 | ||
8.01 | Events of Default | 167 | |
8.02 | Remedies Upon Event of Default | 170 | |
8.03 | Application of Funds | 171 | |
ARTICLE IX ADMINISTRATIVE AGENT | 172 | ||
9.01 | Appointment and Authority | 172 | |
9.02 | Rights as a Lender | 173 | |
9.03 | Exculpatory Provisions | 173 | |
9.04 | Reliance by Administrative Agent | 174 | |
9.05 | Delegation of Duties | 175 | |
9.06 | Resignation of Administrative Agent | 175 | |
9.07 | Non-Reliance on Administrative Agent and Other Lenders | 177 | |
9.08 | No Other Duties, Etc. | 177 | |
9.09 | Administrative Agent May File Proofs of Claim | 177 | |
9.10 | Collateral and Guaranty Matters | 179 | |
9.11 | Secured Cash Management Agreements and Secured Hedge Agreements | 180 | |
ARTICLE X MISCELLANEOUS | 180 | ||
10.01 | Amendments, Etc. | 180 | |
10.02 | Notices; Effectiveness; Electronic Communication | 183 | |
10.03 | No Waiver; Cumulative Remedies; Enforcement | 186 | |
10.04 | Expenses; Indemnity; Damage Waiver | 187 | |
10.05 | Payments Set Aside | 190 | |
10.06 | Successors and Assigns | 190 | |
10.07 | Treatment of Certain Information; Confidentiality | 196 | |
10.08 | Right of Setoff | 198 | |
10.09 | Interest Rate Limitation | 198 | |
10.10 | Counterparts; Integration; Effectiveness | 198 |
10.11 | Survival of Representations and Warranties | 199 | |
10.12 | Severability | 199 | |
10.13 | Replacement of Lenders | 199 | |
10.14 | Governing Law; Jurisdiction; Etc. | 200 | |
10.15 | Waiver of Jury Trial | 201 | |
10.16 | No Advisory or Fiduciary Responsibility | 202 | |
10.17 | Electronic Execution of Assignments and Certain Other Documents | 202 | |
10.18 | Judgment Currency | 203 | |
10.19 | Acknowledgement and Consent to Bail-In of EEA Financial Institutions | 203 | |
10.20 | Parallel Debt | 204 | |
10.21 | Acknowledgement Regarding Any Supported QFCs | 205 | |
ARTICLE XI ADDITIONAL SUBORDINATION TERMS | 206 | ||
11.01 | Payment Subordination | 206 | |
11.02 | Turnover | 206 | |
11.03 | Financing Matters | 207 | |
11.04 | Adequate Protection | 208 | |
11.05 | Voting Matters | 208 | |
11.06 | Right to Appear | 208 | |
11.07 | Indemnification; Release | 208 | |
11.08 | Enforceability | 209 | |
11.09 | Article XI; Generally | 209 | |
SCHEDULES
1.01(a) | Affiliate Agreements |
1.01(b) | Initial Guarantors |
2.01 | Commitments and Applicable Percentages |
4.02(a)(iii) | Mortgaged Properties |
5.02 | Consents |
5.03 | Ownership of Subsidiaries |
5.04 | Supplement to Financial Statements |
5.07 | Litigation |
5.19(b) | Real Property |
6.36 | Pledges of Stock and Stock Equivalents; Account Control Agreements |
7.01 | Existing Indebtedness |
7.02 | Existing Liens |
7.03 | Existing Investments |
10.02 | Administrative Agent’s Office; Certain Addresses for Notices |
EXHIBITS
Form of | |
A | Committed Loan Notice |
B | Swing Line Loan Notice |
C | Note |
D | Compliance Certificate |
E-1 | Assignment and Assumption |
E-2 | Administrative Questionnaire |
F | Guaranty |
G | Collateral Agreement |
H | Forms of U.S. Tax Compliance Certificates |
CREDIT AGREEMENT
This CREDIT AGREEMENT is entered into as of May 11, 2015, among BABCOCK & WILCOX ENTERPRISES, INC., a Delaware corporation, as the borrower hereunder (the “Borrower”), each lender from time to time party hereto (collectively, the “Lenders” and individually, a “Lender”), and BANK OF AMERICA, N.A., as Administrative Agent, Swing Line Lender and an L/C Issuer.
The Borrower has requested that the Revolving Credit Lenders provide a revolving credit facility and that the Term Loan Lenders provide a term loan facility, and the respective Lenders are willing to do so on the terms and conditions set forth herein.
In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Defined Terms. As used in this Agreement, the following terms shall have the meanings set forth below:
“2019 Term Loan Lender Expenses” has the meaning specified in Section 10.04(a).
“2020 Refinancing Backstop Commitment Letter” means that certain letter regarding the backstop financing commitment, dated as of or around the Amendment No. 20 Effective Date, between Borrower and B. Riley FBR, Inc.
“2020 Term Loan Lender Expenses” has the meaning specified in Section 10.04(a).
“Acquired Entity” means a Person to be acquired, or whose assets are to be acquired, in an Acquisition.
“Acquisition” means, by way of any single transaction or a series of related transactions, the acquisition of all or substantially all of (a) the assets of an Acquired Entity, (b) the assets constituting what is known to the Borrower to be all or substantially all of the business of a division, branch or other unit operation of an Acquired Entity, or (c) the Stock and Stock Equivalents (other than director’s qualifying shares and the like, as may be required by applicable Requirements of Law) of, an Acquired Entity.
“Additional Lender” has the meaning specified in Section 2.14(b).
“Additional Cashless Term Loan Prepayment” has the meaning specified in the definition of “Additional Term Loan Prepayment”.
“Additional Term Lender” has the meaning specified in Section 2.14A(b).
1
“Additional Term Loan Prepayment” means the optional prepayment of the principal amount of Term Loans by the Borrower pursuant to Section 2.05(a)(i), which prepayments (i) shall occur prior to the Additional Term Loan Prepayment Transaction Deadline, (ii) shall not exceed in an aggregate principal amount $86,000,000, plus the interest payable pursuant to Section 2.05(a)(i) on the applicable prepayment date, (iii) shall be financed by the Net Cash Proceeds received by the Borrower pursuant to a rights offering of Stock or Stock Equivalents (other than Disqualified Stock) of the Borrower backstopped by any or all of the Term Loan Lenders or Affiliates thereof (a “Qualified Rights Offering”), provided that, notwithstanding the foregoing, the Term Loan Lenders may convert or exchange any Term Loans (including a principal amount of such Term Loans in excess of $86,000,000) into such Stock or Stock Equivalents by reducing the principal amount of Term Loans in exchange for their participation in such rights offering on a dollar-for dollar basis (such Additional Term Loan Prepayment, an “Additional Cashless Term Loan Prepayment”).
“Additional Term Loan Prepayment Extension Certificate” means a certificate of either (a) a Responsible Officer or (b) any Term Loan Lender certifying that a Qualified Rights Offering has not occurred solely as a result of an SEC review of such rights offering or such other circumstance beyond the control of the Borrower.
“Additional Term Loan Prepayment Transaction Deadline” means (x) October 5, 2019 or (y) if the Administrative Agent shall have received an Additional Term Loan Prepayment Extension Certificate, January 6, 2020.
“Administrative Agent” means Bank of America in its capacity as administrative agent under any of the Loan Documents, or any successor administrative agent.
“Administrative Agent’s Office” means the Administrative Agent’s 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 to the Borrower and the Lenders.
“Administrative Questionnaire” means an Administrative Questionnaire in substantially the form of Exhibit E-2 or any other form approved by the Administrative Agent.
“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.
“[***] Drawing Certificate” means a certificate of the Tranche A-5 Term Loan Lender certifying that (i) an amount equal to the proposed Tranche A-5 Term Loan Borrowing has been drawn under the [***] Letter of Credit and (ii) the Borrower has reimbursement obligations due to the Tranche A-5 Term Loan Lender in such amount.
“[***] Letter of Credit” means a letter of credit, bankers acceptance, surety bond, performance bond, bank guarantee or other similar obligation issued to or obligated to be settled by B. Riley Financial, Inc., in form and substance reasonably satisfactory to the Administrative Agent and the Revolving Credit Lenders, to secure ordinary course performance obligations of the Borrower and its Subsidiaries in connection with bidding, procurement, engineering, construction and maintenance for the prospective “New Madrid” project located in Missouri.
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“Affiliate Agreements” means, collectively, the agreements listed on Schedule 1.01(a) hereto.
“Aggregate Commitments” means the Commitments of all the Lenders.
“Aggregate Revolving Credit Commitment” means the Revolving Credit Commitments of all the Revolving Credit Lenders.
“Aggregate Term Loan Commitment” means the Term Loan Commitments of all the Term Loan Lenders.
“Agreement” means this Credit Agreement.
“Alternative Currency” means, with respect to any Letter of Credit, those currencies (other than Dollars) that are approved by the L/C Issuer issuing such Letters of Credit in accordance with Section 1.06.
“Alternative Currency Equivalent” means, at any time, with respect to any amount denominated in Dollars, the equivalent amount thereof in the applicable Alternative Currency as determined by the Administrative Agent or the applicable L/C Issuer, as the case may be, at such time on the basis of the Spot Rate (determined in respect of the most recent Revaluation Date) for the purchase of such Alternative Currency with Dollars.
“Alternative Currency Sublimit” means an amount equal to the lesser of the Revolving Credit Facility and $300,000,000. The Alternative Currency Sublimit is part of, and not in addition to, the Revolving Credit Facility.
“Amendment No. 2” means that certain Amendment No. 2 dated as of the Amendment No. 2 Effective Date by and among the Loan Parties, the Administrative Agent and the Lenders party thereto.
“Amendment No. 2 Effective Date” means February 24, 2017, the date on which the conditions precedent to the effectiveness of Amendment No. 2 were satisfied.
“Amendment No. 3” means that certain Amendment No. 3, dated as of the Amendment No. 3 Effective Date, by and among the Borrower, the Administrative Agent and the Lenders party thereto, and acknowledged and agreed by the Guarantors.
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“Amendment No. 3 Effective Date” means August 9, 2017, the date on which the conditions precedent to the effectiveness of Amendment No. 3 were satisfied.
“Amendment No. 5” means that certain Amendment No. 5, dated as of the Amendment No. 5 Effective Date, by and among the Borrower, the Administrative Agent and the Lenders party thereto, and acknowledged and agreed by the Guarantors.
“Amendment No. 5 Effective Date” means March 1, 2018, the date on which the conditions precedent to the effectiveness of Amendment No. 5 were satisfied.
“Amendment No. 6” means that certain Amendment No. 6, dated as of the date of the Amendment No. 6 Effective Date, by and among the Borrower, the Administrative Agent and the Lenders party thereto, and acknowledged and agreed by the Guarantors.
“Amendment No. 6 Effective Date” means April 10, 2018, the date on which the conditions precedent to the effectiveness of Amendment No. 6 were satisfied.
“Amendment No. 8” means that certain Amendment No. 8, dated as of the Amendment No. 8 Effective Date, by and among the Borrower, the Administrative Agent and the Lenders party thereto, and acknowledged and agreed by the Guarantors.
“Amendment No. 8 Effective Date” means August 9, 2018, the date on which the conditions precedent to the effectiveness of Amendment No. 8 were satisfied.
“Amendment No. 9” means that certain Amendment No. 9, dated as of the Amendment No. 9 Effective Date, by and among the Borrower, the Administrative Agent and the Lenders party thereto, and acknowledged and agreed by the Guarantors.
“Amendment No. 9 Closing Fee” shall mean the “Closing Fee” as defined in Amendment No. 9.
“Amendment No. 9 Effective Date” means September 14, 2018, the date on which the conditions precedent to the effectiveness of Amendment No. 9 were satisfied.
“Amendment No. 12” means that certain Amendment No. 12, dated as of the date of the Amendment No. 12 Effective Date, by and among the Borrower, the Administrative Agent and the Lenders party thereto, and acknowledged and agreed by the Guarantors.
“Amendment No. 12 Effective Date” means October 31, 2018, the date on which the conditions precedent to the effectiveness of Amendment No. 12 were satisfied. “Amendment No. 13” means that certain Amendment No. 13, dated as of the date of the Amendment No. 13 Effective Date, by and among the Borrower, the Administrative Agent and the Lenders party thereto, and acknowledged and agreed by the Guarantors.
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“Amendment No. 13 Effective Date” means December 19, 2018, the date on which the conditions precedent to the effectiveness of Amendment No. 13 were satisfied.
“Amendment No. 14” means that certain Amendment No. 14, dated as of the date of the Amendment No. 14 Effective Date, by and among the Borrower, the Administrative Agent and the Lenders party thereto, and acknowledged and agreed by the Guarantors.
“Amendment No. 14 Effective Date” means January 15, 2019, the date on which the conditions precedent to the effectiveness of Amendment No. 14 were satisfied.
“Amendment No. 15” means that certain Amendment No. 15 and Limited Waiver, dated as of the date of the Amendment No. 15 Effective Date, by and among the Borrower, the Administrative Agent and the Lenders party thereto, and acknowledged and agreed by the Guarantors.
“Amendment No. 15 Effective Date” means March 19, 2019, the date on which the conditions precedent to the effectiveness of Amendment No. 15 were satisfied.
“Amendment No. 16” means that certain Amendment No. 16, dated as of the date of the Amendment No. 16 Effective Date, by and among the Borrower, the Administrative Agent and the Lenders party thereto, and acknowledged and agreed by the Guarantors.
“Amendment No. 16 Effective Date” means April 5, 2019, the date on which the conditions precedent to the effectiveness of Amendment No. 16 were satisfied.
“Amendment No. 20” means that certain Amendment No. 20, dated as of the date of the Amendment No. 20 Effective Date, by and among the Borrower, the Administrative Agent and the Lenders party thereto, and acknowledged and agreed by the Guarantors.
“Amendment No. 20 Effective Date” means January [__], 2020, the date on which the conditions precedent to the effectiveness of Amendment No. 20 were satisfied.
“Anti-Corruption Laws” means all laws, rules and regulations of any jurisdiction applicable to the Borrower or any of its Subsidiaries from time to time concerning or relating to bribery or corruption, including, without limitation, the United States Foreign Corrupt Practices Act of 1977 and the UK Bribery Act 2010, each as amended.
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“Applicable Percentage” means (a) with respect to the Term Loan Facility, with respect to any Term Loan Lender at any time, the percentage (carried out to the ninth decimal place) of the Term Loan Facility represented by (i) at any time during the Availability Period in respect of such Facility, such Term Loan Lender’s Term Loan Commitment at such time, subject to adjustment as provided in Section 2.16, plus the principal amount of such Term Loan Lender’s Term Loans at such time, and (ii) thereafter, the principal amount of such Term Loan Lender’s Term Loans at such time and (b) in respect of the Revolving Credit Facility, with respect to any Revolving Credit Lender at any time, the percentage (carried out to the ninth decimal place) of the Revolving Credit Facility represented by such Lender’s Revolving Credit Commitment at such time, subject to adjustment as provided in Section 2.16. If the Revolving Credit Commitment of each Lender to make Loans and the obligation of each L/C Issuer to make L/C Credit Extensions have been terminated pursuant to Section 8.02 or if the Aggregate Revolving Credit Commitments have expired, then the Applicable Percentage of each Lender in respect to the applicable Facility shall be determined based on the Applicable Percentage of such Lender most recently in effect, giving effect to any subsequent assignments. The Applicable Percentage of each Lender as of the Amendment No. 9 Effective Date in respect of the Term Loan Facility and the Revolving Credit Facility, respectively, is set forth opposite the name of such Lender on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable.
“Applicable Rate” means a percentage per annum equal to:
For calendar year ending | 2,018 | 2019 | 2020 | |
Revolving Credit Loans that are Eurocurrency Rate Loans |
5.00% | 6.00% | 7.00% | |
Revolving Credit Loans that are Base Rate Loans |
4.00% | 5.00% | 6.00% | |
Commitment fee incurred pursuant to Section 2.09(a) |
1.00% | 1.00% | 1.00% | |
Letter of Credit Fees for Financial Letters of Credit |
2.50% | 2.50% | 2.50% | |
Performance Letter of Credit Fees / Commercial Letter of Credit Fees |
1.50% | 1.50% | 1.50% | |
Term Loans that are Eurocurrency Rate Loans |
14.00% | 14.00% | 14.00% | |
Term Loans that are Base Rate Loans |
13.00% | 13.00% | 13.00% |
; provided that during the period commencing on the Amendment No. 5 Effective Date until the occurrence of a Recapitalization Transaction, “Applicable Rate” shall mean (a) 7.00%, with respect to Revolving Credit Loans that are Eurocurrency Rate Loans and (b) 6.00%, with respect to Revolving Credit Loans that are Base Rate Loans.
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“Approved Fund” means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
“Arranger” means MLPFS, BNP Paribas Securities Corp., J.P. Morgan Securities LLC, Wells Fargo Securities, LLC and Crédit Agricole Corporate and Investment Bank, each in its capacity as a joint lead arranger and joint book manager.
“Asset Sale” has the meaning specified in Section 7.04.
“Assignment and Assumption” means an assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 10.06(b)), and accepted by the Administrative Agent, in substantially the form of Exhibit E-1 or any other form (including electronic documentation generated by use of an electronic platform) approved by the Administrative Agent.
“Availability
Period” means (a) in respect of the Revolving Credit Facility, the period from and including the Closing Date to the
earliest of (i) the Revolving Credit Facility Maturity Date, (ii) the date of termination of the Aggregate Revolving Credit Commitments
pursuant to Section 2.06, and (iii) the date of termination of the Commitment of each Revolving Credit Lender to make
Revolving Credit Loans and of the obligation of the L/C Issuers to make L/C Credit Extensions pursuant to Section 8.02 and8.02, (b)
in respect of the Term Loan Facility, the period from and including the Amendment No. 9 Effective Date to the earliest of (i) the
Term Loan Facility Maturity Date, (ii) the date of termination of the Aggregate Term Loan Commitments pursuant to Section
2.06, (iii) the date of termination of the Commitment of each Term Loan Lender to make Term Loans pursuant to Section
8.02 and (iv) the date of the reduction of the Tranche A-1 Term Loan Commitment to zero as a result of Term Loan Borrowings
made under Section 2.01A, and (c) in respect of the Tranche A-5 Term Loan Commitment, the period
from and including the Amendment No. 20 Effective Date to the earlier of (i) the date the Tranche A-5 Term Loan Lender has provided
the Administrative Agent with written notice of the termination of the Tranche A-5 Term Loan Commitment and (ii) the Term Loan
Facility Maturity Date.
“Bail-In Action” means the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an EEA Financial Institution.
“Bail-In Legislation” means, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule.
“Bank of America” means Bank of America, N.A. and its successors.
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“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 Bank of America as its “prime rate” and (c) the Eurocurrency Rate determined in accordance with clause (b) of the definition thereof, plus 1.00%; provided that if the Base Rate shall be less than zero, such rate shall be deemed zero for purposes of this Agreement. The “prime rate” is a rate set by Bank of America based upon various factors including Bank of America’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in the “prime rate” announced by Bank of America shall take effect at the opening of business on the day specified in the public announcement of such change.
“Base Rate Loan” means a Term Loan or Revolving Credit Loan, as the context requires, that bears interest based on the Base Rate. All Base Rate Loans shall be denominated in Dollars.
“Borrower” has the meaning specified in the introductory paragraphs hereto.
“Borrower Materials” has the meaning specified in Section 6.01.
“Borrower’s Accountants” means Deloitte & Touche LLP or another firm of independent nationally recognized public accountants.
“Borrowing” means a Revolving Credit Borrowing, a Swing Line Borrowing or a Term Loan Borrowing, as the context may require.
“Budget” means a 13-week cash flow budget of the Borrower and its Subsidiaries, on a consolidated and segment-level basis, in form and substance satisfactory to the Administrative Agent, as may be updated pursuant to Section 6.29.
“Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Requirements of Law of, or are in fact closed in, the state where the Administrative Agent’s Office with respect to Obligations denominated in Dollars is located and:
(a) if such day relates to any interest rate settings as to a Eurocurrency Rate Loan denominated in Dollars, any fundings, disbursements, settlements and payments in Dollars in respect of any such Eurocurrency Rate Loan, or any other dealings in Dollars to be carried out pursuant to this Agreement in respect of any such Eurocurrency Rate Loan, means any such day that is also a London Banking Day; and
(b) if such day relates to any determination of the Spot Rate pursuant to this Agreement, means any such day on which banks are open for foreign exchange business in the principal financial center of the country of the relevant Alternative Currency for which the Spot Rate is being determined.
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“BWC” means The Babcock & Wilcox Company, a Delaware corporation, and (as of the date hereof, and prior to the Spinoff) the direct or indirect owner of 100% of the equity interests of the Borrower.
“BWPGG” means Babcock & Wilcox Power Generation Group, Inc., a Delaware corporation.
“Capital Expenditures” means, with respect to any Person for any period, the amount of all expenditures by such Person and its Subsidiaries during such period that are capital expenditures as determined in accordance with GAAP, whether such expenditures are paid in cash or financed.
“Capital Lease” means, with respect to any Person, any lease of (or other arrangement conveying the right to use) property by such Person as lessee that would be accounted for as a capital lease on a balance sheet of such Person prepared in conformity with GAAP.
“Capital Lease Obligations” means, with respect to any Person, the capitalized amount of all obligations of such Person or any of its Subsidiaries under Capital Leases, as determined on a consolidated basis in conformity with GAAP.
“Captive Insurance Subsidiaries” means, collectively or individually as of any date of determination, those regulated Subsidiaries of the Borrower primarily engaged in the business of providing insurance and insurance-related services to the Borrower, its other Subsidiaries and certain other Persons.
“Cash Collateralize” means to pledge and deposit with or deliver directly to an L/C Issuer or to the Administrative Agent, for the benefit of the Administrative Agent, any L/C Issuer or any Lender (including the Swing Line Lender), as the context may indicate, as collateral for L/C Obligations, Obligations in respect of Swing Line Loans, or obligations of Lenders to fund participations in respect of either thereof (as the context may require), cash or deposit account balances or, if the L/C Issuer or Swing Line Lender benefitting from such collateral shall agree in its sole discretion, other credit support, in each case pursuant to documentation in form and substance satisfactory to (a) the Administrative Agent (but only if the Administrative Agent is a party to such Cash Collateral arrangement) and (b) the applicable L/C Issuer or the Swing Line Lender (as applicable).
“Cash Collateral” shall have a meaning correlative to the foregoing and shall include the proceeds of such cash collateral and other credit support.
“Cash Collateralized Letter of Credit” has the meaning specified in Section 2.03(o).
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“Cash Equivalents” means (a) securities issued or fully guaranteed or insured by the United States government or any agency thereof, (b) certificates of deposit, eurodollar time deposits, overnight bank deposits and bankers’ acceptances of (i) any commercial bank organized under the laws of the United States, any state thereof, the District of Columbia, any foreign bank, or any branch or agency of any of the foregoing, in each case if such bank has a minimum rating at the time of investment of A-3 by S&P or P-3 by Moody’s, or (ii) any Lender or any branch or agency of any Lender, (c) commercial paper, (d) municipal issued debt securities, including notes and bonds, (e) (i) shares of any money market fund that has net assets of not less than $500,000,000 and satisfies the requirements of rule 2a-7 under the Investment Company Act of 1940 and (ii) shares of any offshore money market fund that has net assets of not less than $500,000,000 and a $1 net asset mandate, (f) fully collateralized repurchase agreements, (g) demand deposit accounts and (h) obligations issued or guaranteed by the government or by a governmental agency of Canada, Japan, Australia, Switzerland or a country belonging to the European Union; provided, however, that (i) all obligations of the type specified in clauses (c) or (d) above shall have a minimum rating of A-1 or AAA by S&P or P-1 or Aaa by Moody’s, in each case at the time of acquisition thereof, (ii) the country credit rating of any country issuing or guaranteeing (or whose governmental agency issues or guarantees) any obligation of the type specified in clause (h) above shall be AA or higher by S&P or an equivalent rating or higher by another generally recognized rating agency providing country credit ratings and (iii) the maturities of all obligations of the type described in clause (b) or (h) above shall not exceed one year from the date of acquisition thereof.
“Cash Interest Expense” means, with respect to any Person for any period, the Interest Expense of such Person for such period less, to the extent included in the calculation of Interest Expense of such Person for such period, (a) the amount of debt discount and debt issuance costs amortized, (b) charges relating to write-ups or write-downs in the book or carrying value of existing Financial Covenant Debt, (c) interest payable in evidences of Indebtedness or by addition to the principal of the related Indebtedness and (d) interest paid pursuant to the Second Lien Credit Agreement.
“Cash Management Agreement” means any agreement to provide cash management services, including treasury, depository, overdraft, credit or debit card, electronic funds transfer and other cash management arrangements in the ordinary course of business of the Borrower and its Subsidiaries.
“Cash Management Bank” means (a) any Person that, at the time it enters into a Cash Management Agreement, is a Revolving Credit Lender or an Affiliate of a Revolving Credit Lender, in its capacity as a party to such Cash Management Agreement, and (b) any Person that is a party to a Cash Management Agreement at the time it or its relevant Affiliate becomes a Revolving Credit Lender (whether on the Closing Date or at a later date pursuant to Section 10.06), in its capacity as a party to such Cash Management Agreement.
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“Change
in Law” means the occurrence, (wI)
after the date of this Agreement, with respect to the Revolving Credit Lenders and the L/C Issuer, (xII)
after the Amendment No. 9 Effective Date, with respect to the Tranche A-1 Term Loan Lenders, (yIII)
after the Amendment No. 15 Effective Date, with respect to the Tranche A-2 Term Loan Lenders and, (zIV)
after the Amendment No. 16 Effective Date, with respect to the Tranche A-3 Term Loan Lenders, and
(V) after the Amendment No. 20 Effective Date, with respect to the Tranche A-4 Term Loan Lenders and the Tranche A-5 Term Loan
Lender, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b)
any change in any law, rule, regulation or treaty or in the administration, interpretation, implementation or application thereof
by any Governmental Authority or (c) the making or issuance of any request, rule, guideline or directive (whether or not having
the force of law) by any Governmental Authority; provided that notwithstanding anything herein to the contrary,
(x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder
or issued in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the Bank for International
Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign
regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Change in Law”,
regardless of the date enacted, adopted or issued.
“Change of Control” means an event or series of events by which:
(a) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding (i) any employee benefit plan of such person or its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan and (ii) underwriters in the course of their distribution of Voting Stock in an underwritten registered public offering provided such underwriters shall not hold such Stock for longer than five Business Days) becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934), directly or indirectly, of more than 30% of the equity securities of the Borrower entitled to vote for members of the board of directors or equivalent governing body of the Borrower on a fully-diluted basis; provided that it shall not be deemed to be a Change of Control if Vintage Capital Management, LLC, B. Riley FBR, Inc. or a related “person” or “group” acceptable to the Administrative Agent and the Required Lenders becomes the beneficial owner of more than 30% of such equity securities of the Borrower pursuant simultaneously with or after the Recapitalization Transaction or the Qualified Rights Offering (and any related Additional Cashless Term Loan Prepayment); or
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(b) during any period of twelve consecutive calendar months, a majority of the members of the board of directors or other equivalent governing body of the Borrower cease to be composed of individuals (i) who were members of that board or equivalent governing body on the first day of such period, (ii) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (iii) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body; provided that individuals who are elected or appointed as members of the board of directors or other equivalent governing body in connection with the Spinoff (to the extent consistent with the Form 10 Transactions) shall, from and after the date the Spinoff is consummated, be deemed to be members of the board of directors or equivalent governing body pursuant to clause (i) above; provided further that individuals who are appointed by B. Riley FBR, Inc., Vintage Capital Management, LLC or their respective Affiliates as members of the board of directors or other equivalent governing body in connection with the Qualified Rights Offering shall, before and after the date the Qualified Rights Offering is consummated, be deemed to be members of the board of directors or equivalent governing body pursuant to clause (i) above.
“China JV” means the equity interests in Babcock & Wilcox Beijing Co., Ltd.
“Closing Date” means the first date all the conditions precedent in Section 4.02 are satisfied or waived in accordance with Section 10.01.
“CIO” has the meaning set forth in Section 6.33.
“Code” means the Internal Revenue Code of 1986.
“Collateral” means, collectively, the Pledged Interests and all other personal and real property of the Borrower, any Guarantor or any other Person in which the Administrative Agent or any Secured Party is granted a Lien under any Security Instrument as security for all or any portion of the Obligations or any other obligation arising under any Loan Document.
“Collateral Agreement” means the Pledge and Security Agreement dated as of the Closing Date by the Borrower and the Guarantors to the Administrative Agent for the benefit of the Secured Parties, substantially in the form of Exhibit G.
“Commitment” means, as to each Lender, the Revolving Credit Commitment and the Term Loan Commitment (as applicable) of such Lender.
“Commitment Letter” means that certain commitment letter dated as of April 7, 2015 by and among the Borrower, BWPGG, the Arrangers, Bank of America, BNP Paribas, JPMorgan Chase Bank, N.A., Wells Fargo Bank, National Association and Crédit Agricole Corporate and Investment Bank.
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“Commitment
Reduction Amount” means (a) with respect to any reduction of the Revolving Credit
Facility required by Section 2.06(b) related to a Prepayment Event under clause (a) of the definition thereof,
the Net Cash Proceeds of such event required to be utilized pursuant to Section 2.05(b) to make such a prepayment (including any
amount that may be retained by the Borrower pursuant to Section 2.05(b)(iv)), provided that (i) the Net Cash Proceeds received
from the China JV sale shall not be deemed to be included in this definition of “Commitment Reduction Amount,” (ii)
the Net Cash Proceeds received after the Amendment No. 6 Effective Date in connection with Prepayment Events on account of Recovery
Events shall be excluded from “Commitment Reduction Amount,” (iii) only 65% of the first $100,000,000 of the Net Cash
Proceeds received after the Amendment No. 6 Effective Date in connection with Prepayment Events on account of Asset Sales (other
than an Asset Sale pursuant to Section 7.04(p)) shall be deemed to be included in this definition of “Commitment Reduction
Amount,” and, (iv) provided that the Initial Tranche A Term Loan Funding has occurred, the first $25,000,000 of the Net
Cash Proceeds received in connection with an Asset Sale permitted pursuant to Section 7.04(p) shall be excluded from this definition
of “Commitment Reduction Amount” and (b) with respect to the issuance or other incurrence by the Borrower or any of
its Subsidiaries during the Relief Period of any unsecured Indebtedness pursuant to either (a) Section 7.01(i) in
an aggregate principal amount outstanding in excess of $25,000,000 or (b) Section 7.01(o), in each case other than
any such Indebtedness that constitutes Subordinated Debt, an amount equal to 50% of the aggregate principal amount of the incurrence
such Indebtedness.
“Commitment Reduction Event” means any event described in the definition of “Commitment Reduction Amount.”
“Committed Loan Notice” means a notice of (a) a Term Loan Borrowing, (b) a Revolving Credit Borrowing, (c) a conversion of Loans from one Type to the other, or (d) a continuation of Eurocurrency Rate Loans, pursuant to Section 2.02(a), which shall be substantially in the form of Exhibit A or such other form as may be approved by the Administrative Agent (including any form on an electronic platform or electronic transmission system, as shall be approved by the Administrative Agent), appropriately completed and signed by a Responsible Officer of the Borrower.
“Commodity Exchange Act” means the Commodity Exchange Act (7 U.S.C. § 1 et seq.), as amended from time to time, and any successor statute.
“Compliance Certificate” means a certificate substantially in the form of Exhibit D.
“Connection Income Taxes” means Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes.
“Consolidated Net Income” means, for any period, the net income (or loss) of the Borrower and its Subsidiaries for such period determined on a consolidated basis in accordance with GAAP.
“Consolidated Tangible Assets” means, as of any date of determination, the difference of (a) the consolidated total assets of the Borrower and its Subsidiaries as of such date, determined in accordance with GAAP, minus (b) all Intangible Assets of the Borrower and its Subsidiaries on a consolidated basis as of such date.
“Consortium” means any joint venture, consortium or other similar arrangement that is not a separate legal entity entered into by the Borrower or any of its Subsidiaries and one or more third parties, provided that no Loan Party shall, whether pursuant to the Constituent Documents of such joint venture or otherwise, be under any Contractual Obligation to make Investments or incur Guaranty Obligations after the Closing Date, or, if later, at the time of, or at any time after, the initial formation of such joint venture, consortium or similar arrangement that would be in violation of any provision of this Agreement.
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“Constituent Documents” means, with respect to any Person, (a) the articles of incorporation, certificate of incorporation or certificate of formation (or the equivalent organizational documents) of such Person and (b) the bylaws, partnership agreement or operating agreement (or the equivalent governing documents) of such Person.
“Consultant” means a consultant of recognized national standing acceptable to the Administrative Agent.
“Contaminant” means any material, substance or waste that is classified, regulated or otherwise characterized under any Environmental Law as hazardous, toxic, a contaminant or a pollutant or by other words of similar meaning or regulatory effect, including any petroleum or petroleum derived substance or waste, asbestos and polychlorinated biphenyls.
“Contractual Obligation” of any Person means any obligation, agreement, undertaking or similar provision of any Security issued by such Person or of any agreement, undertaking, contract, lease, indenture, mortgage, deed of trust or other instrument (excluding the Loan Documents) to which such Person is a party or by which it or any of its property is bound.
“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.
“Control Agreement” means a deposit account control agreement, securities account control agreement or a commodities account control agreement, in form and substance reasonably satisfactory to the Administrative Agent, among the Loan Party or Loan Parties holding the deposit account or deposit accounts, the security account or securities accounts, or the commodity account or commodities accounts subject to such control agreement, the Administrative Agent and the depositary bank of such deposit account(s), the securities intermediary maintaining any securities account, or the commodity intermediary maintaining any commodity account.
“Corporate
Action” means, commencing with the Amendment No. 16 Effective Date, the refinancing in full of the Aggregate
Revolving Credit Commitment in accordance with Section 6.39 in order to effectuate the occurrence of the Revolving Credit Facility
Termination Date.
“Credit Extension” means each of the following: (a) a Borrowing and (b) an L/C Credit Extension.
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“Customary Permitted Liens” means, with respect to any Person, any of the following Liens:
(a) Liens with respect to the payment of taxes, assessments or governmental charges in each case that are not yet due or that are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained to the extent required by GAAP and, in the case of Mortgaged Property, there is no material risk of forfeiture of such property;
(b) Liens of landlords arising by statute or lease contracts entered into in the ordinary course, inchoate, statutory or construction liens and liens of suppliers, mechanics, carriers, materialmen, warehousemen, producers, operators or workmen and other liens imposed by law created in the ordinary course of business for amounts not yet due or that are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained to the extent required by GAAP;
(c) liens, pledges or deposits made in the ordinary course of business in connection with workers’ compensation, unemployment insurance or other types of social security benefits, taxes, assessments, statutory obligations or other similar charges or to secure the performance of bids, tenders, sales, leases, contracts (other than for the repayment of borrowed money) or in connection with surety, appeal, customs or performance bonds or other similar instruments;
(d) encumbrances arising by reason of zoning restrictions, easements, licenses, reservations, covenants, rights-of-way, utility easements, building restrictions and other similar encumbrances on the use of Real Property not materially detracting from the value of such Real Property and not materially interfering with the ordinary conduct of the business conducted at such Real Property;
(e) encumbrances arising under leases or subleases of Real Property that do not, individually or in the aggregate, materially detract from the value of such Real Property or materially interfere with the ordinary conduct of the business conducted at such Real Property;
(f) financing statements with respect to a lessor’s rights in and to personal property leased to such Person in the ordinary course of such Person’s business;
(g) liens, pledges or deposits relating to escrows established in connection with the purchase or sale of property otherwise permitted hereunder and the amounts secured thereby shall not exceed the aggregate consideration in connection with such purchase or sale (whether established for an adjustment in purchase price or liabilities, to secure indemnities, or otherwise);
(h) bankers’ Liens, rights of setoff and other similar Liens existing solely with respect to cash and Cash Equivalents on deposit in one or more accounts maintained by the Borrower or a Subsidiary, in each case granted in the ordinary course of business in favor of the bank or banks with which such accounts are maintained, securing amounts owing to such bank with respect to cash management and operating account arrangements, including those involving pooled accounts and netting arrangements; provided that, unless such Liens are non-consensual and arise by operation of law, in no case shall any such Liens secure (either directly or indirectly) the repayment of any Indebtedness; and
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(i) options, put and call arrangements, rights of first refusal and similar rights (i) relating to Investments in Subsidiaries, Joint Ventures and Consortiums or (ii) provided for in contracts or agreements entered into in the ordinary course of business.
“Customer Concessions” has the meaning specified in Section 6.38.
“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 Requirements of Law of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.
“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 (a) when used with respect to Obligations arising under any Loan Document other than Letter of Credit Fees, an interest rate equal to (i) the Base Rate plus (ii) the Applicable Rate applicable to Base Rate Loans plus (iii) 2% per annum; provided, however, that with respect to a Eurocurrency Rate Loan, the Default Rate shall be an interest rate equal to the interest rate (including any Applicable Rate) otherwise applicable to such Loan plus 2% per annum, and (b) when used with respect to Letter of Credit Fees, a rate equal to the Applicable Rate applicable to Letter of Credit Fees plus 2% per annum.
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“Defaulting Lender” means, subject to Section 2.16(b), any Lender that (a) has failed to (i) fund all or any portion of its Loans within three Business Days of the date such Loans were required to be funded hereunder unless such Lender notifies the Administrative Agent and the Borrower in writing that such failure is the result of such Lender’s determination that one or more conditions precedent to funding (each of which conditions precedent, together with any applicable default, shall be specifically identified in such writing) has not been satisfied, or (ii) pay to the Administrative Agent, any L/C Issuer, the Swing Line Lender or any other Lender any other amount required to be paid by it hereunder (including in respect of its participation in Letters of Credit or Swing Line Loans) within three Business Days of the date when due, (b) has notified the Borrower, the Administrative Agent, any L/C Issuer or the Swing Line Lender in writing that it does not intend to comply with its funding obligations hereunder, or has made a public statement to that effect (unless such writing or public statement relates to such Lender’s obligation to fund a Loan hereunder and states that such position is based on such Lender’s determination that a condition precedent to funding (which condition precedent, together with any applicable default, shall be specifically identified in such writing or public statement) cannot be satisfied), (c) has failed, within three Business Days after written request by the Administrative Agent or the Borrower, to confirm in writing to the Administrative Agent and the Borrower that it will comply with its prospective funding obligations hereunder (provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon receipt of such written confirmation by the Administrative Agent and the Borrower), or (d) has, or has a direct or indirect parent company that has, (i) become the subject of a proceeding under any Debtor Relief Law, (ii) had appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or assets, including the Federal Deposit Insurance Corporation or any other state or federal regulatory authority acting in such a capacity or (iii) become the subject of a Bail-In Action; provided that a Lender shall not be a Defaulting Lender solely by virtue of the ownership or acquisition of any equity interest in that Lender or any direct or indirect parent company thereof by a Governmental Authority so long as such ownership interest does not result in or provide such Lender with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender. Any determination by the Administrative Agent that a Lender is a Defaulting Lender under any one or more of clauses (a) through (d) above, and of the effective date of such status, shall be conclusive and binding absent manifest error, and such Lender shall be deemed to be a Defaulting Lender (subject to Section 2.16(b)) as of the date established therefor by the Administrative Agent in a written notice of such determination, which shall be delivered by the Administrative Agent to the Borrower, each L/C Issuer, the Swing Line Lender and each other Lender promptly following such determination.
“Deferred Facility Fee” has the meaning specified in Section 2.09(b)(iv).
“Deferred Facility Fee Decrease Event” means the occurrence of any of the following: (a) the Borrower and its Subsidiaries’ receipt of Net Cash Proceeds in excess of $50,000,000 from one or more Prepayment Events in connection with Asset Sales occurring after the Amendment No. 5 Effective Date, (b) after or simultaneously with the satisfaction of the condition set forth in the immediately preceding clause (a), the Borrower and its Subsidiaries’ receipt of additional Net Cash Proceeds in excess of $25,000,000 from one or more Prepayment Events in connection with Asset Sales or (c) each of (i) the completion and customer turnover of the Vølund Projects related to the counterparties listed on Exhibit A of Amendment No. 16 under the heading “Deferred Fee Event Projects” (other than with respect to the Vølund Project located at [***]), (ii) the Borrower’s receipt of the takeover certificate with respect to the Vølund Project located at [***] and (iii) the Borrower’s completion of the work contemplated with respect to the Vølund Project located at [***] in accordance with the Vølund Project Settlement with respect to [***] on May 31, 2019.
“Deferred PBGC Payments” means pension payments deferred by the Borrower with the consent of the PBGC in an amount no greater than $25,000,000.
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“Deferred Ticking Fees” has the meaning specified in Section 2.09(b)(vi).
“Designated Jurisdiction” means any country or territory to the extent that such country or territory itself is, or whose government is, at the time of determination, the subject of any Sanction.
“Disqualified Stock” means with respect to any Person, any Stock that, by its terms (or by the terms of any Security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is exchangeable for Indebtedness of such Person, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the Maturity Date.
“Discharge of Second Priority Obligations” has the meaning specified in the Intercreditor Agreement.
“Disregarded Entity” means any Person that is disregarded as an entity separate from its owner for U.S. federal income tax purposes.
“Dollar” and “$” mean lawful money of the United States.
“Dollar Equivalent” means, at any time, (a) with respect to any amount denominated in Dollars, such amount, and (b) with respect to any amount denominated in any Alternative Currency, the equivalent amount thereof in Dollars as determined by the Administrative Agent or the applicable L/C Issuer, as the case may be, at such time on the basis of the Spot Rate (determined in respect of the most recent Revaluation Date) for the purchase of Dollars with such Alternative Currency.
“Domestic Subsidiary” means any Subsidiary that is organized under the laws of any political subdivision of the United States.
“EBITDA” means, for any period,
(a) Consolidated Net Income for such period;
plus
(b) the sum of, in each case (other than in the case of clause (xii)) to the extent deducted in the calculation of (or, in the case of clause (vii), otherwise reducing) such Consolidated Net Income but without duplication,
(i) any provision for income taxes,
(ii) Interest Expense,
(iii) depreciation expense,
(iv) amortization of intangibles or financing or acquisition costs,
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(v) any aggregate net loss from the sale, exchange or other disposition of business units by the Borrower or its Subsidiaries,
(vi) all other non-cash charges (including impairment of intangible assets and goodwill) and non-cash losses for such period, including non-cash employee compensation pursuant to any equity-based compensation plan (excluding any non-cash item to the extent it represents an accrual of, or reserve for, cash disbursements for any period ending prior to the Maturity Date);
(vii) (A) for any period that includes the Fiscal Quarter ended December 31, 2016, the actual costs, expenses, losses and/or reductions in Consolidated Net Income experienced by the Borrower and its Subsidiaries in such quarter in connection with the Volund Projects in an aggregate amount not to exceed $98,100,000 and, (B) for any period that includes the Fiscal Quarter ended June 30, 2017, the actual costs, expenses, losses and/or reductions in Consolidated Net Income experienced by the Borrower and its Subsidiaries in such quarter in connection with the Volund Projects in an aggregate amount not to exceed $115,200,000, (C) for any period that includes the Fiscal Quarter ended September 30, 2017, the actual costs, expenses, losses and/or reductions in Consolidated Net Income experienced by the Borrower and its Subsidiaries in such quarter in connection with the Vølund Projects in an aggregate amount not to exceed $30,100,000, (D) for any period that includes the Fiscal Quarter ended December 31, 2017, the actual costs, expenses, losses and/or reductions in Consolidated Net Income experienced by the Borrower and its Subsidiaries in such quarter in connection with the Vølund Projects in an aggregate amount not to exceed $38,700,000, (E) for any period that includes the Fiscal Quarter ended March 31, 2018, the actual costs, expenses, losses and/or reductions in Consolidated Net Income experienced by the Borrower and its Subsidiaries in such quarter in connection with the Vølund Projects in an aggregate amount not to exceed $51,100,000, (F) for any period that includes the Fiscal Quarter ended June 30, 2018, the actual costs, expenses, losses and/or reductions in Consolidated Net Income experienced by the Borrower and its Subsidiaries in such quarter in connection with the Vølund Projects in an aggregate amount not to exceed $72,800,000, (G) for any period that includes the Fiscal Quarter ended September 30, 2018, the actual costs, expenses, losses and/or reductions in Consolidated Net Income experienced by (i) the Borrower and its Subsidiaries in such quarter in connection with the Vølund Projects in an aggregate amount not to exceed $20,300,000 and (ii) SPIG S.p.A. and its Subsidiaries in such quarter in an aggregate amount not to exceed $5,000,000, and (H) for any period that includes the Fiscal Quarter ended December 31, 2018, the actual costs, expenses, losses and/or reductions in Consolidated Net Income experienced by (i) the Borrower and its Subsidiaries in such quarter in connection with the Vølund Projects in an aggregate amount not to exceed $19,100,000 and (ii) SPIG S.p.A. and its Subsidiaries in such quarter in an aggregate amount not to exceed $17,400,000;
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(viii) commencing with the Fiscal Quarter ending September 30, 2017, realized and unrealized foreign exchange losses of the Borrower and its Subsidiaries resulting from the impact of foreign currency changes on the valuation of assets and liabilities;
(ix) fees and expenses incurred in connection with Amendment No. 3, but solely to the extent disclosed in writing to and approved by the Administrative Agent in its reasonable discretion;
(x) (x) with respect to the period commencing on July 1, 2017 through December 31, 2017, non-recurring charges incurred by the Borrower or its Subsidiaries in respect of business restructurings, provided that the aggregate amount added back to Consolidated Net Income pursuant to this clause (x) for any four consecutive Fiscal Quarter period shall not exceed $4,000,000, (y) with respect to the period commencing on January 1, 2018 through December 31, 2019, non-recurring charges incurred by the Borrower or its Subsidiaries in respect of business restructurings to the extent disclosed in writing to the Administrative Agent and in an amount not to exceed $26,300,000 and (z) with respect to the period commencing on January 1, 2020 through December 31, 2020, non-recurring charges incurred by the Borrower or its Subsidiaries in respect of business restructurings to the extent disclosed in writing to the Administrative Agent and in an amount not to exceed $5,000,000;
(xi) (w) fees and expenses paid in connection with or pursuant to Amendment No. 5, Amendment No. 6 and Amendment No. 8 to the extent disclosed in writing to the Administrative Agent and in an amount not to exceed $24,600,000, (x) fees and expenses of the Administrative Agent’s advisors, including FTI and Freshfields Bruckhaus Deringer US LLP, (y) any loss, charge, expense or other items that are payments of Obligations under the Second Lien Credit Agreement (as defined in the Second Lien Credit Agreement) and (z) all restructuring-related professional fees and expenses, including but not limited to fees and expenses paid in connection with or pursuant to the Limited Waiver to Credit Agreement, dated as of March 15, 2019, Amendment No. 15, the Limited Waiver to Credit Agreement, dated as of March 29, 2019, Amendment No. 16, the Rights Offering, Amendment No. 20 and other matters acceptable to the Administrative Agent to the extent disclosed in writing to the Administrative Agent, provided that the aggregate amount added back to Consolidated Net Income pursuant to this clause (z) for any four consecutive Fiscal Quarter period shall not exceed $28,900,000;
(xii) the costs, fees and expenses incurred in connection with the Vølund Project Settlements in an amount not to exceed (x) for any period that includes the Fiscal Quarter ended December 31, 2018, $81,100,000 and (y) for any period that includes the Fiscal Quarter ended March 31, 2019, $6,500,000;
(xiii) for any period that includes the Fiscal Quarter ended December 31, 2018, any (x) write-off of debt by SPIG S.p.A. or its Subsidiaries and (y) write-down of or impairment of accounts receivables and inventory by Diamond Power Machine (Hubei) Co. Inc. in an aggregate amount under this clause (xiii) not to exceed $14,700,000;
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(xiv) on account of the expected loss of positive projected EBITDA from the assets of B&W PGG Luxembourg Finance S.à r.l. and its Subsidiaries sold pursuant to the Loibl Sale (as defined in that certain Consent, dated as of June 4, 2019) for any period that includes the Fiscal Quarter ending June 30, 2019, $326,429;
provided, that, to the extent that all or any portion of the income or gains of any Person is deducted pursuant to any of clauses (c)(iv) and (v) below for a given period, any amounts set forth in any of the preceding clauses (b)(i) through (b)(xiv) that are attributable to such Person shall not be included for purposes of this clause (b) for such period,
minus
(c) the sum of, in each case to the extent included in the calculation of such Consolidated Net Income but without duplication,
(i) any credit for income tax,
(ii) non-cash interest income,
(iii) any other non-cash gains or other items which have been added in determining Consolidated Net Income (other than any such gain or other item that has been deducted in determining EBITDA for a prior period),
(iv) the income of any Subsidiary or Joint Venture to the extent that the declaration or payment of dividends or similar distributions or transfers or loans by such Subsidiary or Joint Venture, as applicable, of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, statute, rule or governmental regulation applicable to such Subsidiary or Joint Venture, as applicable,
(v) the income of any Person (other than a Subsidiary) in which any other Person (other than the Borrower or a Wholly-Owned Subsidiary or any director holding qualifying shares in accordance with applicable law) has an interest, except to the extent of the amount of dividends or other distributions or transfers or loans actually paid to the Borrower or a Wholly-Owned Subsidiary by such Person during such period,
(vi) any aggregate net gains from the sale, exchange or other disposition of business units by the Borrower or any of its Subsidiaries out of the ordinary course of business,
(vii) commencing with the Fiscal Quarter ending September 30, 2017, realized and unrealized foreign exchange gains of the Borrower and its Subsidiaries resulting from the impact of foreign currency changes on the valuation of assets and liabilities,
(viii) commencing with the Fiscal Quarter ending June 30, 2018, any sums included in Consolidated Net Income to the extent such amounts were previously included for the Fiscal Quarter ended March 31, 2018 pursuant to clause (b)(xii) above; and
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(ix) commencing with the Fiscal Quarter ending September 30, 2018, any income on account of any settlement of or payment in respect of any property or casualty insurance claim or professional liability insurance claims or any taking or condemnation proceeding relating to any asset of the Borrower or any Subsidiary.
For any period of measurement that includes any Permitted Acquisition or any sale, exchange or disposition of any Subsidiary or business unit of the Borrower or any Subsidiary, EBITDA (and the relevant elements thereof) shall be computed on a pro forma basis for each such transaction as if it occurred on the first day of the period of measurement thereof, so long as the Borrower provides to the Administrative Agent reconciliations and other detailed information relating to adjustments to the relevant financial statements (including copies of financial statements of the acquired Person or assets in any Permitted Acquisition) used in computing EBITDA (and the relevant elements thereof) sufficient to demonstrate such pro forma calculations in reasonable detail. Notwithstanding the foregoing, no such pro forma adjustment will be required on account of income (i) in an amount not to exceed $3,000,000 in connection with the Borrower’s disposition of its indirect interest in the Stock or Stock Equivalents of Babcock & Wilcox Beijing Co., Ltd., or (ii) in connection with (x) the Orion Sale (as defined in that certain Consent and Amendment No. 7, dated as of June 1, 2018), (y) any Asset Sale of Project Burn or (z) the Loibl Sale (as defined in that certain Consent, dated as of June 4, 2019).
“EEA Financial Institution” means (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a Subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.
“EEA Member Country” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
“EEA Resolution Authority” means any public administrative authority or any Person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
“Eligible Assignee” means any Person that meets the requirements to be an assignee under Section 10.06(b)(iii) and (v) (subject to such consents, if any, as may be required under Section 10.06(b)(iii)).
“Eligible Line of Business” means the businesses and activities engaged in by the Borrower and its Subsidiaries on the Closing Date, any other businesses or activities reasonably related or incidental thereto and any other businesses that, when taken together with the existing businesses of the Borrower and its Subsidiaries, are immaterial with respect to the assets and liabilities of the Borrower and its Subsidiaries, taken as a whole.
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“Employee Benefit Plan” means any “employee benefit plan” as defined in Section 3(3) of ERISA which is sponsored, maintained or contributed to by, or required to be contributed to by, the Borrower, any of its Subsidiaries, any Guarantor or any of their respective ERISA Affiliates or was sponsored, maintained or contributed to by, or required to be contributed to by, the Borrower, any of its Subsidiaries, any Guarantor or any of their respective ERISA Affiliates with respect to liabilities for which the Borrower, any such Subsidiary, any such Guarantor or any of their respective ERISA Affiliates could be liable under the Code or ERISA.
“Environmental Laws” means all applicable Requirements of Law now or hereafter in effect and as amended or supplemented from time to time, relating to pollution or the regulation and protection of human health, safety, the environment or natural resources, including the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. § 9601 et seq.); the Hazardous Material Transportation Act, as amended (49 U.S.C. § 1801 et seq.); the Federal Insecticide, Fungicide, and Rodenticide Act, as amended (7 U.S.C. § 136 et seq.); the Resource Conservation and Recovery Act, as amended (42 U.S.C. § 6901 et seq.); the Toxic Substance Control Act, as amended (15 U.S.C. § 2601 et seq.); the Clean Air Act, as amended (42 U.S.C. § 7401 et seq.); the Federal Water Pollution Control Act, as amended (33 U.S.C. § 1251 et seq.); the Occupational Safety and Health Act, as amended (29 U.S.C. § 651 et seq.); the Safe Drinking Water Act, as amended (42 U.S.C. § 300f et seq.); and each of their state and local counterparts or equivalents.
“Environmental Liabilities and Costs” means, with respect to any Person, all liabilities, obligations, responsibilities, Remedial Actions, losses, damages, punitive damages, consequential damages, treble damages, costs and expenses (including all fees, disbursements and expenses of counsel, experts and consultants and costs of investigation and feasibility studies), fines, penalties, sanctions and interest incurred as a result of any claim or demand by any other Person, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute and arising under any Environmental Law, Permit, order or agreement with any Governmental Authority or other Person, in each case relating to and resulting from the past, present or future operations of, or ownership of property by, such Person or any of its Subsidiaries.
“Environmental Lien” means any Lien in favor of any Governmental Authority pursuant to any Environmental Law.
“Equity Backstop Commitment Letter” means each, as amended and restated as of the Amendment No. 6 Effective Date, (a) that certain letter regarding the equity financing commitment, between Vintage Capital Management, LLC and B. Riley Financial, Inc. and (b) that certain letter regarding the equity financing commitment, between the Borrower and Vintage Capital Management, LLC.
“ERISA” means the Employee Retirement Income Security Act of 1974.
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“ERISA Affiliate” means any trade or business (whether or not incorporated) under common control or treated as a single employer with the Borrower, any of its Subsidiaries or any Guarantor within the meaning of Section 414(b), (c), (m) or (o) of the Code. Any former ERISA Affiliate of the Borrower, any of its Subsidiaries or any Guarantor shall continue to be considered an ERISA Affiliate of the Borrower, such Subsidiary or such Guarantor within the meaning of this definition solely with respect to the period such entity was an ERISA Affiliate of the Borrower, such Subsidiary or such Guarantor and with respect to liabilities arising after such period for which the Borrower, such Subsidiary or such Guarantor could be liable under the Code or ERISA.
“ERISA Event” means (a) a reportable event described in Section 4043(b) or 4043(c) of ERISA with respect to a Title IV Plan for which notice has not been waived, (b) the withdrawal of the Borrower, any of its Subsidiaries, any Guarantor or any ERISA Affiliate from a Title IV Plan subject to Section 4063 or Section 4064 of ERISA during a plan year in which any such entity was a “substantial employer” (as defined in Section 4001(a)(2) of ERISA) or the termination of any such Title IV Plan resulting, in either case, in a material liability to any such entity, (c) the “complete or partial withdrawal” (within the meaning of Sections 4203 and 4205 of ERISA) of the Borrower, any of its Subsidiaries, any Guarantor or any ERISA Affiliate from any Multiemployer Plan where the Withdrawal Liability is reasonably expected to exceed $1,000,000 (individually or in the aggregate), (d) notice of reorganization, insolvency, intent to terminate or termination of a Multiemployer Plan is received by the Borrower, any of its Subsidiaries, any Guarantor or any ERISA Affiliate, (e) the filing of a notice of intent to terminate a Title IV Plan under Section 4041(c) of ERISA or the treatment of a plan amendment as a termination under Section 4041(e) of ERISA, where such termination constitutes a “distress termination” under Section 4041(c) of ERISA, (f) the institution of proceedings to terminate a Title IV Plan by the PBGC, (g) the failure to make any required contribution to a Title IV Plan or Multiemployer Plan or to meet the minimum funding standard of Sections 430 and 431 of the Code (in either case, whether or not waived), (h) the imposition of a Lien with respect to any employee pension plan under the provisions of the Code that relate to such plans or ERISA on the Borrower, any of its Subsidiaries, any Guarantor or any ERISA Affiliate, (i) any other event or condition that might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Title IV Plan or Multiemployer Plan or the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, (j) any Multiemployer Plan entering endangered status for purposes of Section 305 of ERISA, (k) the imposition of liability on the Borrower, any of its Subsidiaries, any Guarantor or any of their respective ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA, (l) the occurrence of an act or omission which would reasonably be expected to give rise to the imposition on the Borrower, any of its Subsidiaries, any Guarantor or any of their respective ERISA Affiliates of fines, penalties, taxes or related charges under Chapter 43 of the Code or under Section 409, Section 502(c), (i) or (l), or Section 4071 of ERISA in respect of any “employee pension plan” (within the meaning of Section 3(2) of ERISA), (m) receipt from the IRS of notice of the failure of any employee pension plan that is intended to be qualified under Section 401(a) of the Code so to qualify under Section 401(a) of the Code, or the failure of any trust forming part of any such employee pension plan to qualify for exemption from taxation under Section 501(a) of the Code or (n) the occurrence of any non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code involving the Borrower, any of its Subsidiaries, any Guarantor or any of their respective ERISA Affiliates. Notwithstanding the foregoing or anything in this Agreement to the contrary, an ‘ERISA Event’ shall not include (a) an application for waiver of the minimum funding standard under Section 412 of the Code for a Title IV Plan for the 2018 plan year or the 2019 plan year or (b) the failure to make any required contribution to a Title IV Plan or to meet the minimum funding standard of Section 430 of the Code with respect to a Title IV Plan for the 2018 plan year or the 2019 plan year.
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“EU Bail-In Legislation Schedule” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor person), as in effect from time to time.
“Eurocurrency Rate” means:
(a) for any Interest Period with respect to a Eurocurrency Rate Loan, the rate per annum equal to (i) the London Interbank Offered Rate (“LIBOR”), as published by Bloomberg (or 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, two London Banking 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 Eurocurrency Rate Loan being made, continued or converted and with a term equivalent to such Interest Period would be offered by Bank of America’s London Branch to major banks in the London interbank eurodollar market at their request at approximately 11:00 a.m. (London time) two London Banking Days prior to the commencement of such Interest Period; and
(b) for any interest calculation of the Eurocurrency Rate 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 London Banking Days prior to such date for Dollar deposits being delivered in the London interbank market for a term of one month commencing that day or (ii) if such published rate is not available at such time for any reason, the rate per annum determined by the Administrative Agent to be the rate at which deposits in Dollars for delivery on the date of determination in Same Day Funds in the approximate amount of the Base Rate Loan being made or maintained and with a term equal to one month would be offered by Bank of America’s London Branch to major banks in the London interbank eurodollar market at their request at the date and time of determination.
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Notwithstanding the foregoing, if the Eurocurrency Rate shall be less than zero, such rate shall be deemed to be zero for purposes of this Agreement.
“Eurocurrency Rate Loan” means a Term Loan or Revolving Credit Loan, as the context requires, that bears interest at a rate based on clause (a) of the definition of “Eurocurrency Rate.”
“Event of Default” has the meaning specified in Section 8.01.
“Excluded Deposit Account” means (a) any deposit account that is used solely for payment of taxes, payroll, bonuses, other compensation and related expenses, in each case, for employees or former employees, (b) fiduciary or trust accounts, (c) zero-balance accounts, so long as the balance in such account is zero at the end of each Business Day and (d) any other deposit account with an average daily balance on deposit not exceeding $100,000 individually or $500,000 in the aggregate for all such accounts excluded pursuant to this clause (d).
“Excluded Domestic Subsidiary” means any direct or indirect Subsidiary of a Loan Party that is directly or indirectly owned (in whole or in part) by any Foreign Subsidiary of a Loan Party.
“Excluded Swap Obligation” means, with respect to any Guarantor, any Swap Obligation if, and to the extent that, all or a portion of the Guaranty of such Guarantor of, or the grant by such Guarantor of a security interest to secure, such Swap Obligation (or any Guaranty thereof) is or becomes illegal under the Commodity Exchange Act or any rule, regulation or order of the Commodity Futures Trading Commission (or the application or official interpretation of any thereof) by virtue of such Guarantor’s failure for any reason to constitute an “eligible contract participant” as defined in the Commodity Exchange Act (determined after giving effect to any “keepwell, support or other agreement” for the benefit of such Guarantor and any and all guarantees of such Guarantor’s Swap Obligations by other Loan Parties) at the time the Guaranty of such Guarantor, or a grant by such Guarantor of a security interest, becomes effective with respect to such Swap Obligation. If a Swap Obligation arises under a master agreement governing more than one swap, such exclusion shall apply only to the portion of such Swap Obligation that is attributable to swaps for which such Guaranty or security interest is or becomes excluded in accordance with the first sentence of this definition.
“Excluded Taxes” means any of the following Taxes imposed on or with respect to any Recipient or required to be withheld or deducted from a payment to a Recipient, (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of such Recipient being organized under the laws of, or having its principal office or, in the case of any Lender, its Lending Office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) in the case of a Lender or L/C Issuer, U.S. federal withholding Taxes imposed on amounts payable to or for the account of such Lender or L/C Issuer (as applicable) with respect to an applicable interest in a Loan or Commitment or otherwise under a Loan Document pursuant to a law in effect on the date on which (i) such Lender or L/C Issuer (as applicable) acquires such interest in the Loan or Commitment or becomes a party to this Agreement (other than pursuant to an assignment request by the Borrower under Section 10.13) or (ii) such Lender or L/C Issuer (as applicable) changes its Lending Office, except in each case to the extent that, pursuant to Section 3.01(b), amounts with respect to such Taxes were payable either to such Lender’s or L/C Issuer’s (as applicable) assignor immediately before such Lender or L/C Issuer (as applicable) became a party hereto or to such Lender or L/C Issuer (as applicable) immediately before it changed its Lending Office, (c) Taxes attributable to such Recipient’s failure to comply with Section 3.01(f) and (d) any U.S. federal withholding Taxes imposed pursuant to FATCA.
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“Execution 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.
“Existing Credit Agreement” means that certain Second Amended and Restated Credit Agreement dated as of June 24, 2014 by and among BWC, as the borrower, Bank of America, as the administrative agent, and the lenders from time to time party thereto.
“Extended Letter of Credit” has the meaning specified in Section 2.03(a)(ii).
“Extended Letter of Credit Issuer” shall mean each L/C Issuer that is party to Amendment No. 16 in its capacity as L/C Issuer.
“Facility” means the Term Loan Facility or the Revolving Credit Facility, as the context may require.
“Fair Market Value” means the value that would be paid by a willing buyer to an unaffiliated willing seller in a transaction not involving distress or necessity of either party; provided that, for any determination of Fair Market Value in connection with an Asset Sale to be made pursuant to Section 7.04(i) in which the estimated fair market value of the properties disposed of in such Asset Sale exceeds $10,000,000, the Borrower shall provide evidence reasonably satisfactory to the Administrative Agent with respect to the calculation of such Fair Market Value.
“FASB ASC” means the Accounting Standards Codification of the Financial Accounting Standards Board.
“FATCA” means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof, any agreements entered into pursuant to Section 1471(b)(1) of the Code, and any intergovernmental agreements that implement or modify the foregoing (together with any Requirement of Law implementing such agreements).
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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 of New York 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 immediately 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 Bank of America on such day on such transactions as determined by the Administrative Agent.
“Fee Letters” means each of (a) the fee letter dated as of April 7, 2015 by and among the Borrower, BWPGG, the Arrangers, Bank of America, BNP Paribas, JPMorgan Chase Bank, N.A., Wells Fargo Bank, National Association and Crédit Agricole Corporate and Investment Bank, (b) the fee letter dated as of April 7, 2015by and among the Borrower, BWPGG, Bank of America and MLPFS, (c) the fee letter dated as of April 7, 2015 by and among the Borrower, BWPGG, BNP Paribas and BNP Paribas Securities Corp., (d) the fee letter dated as of April 7, 2015 by and among the Borrower, BWPGG, JPMorgan Chase Bank, N.A. and J.P. Morgan Securities LLC, (e) the fee letter dated as of April 7, 2015 by and among the Borrower, BWPGG, Wells Fargo Bank, National Association and Wells Fargo Securities, LLC and (f) the fee letter dated as of April 7, 2015 by and among the Borrower, BWPGG and Crédit Agricole Corporate and Investment Bank.
“Financial Covenant Debt” of any Person means, without duplication, Indebtedness of the type specified in clauses (a), (b), (c), (d), (e), (f), (g) and (h) of the definition of “Indebtedness,” provided that Indebtedness extended under the Term Loan Facility of the type set forth in clause (a) shall be excluded from the calculation of Financial Covenant Debt. For the avoidance of doubt, the term “Financial Covenant Debt” shall not include (a) reimbursement or other obligations with respect to unmatured or undrawn, as applicable, Performance Guarantees and (b) Indebtedness of the Borrower or any Subsidiary of the Borrower that is owed to the Borrower or any Subsidiary of the Borrower.
“Financial Letter of Credit” means any standby Letter of Credit that is not a Performance Letter of Credit.
“First-Tier Foreign Subsidiary” mean a Foreign Subsidiary all or any portion of whose Stock is owned directly by the Borrower or a Domestic Subsidiary that is a Guarantor.
“Fiscal Quarter” means the fiscal quarter of the Borrower ending on March 31, June 30, September 30 or December 31 of the applicable calendar year, as applicable.
“Fiscal Year” means the fiscal year of the Borrower, which is the same as the calendar year.
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“Fixed Rate” means a fixed rate per annum equal to 15.50%; provided that, commencing on the Business Day immediately after the delivery of a Fixed Rate Certificate to the Administrative Agent, the Fixed Rate shall be reduced to 12.00% (provided that if the Administrative Agent receives a Fixed Rate Certificate after the date such Fixed Rate Modification Event occurred as described in such certificate, such certificate shall be deemed to have been delivered on the later of (A) the date such Fixed Rate Modification Event occurred as set forth in such Fixed Rate Certificate and (B) the most recent Interest Payment Date with respect to the Fixed Rate Loans); provided further that if the Administrative Agent has not received a Fixed Rate Certificate on or before the Additional Term Loan Prepayment Transaction Deadline, the Fixed Rate shall be increased to 18.00% commencing on the Business Day immediately after the Additional Term Loan Prepayment Transaction Deadline.
“Fixed Rate Certificate” means either a certificate of (a) a Responsible Officer or (b) any Term Loan Lender certifying that the Fixed Rate Modification Event has occurred.
“Fixed Rate Loans” means those Term Loans that bear interest at the Fixed Rate. All Fixed Rate Loans shall be denominated in Dollars.
“Fixed Rate Modification Event” means the consummation of a Qualified Rights Offering prior to the Additional Term Loan Prepayment Transaction Deadline.
“Flood Requirement Standards” means, with respect to any parcel of owned Real Property to be subject to a Mortgage, (a) the delivery to the Administrative Agent of a completed “Life-of-Loan” Federal Emergency Management Agency Standard Flood Hazard Determination with respect to each such parcel of owned real property (together with a notice about special flood hazard area status and flood disaster assistance duly executed by the applicable Loan Party relating to such parcel of owned Real Property), (b) maintenance, if available, of fully paid flood hazard insurance on all such owned Real Property that is located in a special flood hazard area from such providers and on such terms and in such amounts as required by Flood Disaster Protection Act, The National Flood Insurance Reform Act of 1994 or as otherwise reasonably required by the Administrative Agent and (c) delivery to the Administrative Agent of evidence of such compliance in form and substance reasonably acceptable to the Administrative Agent.
“Foreign Lender” means a Lender that is not a U.S. Person.
“Foreign Security Provider” means the Foreign Subsidiaries identified by the Administrative Agent from time to time in consultation with the Borrower, which Foreign Subsidiaries may be located in the following jurisdictions: (i) Canada, (ii) Germany, (iii) the United Kingdom, (iv) Sweden, (v) Mexico and (vi) any other jurisdiction with the consent of the Borrower, which consent shall not be unreasonably withheld or delayed (provided that SPIG S.p.A. and its Subsidiaries, Babcock & Wilcox Vølund, A/S and its Subsidiaries, Babcock & Wilcox Loibl GmbH and Diamond Power Specialty Limited shall not be required to become Foreign Security Providers).
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“Foreign Subsidiary” means any Subsidiary that is organized under the laws of a jurisdiction other than the United States, a State thereof or the District of Columbia.
“Foreign Subsidiary Reorganization” means the transfer (whether by Asset Sale, dividend, distribution, contribution, merger or otherwise), in a series of transactions, of the Stock and Stock Equivalents of certain Foreign Subsidiaries and Investments owned, directly or indirectly, by the Borrower among the Borrower and its Subsidiaries; provided that:
(a) both before and after giving effect thereto, no Default shall have occurred and be continuing;
(b) all of the Stock and Stock Equivalents of such Foreign Subsidiaries and Investments owned, directly or indirectly, by the Borrower on the Closing Date shall be owned, directly or indirectly, by the Borrower upon the completion thereof (other than any such Stock, Stock Equivalents or Investments that are retired or replaced);
(c) any Stock, Stock Equivalents or Investments issued or made in connection therewith, to the extent replacing Stock, Stock Equivalents or Investments previously owned, directly or indirectly, by the Borrower on the Closing Date shall be owned, directly or indirectly, by the Borrower upon the completion thereof;
(d) after giving effect thereto, the Borrower shall be in compliance with Section 6.22 (including, without limitation, by pledging any Pledged Interests issued by any First Tier Foreign Subsidiary owned by any Loan Party)
(e) in connection therewith, no assets owned by any Loan Party that is a party to the Collateral Agreement, other than Stock and Stock Equivalents of Foreign Subsidiaries, shall be transferred to any Person that is not a Loan Party that is a party to the Collateral Agreement; provided that the foregoing shall not prohibit Investments otherwise permitted by a provision of Section 7.03 other than Section 7.03(k).
“Form 10” means the Form 10 (together with any exhibits thereto) filed with the SEC relating to the Spinoff.
“Form 10 Transactions” means the individual transactions entered into in connection with the Spinoff on substantially the same terms as set forth in the Form 10 (with non-material changes or other additional non-material transactions, steps or terms that are not adverse to any material interest of the Lenders being considered to be “on substantially the same terms”); provided that any amendments, additions, or other modifications to the Form 10 are made in accordance with Section 7.10.
“FRB” means the Board of Governors of the Federal Reserve System of the United States.
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“Fronting Exposure” means, at any time there is a Defaulting Lender, (a) with respect to each L/C Issuer, such Defaulting Lender’s Applicable Percentage of the outstanding L/C Obligations with respect to Letters of Credit issued by such L/C Issuer, other than L/C Obligations as to which such Defaulting Lender’s participation obligation has been reallocated to other Lenders or Cash Collateralized in accordance with the terms hereof, and (b) with respect to the Swing Line Lender, such Defaulting Lender’s Applicable Percentage of Swing Line Loans other than Swing Line Loans as to which such Defaulting Lender’s participation obligation has been reallocated to other Lenders or Cash Collateralized in accordance with the terms hereof.
“FTI” means FTI Consulting, Inc.
“Fund” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its activities.
“Funding Ratio” means that for each Dollar of Revolving Credit Loans made to the Borrower after the occurrence of the Initial Tranche A Term Loan Funding, a Dollar amount of Tranche A-1 Term Loans equal to (x) the amount of such Revolving Loans, plus (y) the amount of OID to be paid by the Borrower in connection with such Term Loans on the date of the applicable Term Loan Borrowing.
“GAAP” means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession in the United States, that are applicable to the circumstances as of the date of determination, consistently applied.
“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).
“Guarantors” means, collectively, each Wholly-Owned Domestic Subsidiary of the Borrower listed on Schedule 1.01(b) hereto, and each other Person that is or becomes a party to the Guaranty (including by (i) execution of a Joinder Agreement pursuant to Section 6.22 or (ii) otherwise pursuant to this Agreement), but expressly excludes all Captive Insurance Subsidiaries.
“Guaranty” means the Guaranty Agreement dated as of the Closing Date made by the Borrower (solely with respect to Obligations in the nature of Secured Cash Management Agreements and Secured Hedge Agreements) and by the Guarantors in favor of the Administrative Agent for the benefit of the Secured Parties, substantially in the form of Exhibit F, and any Joinder Agreement with respect thereto.
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“Guaranty Obligation” means, as applied to any Person, without duplication, any direct or indirect liability, contingent or otherwise, of such Person with respect to any Indebtedness of another Person, if the purpose of such Person in incurring such liability is to provide assurance to the obligee of such Indebtedness that such Indebtedness will be paid or discharged, or that any agreement relating thereto will be complied with, or that any holder of such Indebtedness will be protected (in whole or in part) against loss in respect thereof, including (a) the direct or indirect guaranty, endorsement (other than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of Indebtedness of another Person and (b) any liability of such Person for Indebtedness of another Person through any agreement (contingent or otherwise) (i) to purchase, repurchase or otherwise acquire such Indebtedness or any security therefor, or to provide funds for the payment or discharge of such Indebtedness (whether in the form of a loan, advance, stock purchase, capital contribution or otherwise), (ii) to maintain the solvency or any balance sheet item, level of income or financial condition of another Person, (iii) to make take-or-pay or similar payments, regardless of non-performance by any other party or parties to an agreement, (iv) to purchase, sell or lease (as lessor or lessee) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Indebtedness or to assure the holder of such Indebtedness against loss or (v) to supply funds to, or in any other manner invest in, such other Person (including to pay for property or services irrespective of whether such property is received or such services are rendered), if (and only if) in the case of any agreement described under clause (b)(i), (ii), (iii), (iv) or (v) above the primary purpose or intent thereof is to provide assurance to the obligee of Indebtedness of any other Person that such Indebtedness will be paid or discharged, or that any agreement relating thereto will be complied with, or that any holder of such Indebtedness will be protected (in whole or in part) against loss in respect thereof. The amount of any Guaranty Obligation shall be equal to the amount of the Indebtedness so guaranteed or otherwise supported or, if such amount is not stated or otherwise determinable, the maximum reasonable anticipated liability in respect thereof as determined by the guaranteeing Person in good faith. For the avoidance of doubt, the term “Guaranty Obligation” shall not include reimbursement or other obligations with respect to unmatured or undrawn, as applicable, Performance Guarantees.
“Hedge Bank” means (a) any Person that, at the time it enters into a Secured Swap Contract, is a Revolving Credit Lender or an Affiliate of a Revolving Credit Lender, in its capacity as a party to such Secured Swap Contract, and (b) any Person that is a party to a Secured Swap Contract at the time it or its relevant Affiliate becomes a Revolving Credit Lender (whether on the Closing Date or at a later date pursuant to Section 10.06), in its capacity as a party to such Secured Swap Contract.
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“Immaterial Subsidiary” means any Subsidiary of the Borrower that, together with its Subsidiaries, (a) contributed less than $1,000,000 to the EBITDA of the Borrower and its Subsidiaries during the most recently-ended four-quarter period of the Borrower (taken as a single period) and (b) as of any date of determination has assets with an aggregate net book value of $1,000,000 or less.
“Increase Effective Date” has the meaning specified in Section 2.14(c).
“Incremental Tranche A Term Loan Funding” means, after the occurrence of the Initial Tranche A Term Loan Funding, the Borrower’s receipt of Tranche A-1 Term Loan proceeds of $20,000,000 (which may be made in a single Borrowing or multiple Borrowings) following payment of any OID in connection with such funding on the date of the relevant Borrowing.
“Indebtedness” of any Person means, without duplication, (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person evidenced by promissory notes, bonds, debentures or similar instruments, (c) all matured reimbursement obligations with respect to letters of credit, bankers’ acceptances, surety bonds, performance bonds, bank guarantees, and other similar obligations, (d) all other obligations with respect to letters of credit, bankers’ acceptances, surety bonds, performance bonds, bank guarantees and other similar obligations, whether or not matured, other than unmatured or undrawn, as applicable, obligations with respect to Performance Guarantees, (e) all indebtedness for the deferred purchase price of property or services, other than trade payables incurred in the ordinary course of business that are not overdue by more than ninety days or are being disputed in good faith, (f) all indebtedness of such Person created or arising under any conditional sale or other title retention agreement (other than operating leases) with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (g) all Capital Lease Obligations of such Person, (h) all Guaranty Obligations of such Person, (i) all obligations of such Person to purchase, redeem, retire, defease or otherwise acquire for value any Stock or Stock Equivalents of such Person, valued, in the case of redeemable preferred stock, at the greater of its voluntary liquidation preference and its involuntary liquidation preference plus accrued and unpaid dividends, (j) net payments that such Person would have to make in the event of an early termination as determined on the date Indebtedness of such Person is being determined in respect of Swap Contracts of such Person and (k) all Indebtedness of the type referred to above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including accounts and general intangibles) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness, but limited to the value of the property owned by such Person securing such Indebtedness. For the avoidance of doubt, the term “Indebtedness” shall not include reimbursement or other obligations with respect to unmatured or undrawn, as applicable, Performance Guarantees.
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“Indemnified Taxes” means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of any Loan Party under any Loan Document and (b) to the extent not otherwise described in (a), Other Taxes.
“Indemnitees” has the meaning specified in Section 10.04(b).
“Information” has the meaning specified in Section 10.07.
“Information Memorandum” means the Confidential Information Memorandum, dated June 2014, in respect of the credit facilities provided under this Agreement.
“Initial Funding Term Loan Lender Expenses” has the meaning given to such term in the definition of “Term Loan Facility.”
“Initial Tranche A Term Loan Funding” means the Borrower’s receipt of Tranche A-1 Term Loan proceeds of $10,000,000 following payment of any Amendment No. 9 Closing Fee, Initial Funding Term Loan Lender Expenses and OID in connection with such funding.
“Intangible Assets” means assets that are considered to be intangible assets under GAAP, including customer lists, goodwill, computer software, copyrights, trade names, trademarks, patents, franchises and licenses.
“Intellectual Property Security Agreement” has the meaning given to such term in the Collateral Agreement.
“Intercompany Subordinated Debt Payment” means any payment or prepayment, whether required or optional, of principal, interest or other charges on or with respect to any Subordinated Debt of the Borrower or any Subsidiary of the Borrower, so long as (a) such Subordinated Debt is owed to the Borrower or a Subsidiary of the Borrower and (b) no Event of Default under Sections 8.01(a), (b) or (f) shall have occurred and be continuing.
“Intercreditor Agreement” means the Subordination and Intercreditor Agreement, dated as of the Amendment No. 3 Effective Date (as amended, supplemented or otherwise modified in accordance with the terms thereof), between the Administrative Agent, as first priority representative (and its permitted successor and assigns), and Lightship Capital LLC, as second priority representative (and its permitted successor and assigns), in form and substance satisfactory to the Administrative Agent and the Required Lenders.
“Interest Coverage Ratio” means, with respect to the Borrower and its Subsidiaries as of any day, the ratio of (a) EBITDA for the Borrower and its Subsidiaries for the last four full Fiscal Quarters ending on or prior to such day for which the financial statements and certificates required by Section 6.01(a) or 6.01(b) have been delivered to (b) the Cash Interest Expense of the Borrower and its Subsidiaries for the last four full Fiscal Quarters ending on or prior to such day for which the financial statements and certificates required by Section 6.01(a) or 6.01(b) have been delivered.
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“Interest Expense” means, for any Person for any period, total interest expense of such Person and its Subsidiaries for such period, as determined on a consolidated basis in conformity with GAAP and including, in any event (without duplication for any period or any amount included in any prior period), (a) net costs under Interest Rate Contracts for such period, (b) any commitment fee (including, in the case of the Borrower or any of its Subsidiaries, the commitment fees hereunder) accrued, accreted or paid by such Person during such period, (c) any fees and other obligations (other than reimbursement obligations) with respect to letters of credit (including, in respect of the Borrower or any of its Subsidiaries, the Letter of Credit Fees) and bankers’ acceptances (whether or not matured) accrued, accreted or paid by such Person for such period, (d) the fronting fee with respect to each Letter of Credit and (e) any facility fee (including, in the case of the Borrower or any of its Subsidiaries, the facility fees hereunder but excluding any Deferred Facility Fees or Deferred Ticking Fees) accrued, accreted or paid by such Person during such period. For purposes of the foregoing, interest expense shall (i) be determined after giving effect to any net payments made or received by the Borrower or any Subsidiary with respect to interest rate Swap Contracts, (ii) exclude interest expense accrued, accreted or paid by the Borrower or any Subsidiary of the Borrower to the Borrower or any Subsidiary of the Borrower and (iii) exclude credits to interest expense resulting from capitalization of interest related to amounts that would be reflected as additions to property, plant or equipment on a consolidated balance sheet of the Borrower and its Subsidiaries prepared in conformity with GAAP. Notwithstanding the foregoing, “Interest Expense” shall not include (1) any interest expense related to the ARPA litigation, as described in the Borrower’s Form 10-Q for the Fiscal Quarter ended June 30, 2017 or (2) any loss, charge, expense, prepayment premium or other items that payments of Obligations under the Second Lien Credit Agreement (as defined in the Second Lien Credit Agreement).
“Interest Payment Date” means, (a) as to any Loan other than a Base Rate Loan or a Fixed Rate Loan, the last day of each Interest Period applicable to such Loan and the Maturity Date of the Facility under which such Loan was made; provided, however, that if any Interest Period for a Eurocurrency 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 (provided that the Interest Payment Date with respect to any accrued interest outstanding as of the Amendment No. 16 Effective Date with respect to Term Loans shall be June 28, 2019); and (b) as to any Base Rate Loan (including a Swing Line Loan) or any Fixed Rate Loan, the last Business Day of each March, June, September and December and the Maturity Date of the Facility under which such Loan was made (with Swing Line Loans being deemed made under the Revolving Credit Facility for purposes of this definition).
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“Interest Period” means, as to each Eurocurrency Rate Loan, the period commencing on the date such Eurocurrency Rate Loan is disbursed or converted to or continued as a Eurocurrency Rate Loan and ending on the date one, two, three or six months thereafter (in each case, subject to availability), as selected by the Borrower in its Committed Loan Notice or such other period that is twelve months or less requested by the Borrower and consented to by all the Lenders under the applicable Facility; 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 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 Maturity Date.
“Interest Rate Contracts” means all interest rate swap agreements, interest rate cap agreements, interest rate collar agreements and interest rate insurance.
“Investment” means, as to any Person, (a) any purchase or similar acquisition by such Person of (i) any Security issued by, (ii) a beneficial interest in any Security issued by, or (iii) any other equity ownership interest in, any other Person, (b) any purchase by such Person of all or substantially all of the assets of a business conducted by any other Person, or all or substantially all of the assets constituting what is known to the Borrower to be the business of a division, branch or other unit operation of any other Person, (c) any loan, advance (other than deposits with financial institutions available for withdrawal on demand, prepaid expenses, accounts receivable and similar items made or incurred in the ordinary course of business) or capital contribution by such Person to any other Person, including all Indebtedness of any other Person to such Person arising from a sale of property by such Person other than in the ordinary course of its business and (d) any Guaranty Obligation incurred by such Person in respect of Indebtedness of any other Person. For the avoidance of doubt, the term “Investment” shall not include reimbursement or other obligations with respect to unmatured or undrawn, as applicable, Performance Guarantees.
“Inventory” has the meaning specified in the Collateral Agreement.
“IRS” means the United States Internal Revenue Service.
“ISP” means, with respect to any Letter of Credit, the “International Standby Practices 1998” published by the Institute of International Banking Law & Practice, Inc. (or such later version thereof as may be in effect at the time of issuance).
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“Issuer Documents” means with respect to any Letter of Credit, the Letter of Credit Application, and any other document, agreement and instrument entered into by the L/C Issuer and the Borrower (or any other Permitted L/C Party) or in favor of the L/C Issuer and relating to such Letter of Credit.
“Joinder Agreement” means a joinder agreement, in form and substance satisfactory to the Administrative Agent, with respect to the Guaranty or any Security Instrument.
“Joint Venture” means any Person (a) in which the Borrower, directly or indirectly, owns any Stock and Stock Equivalents of such Person and (b) that is not a Subsidiary of the Borrower, provided that (i) the Administrative Agent, on behalf of the Secured Parties, has a valid, perfected, first priority security interest in the Stock and Stock Equivalents in such joint venture owned directly by any Loan Party except where (x) the Constituent Documents of such joint venture prohibit such a security interest to be granted to the Administrative Agent or (y) such joint venture has incurred Non-Recourse Indebtedness the terms of which either (A) require security interests in such Stock and Stock Equivalents to be granted to secure such Non-Recourse Indebtedness or (B) prohibit such a security interest to be granted to the Administrative Agent, and (ii) no Loan Party shall, whether pursuant to the Constituent Documents of such joint venture or otherwise, be under any Contractual Obligation to make Investments or incur Guaranty Obligations after the Closing Date, or, if later, at the time of, or at any time after, the initial formation of such joint venture, that would be in violation of any provision of this Agreement.
“Landlord Lien Waiver” means a lien waiver signed by a landlord in such form as is reasonably satisfactory to the Administrative Agent.
“L/C Advance” means, with respect to each Lender, such Lender’s funding of its participation in any L/C Borrowing in accordance with its Applicable Percentage. All L/C Advances shall be denominated in Dollars.
“L/C Borrowing” means an extension of credit resulting from a drawing under any Letter of Credit which has not been reimbursed on the date when made or refinanced as a Revolving Credit Borrowing. All L/C Borrowings shall be denominated in Dollars.
“L/C Credit Extension” means, with respect to any Letter of Credit, the issuance thereof or extension of the expiry date thereof, or the increase of the amount thereof.
“L/C Issuer” means Bank of America, each other Lender that is listed on the signature pages hereto as an “L/C Issuer” and any other Lender that becomes an L/C Issuer in accordance with Section 2.03(l) hereof, each in its respective capacity as issuer of Letters of Credit hereunder, or any successor issuer of Letters of Credit hereunder (whether pursuant to Section 2.03(l), 2.03(m), 9.06, 10.06 or otherwise), but excluding any Lender that resigns or is removed as an L/C Issuer pursuant to the terms hereof (except to the extent such Person has continuing rights and/or obligations with respect to Letters of Credit after such resignation or removal). References to the L/C Issuer herein shall, as the context may indicate (including with respect to any particular Letter of Credit, L/C Credit Extension, L/C Borrowing or L/C Obligations), mean the applicable L/C Issuer, each L/C Issuer, any L/C Issuer, or all L/C Issuers.
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“L/C Issuer Sublimit” means with respect to each L/C Issuer, such amount as may be separately agreed between such L/C Issuer and the Borrower from time to time (with specific notice of such amount, and any change thereto, with respect to each L/C Issuer being promptly communicated to the Administrative Agent), provided that the L/C Issuer Sublimit with respect to any Person that ceases to be an L/C Issuer for any reason pursuant to the terms hereof shall be $0 (subject to the Letters of Credit of such Person remaining outstanding in accordance with the provisions hereof).
“L/C Obligations” means, as at any date of determination, the aggregate amount available to be drawn under all outstanding Letters of Credit plus the aggregate of all Unreimbursed Amounts, including all L/C Borrowings; provided that, for purposes of calculating outstanding L/C Obligations with respect to outstanding Extended Letters of Credit, 105% of the aggregate amount available to be drawn shall be included and (y) any Extended Letters of Credit treated as drawn under Section 6.26 shall be treated as undrawn. For purposes of computing the amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.08. For all purposes of this Agreement, if on any date of determination a Letter of Credit has expired by its terms but any amount may still be drawn thereunder by reason of the operation of Rule 3.14 of the ISP, such Letter of Credit shall be deemed to be “outstanding” in the amount so remaining available to be drawn. The L/C Obligations of (a) any Lender at any time shall be its Applicable Percentage of the total L/C Obligations at such time, and (b) any particular L/C Issuer at any time shall mean the L/C Obligations allocable to Letters of Credit issued by such L/C Issuer.
“Lender” has the meaning specified in the introductory paragraphs hereto and, unless the context requires otherwise, includes the Swing Line Lender.
“Lending Office” means, as to any Lender, the office or offices of such Lender described as such in such Lender’s Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify the Borrower and the Administrative Agent, which office may include any Affiliate of such Lender or any domestic or foreign branch of such Lender or such Affiliate. Unless the context otherwise requires each reference to a Lender shall include its applicable Lending Office.
“Letter of Credit” means any letter of credit issued hereunder providing for the payment of cash upon the honoring of a presentation thereunder, and includes all letters of credit issued under the Existing Credit Agreement that are outstanding on the Closing Date and issued for the account of a Permitted L/C Party, which shall in each case be deemed to have been issued hereunder. A Letter of Credit may be a commercial letter of credit or a standby letter of credit, and a standby Letter of Credit may be a Performance Letter of Credit or a Financial Letter of Credit.
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“Letter of Credit Application” means an application and agreement for the issuance or amendment of a Letter of Credit in the form from time to time in use by the L/C Issuer.
“Letter of Credit Expiration Date” means the day that is 30 days prior to the Revolving Credit Facility Maturity Date (or, if such day is not a Business Day, the immediately preceding Business Day).
“Letter of Credit Fee” has the meaning specified in Section 2.03(h).
“Lien” means any mortgage, deed of trust, pledge, hypothecation, collateral assignment, charge, deposit arrangement, encumbrance, lien (statutory or other), security interest or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever intended to assure payment of any Indebtedness or the performance of any other obligation, including any conditional sale or other title retention agreement, the interest of a lessor under a Capital Lease and any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any effective financing statement under the UCC or comparable law of any jurisdiction naming the owner of the asset to which such Lien relates as debtor.
“Liquidity”
means at any time the sum of (a) unrestricted cash and Cash Equivalents of the Borrower and the other Loan Parties, subject
to a Control Agreement in favor of the Administrative Agent (excluding any Cash Collateral or
proceeds in the Recovery Event Proceeds Account), provided that such cash shall not be required to be subject to a
Control Agreement until 30 days after the Amendment No. 3 Effective Date, (b) unrestricted cash and Cash Equivalents of the
Non-Loan Parties in an amount not to exceed $50,000,000 and (c) (i) after the Amendment No. 3 Effective Date
and during the Relief Period, the lesser of (x) (A) commencing on the
Amendment No. 16 Effective Date through September 30, 2019, $210,000,000, (B) from October 1, 2019 through January 24, 2020,
$205,000,000 or (C) thereafter, $190,000,000,$205,000,000, less the
aggregate outstanding principal amount of Revolving Credit Loans and (y) the Revolving Credit
Facility, less the Total Revolving Outstandings (other than, after the consummation of the sale of Selected
Assets in accordance with the Orion Plan, the aggregate amount available to be drawn under all outstanding Letters of Credit
originally issued solely on account of the operations of MEGTEC, Universal and their respective Subsidiaries to the extent
that such obligations are Cash Collateralized or backstopped by a letter of credit (other than a Letter of Credit issued
hereunder), in form and substance reasonably satisfactory to the Administrative Agent and the applicable L/C Issuer), and,
(ii) other than during the Relief Period, the Revolving Credit Facility, less the Total Revolving
Outstandings (other than, after the consummation of the sale of Selected Assets in accordance with the Orion Plan, the
aggregate amount available to be drawn under all outstanding Letters of Credit originally issued solely on account of the
operations of MEGTEC, Universal and their respective Subsidiaries to the extent that such obligations are Cash Collateralized
or backstopped by a letter of credit (other than a Letter of Credit issued hereunder), in form and substance reasonably
satisfactory to the Administrative Agent and the applicable L/C Issuer).
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“Loan” means an extension of credit by a Lender to the Borrower under Article II in the form of a Revolving Credit Loan, a Swing Line Loan or a Term Loan.
“Loan Documents” means this Agreement, each Note, the Guaranty, the Intercreditor Agreement, each Security Instrument, each Joinder Agreement, each Committed Loan Notice, each Issuer Document, each Fee Letter, any agreement creating or perfecting rights in Cash Collateral pursuant to the provisions of Section 2.03 or 2.15 of this Agreement and all other instruments and documents heretofore or hereafter executed or delivered to or in favor of the Administrative Agent, any Lender or any L/C Issuer in connection with the Loans made, Letters of Credit issued and transactions contemplated by this Agreement.
“Loan Parties” means, collectively, the Borrower, each Guarantor and any other Person (other than a Lender) providing Collateral pursuant to any Security Instrument.
“London Banking Day” means any day on which dealings in Dollar deposits are conducted by and between banks in the London interbank eurodollar market.
“Material Acquisition” means a Permitted Acquisition in which the sum of the cash consideration paid (including for the repayment and retirement of outstanding Indebtedness) plus any Indebtedness assumed equals or exceeds $100,000,000.
“Material Adverse Effect” means (a) a material adverse change in, or a material adverse effect upon, the operations, business, assets, properties, liabilities (actual or contingent), or condition (financial or otherwise) of the Borrower and its Subsidiaries taken as a whole; (b) a material impairment of the rights and remedies of the Administrative Agent or any Lender under any Loan Document or of the ability of any Loan Party to perform its obligations under any Loan Document to which it is a party; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against any Loan Party of any Loan Document to which it is a party.
“Material Intellectual Property” has the meaning specified in the Collateral Agreement.
“Material Real Property” means, any parcel of real property located in the United States and owned by any Loan Party that has a Fair Market Value in excess of $1,000,000; provided that the Administrative Agent may agree in its sole discretion to exclude from this definition any parcel of real property (and/or the buildings and contents therein) that is located in a special flood hazard area as designated by any federal Governmental Authority.
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“Material Subsidiary” means, as of any date of determination, any Subsidiary of the Borrower that (a) has assets that represent more than 10% of the consolidated GAAP value of the assets of the Borrower and its Subsidiaries, inclusive of the subject Subsidiary, as of such date or (b) contributed more than 10% of the EBITDA of the Borrower and its Subsidiaries, inclusive of the subject Subsidiary, during the most recently-ended four-quarter period of the Borrower (taken as a single period), or (c) with respect to any new Person acquired or created by the Borrower, (i) would have contributed more than 10% of the EBITDA of the Borrower and its Subsidiaries, inclusive of the subject Subsidiary, on a pro forma basis as of the last day of the most recently ended four-quarter period of the Borrower (taken as a single period) or (ii) held more than 10% of the consolidated GAAP value of the assets of the Borrower and its Subsidiaries, inclusive of the subject Subsidiary, as of such date, or (d) owns, directly or indirectly, Stock or Stock Equivalents in one or more other Subsidiaries of the Borrower that, when aggregated with such Subsidiary, (i) contributed more than 10% of the EBITDA of the Borrower and its Subsidiaries, inclusive of the subject Subsidiary, during the most recently ended four-quarter period of the Borrower (taken as single period) or (ii) held more than 10% of the consolidated GAAP value of the assets of the Borrower and its Subsidiaries, inclusive of the subject Subsidiary, as of such date.
“Maturity Date” means (a) the Revolving Credit Facility Maturity Date or (b) the Term Loan Facility Maturity Date, as the context requires.
“MEGTEC” means Babcock & Wilcox MEGTEC Holdings, Inc., Babcock & Wilcox MEGTEC, LLC, and their respective Subsidiaries.
“Minimum Collateral Amount” means, at any time, (i) with respect to Cash Collateral consisting of cash or deposit account balances provided to reduce or eliminate Fronting Exposure during the existence of a Defaulting Lender, an amount equal to 100% of the Fronting Exposure of each L/C Issuer with respect to Letters of Credit issued by such L/C Issuer and outstanding at such time and (ii) with respect to Cash Collateral consisting of cash or deposit account balances provided in accordance with the provisions of Section 2.15(a)(i) or (a)(ii), an amount equal to 100% of the Outstanding Amount of all LC Obligations.
“Minimum Customer Concessions Amount” has the meaning specified in Section 6.38.
“MIRE Event” means any increase, extension or renewal of any Commitment (including pursuant to Section 2.14), or the addition of any new commitment hereunder.
“MLPFS” means Merrill Lynch, Pierce, Fenner & Smith Incorporated.
“Moody’s” means Moody’s Investors Service, Inc. and any successor thereto.
“Mortgagee Policies” has the meaning specified in Section 4.02(a)(iii)(B).
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“Mortgaged Properties” mean, initially, (a) each parcel of Real Property and the improvements thereto specified on Schedule 4.02(a)(iii) (except to the extent the Administrative Agent agrees, as provided in such definition, between the Execution Date and the Closing Date to exclude any such parcel (and/or the buildings and contents therein) from the definition of Material Real Property) and (b) shall include each other parcel of Material Real Property and improvements thereto with respect to which a Mortgage is granted pursuant to Section 6.23.
“Mortgages” mean the fee or leasehold mortgages or deeds of trust, assignments of leases and rents and other security documents (including any such document delivered in connection with the Existing Credit Agreement and remaining in place in connection with this Agreement) granting a Lien on any Mortgaged Property to secure the Obligations, each in form and substance reasonably satisfactory to the Administrative Agent, as the same may be amended, supplemented, replaced or otherwise modified from time to time in accordance with this Agreement.
“Multiemployer Plan” means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, to which the Borrower, any of its Subsidiaries, any Guarantor or any ERISA Affiliate has any obligation or liability, contingent or otherwise.
“Net Cash Proceeds” means:
(a) with respect to any Asset Sale by, or Recovery Event of, the Borrower or any of its Subsidiaries, the excess, if any, of (i) the sum of cash and Cash Equivalents received in connection with such transaction (including any cash or 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) over (ii) the sum of (A) the principal amount of any Indebtedness that is secured by the applicable asset and that is required to be repaid in connection with such transaction (other than Indebtedness under the Loan Documents), (B) the reasonable out-of-pocket expenses incurred by the Borrower or such Subsidiary in connection with such transaction and (C) Taxes actually paid or withheld or reasonably expected to be paid or withheld within the twenty-four month period following the date of the relevant transaction (and Tax distributions or payments under a Tax sharing agreement with respect thereto) in connection with such Asset Sale or Recovery Event (including any Taxes paid or withheld or reasonably expected to be paid or withheld within the twenty-four month period following the date of the relevant transaction as a result of any gain recognized in connection therewith or any repatriation of the resulting cash or Cash Equivalents to the United States); provided that, if the amount of any estimated taxes pursuant to subclause (C) exceeds the amount of taxes actually required to be paid in cash in respect of such Asset Sale or Recovery Event, the aggregate amount of such excess shall constitute Net Cash Proceeds;
(b) with respect to the incurrence or issuance of any Indebtedness by the Borrower or any of its Subsidiaries, the excess of (i) the sum of the cash and Cash Equivalents received in connection with such transaction over (ii) the underwriting discounts and commissions, and other reasonable and customary out-of-pocket expenses and Taxes, incurred by the Borrower or such Subsidiary in connection therewith;
(c) with respect to the issuance of any Stock or Stock Equivalents of the Borrower or contribution to the equity of the Borrower, the excess of (i) the sum of the cash and Cash Equivalents received in connection with such transaction over (ii) the reasonable and customary out-of-pocket expenses incurred by the Borrower or such Subsidiary in connection therewith; and
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(d) with respect to any Released Cash Collateral, all of such Released Cash Collateral.
“Non-Cash Consideration” means the Fair Market Value of non-cash consideration received by the Borrower or a Subsidiary in connection with an Asset Sale less the amount of cash or Cash Equivalents received in connection with a subsequent sale of or collection on such Non-Cash Consideration.
“Non-Loan Parties” means, collectively, the Subsidiaries that are not Loan Parties.
“Non-Recourse Indebtedness” means Indebtedness of a Joint Venture or Subsidiary of the Borrower (in each case that is not a Loan Party) (a) that, if it is incurred by a Subsidiary of the Borrower, is on terms and conditions reasonably satisfactory to the Administrative Agent, (b) that is not, in whole or in part, Indebtedness of any Loan Party (and for which no Loan Party has created, maintained or assumed any Guaranty Obligation) and for which no holder thereof has or could have upon the occurrence of any contingency, any recourse against any Loan Party or the assets thereof (other than (i) the Stock or Stock Equivalents issued by the Joint Venture or Subsidiary that is primarily obligated on such Indebtedness that are owned by a Loan Party and (ii) a requirement that a Loan Party make an Investment of equity in such Joint Venture in connection with the terms of such Indebtedness), (c) owing to an unaffiliated third-party (which for the avoidance of doubt does not include the Borrower, any Subsidiary thereof, any other Loan Party, any Joint Venture (or owner of any interest therein) and any Affiliate of any of them) and (d) the source of repayment for which is expressly limited to (i) the assets or cash flows of such Subsidiary or Joint Venture and (ii) the Stock and Stock Equivalents of such Subsidiary or Joint Venture securing such Indebtedness in compliance with the provisions of clause (b) above.
“Note” means a promissory note made by the Borrower in favor of a Lender evidencing Term Loans, Revolving Credit Loans or Swing Line Loans, as the case may be, made by such Lender, substantially in the form of Exhibit C.
“Obligations” means all advances to, and debts, liabilities, obligations, covenants and duties of, any Loan Party (and, with respect to Secured Cash Management Agreements and Secured Hedge Agreements only, any Subsidiary of the Borrower) arising under any Loan Document or otherwise with respect to any Loan, Letter of Credit, Secured Cash Management Agreement or Secured Hedge Agreement, in each case 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 (or any Subsidiary of the Borrower solely with respect to Secured Cash Management Agreements and Secured Hedge Agreements) 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; provided that the Obligations shall exclude any Excluded Swap Obligations.
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“OFAC” means the Office of Foreign Assets Control of the United States Department of the Treasury.
“OID” has the meaning specified in Section 2.09(b)(v).
“Orion Plan” means an asset divestiture plan with respect to MEGTEC and Universal, which plan will include a detailed description of the analysis performed by the CIO to determine the process and timing to effectuate such sale and a detailed rationale for such decisions.
“Other Connection Taxes” means, with respect to any Recipient, Taxes 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 Taxes” means all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any 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 10.13).
“Outstanding Amount” means (a) with respect to Term Loans on any date, the aggregate outstanding principal amount thereof after giving effect to any borrowings and prepayments or repayments of such Term Loans occurring on such date; (b) with respect to Revolving Credit Loans on any date, the aggregate outstanding principal amount thereof after giving effect to any borrowings and prepayments or repayments of such Revolving Credit Loans occurring on such date; (c) with respect to Swing Line Loans on any date, the aggregate outstanding principal amount thereof after giving effect to any borrowings and prepayments or repayments of such Swing Line Loans occurring on such date; and (d) with respect to any L/C Obligations on any date, the Dollar Equivalent amount of the aggregate outstanding amount of such L/C Obligations on such date after giving effect to any L/C Credit Extension occurring on such date and any other changes in the aggregate amount of the L/C Obligations as of such date, including as a result of any reimbursements by the Borrower of Unreimbursed Amounts.
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“Overnight Rate” means, for any day, the greater of (a) the Federal Funds Rate and (b) an overnight rate determined by the Administrative Agent, the L/C Issuer, or the Swing Line Lender, as the case may be, in accordance with banking industry rules on interbank compensation.
“Participant” has the meaning specified in Section 10.06(d).
“Participant Register” has the meaning specified in Section 10.06(d).
“PBGC” means the Pension Benefit Guaranty Corporation or any successor thereto.
“Performance Guarantee” of any Person means (a) any letter of credit, bankers acceptance, surety bond, performance bond, bank guarantee or other similar obligation issued for the account of such Person to support only trade payables or nonfinancial performance obligations of such Person, (b) any letter of credit, bankers acceptance, surety bond, performance bond, bank guarantee or other similar obligation issued for the account of such Person to support any letter of credit, bankers acceptance, surety bond, performance bond, bank guarantee or other similar obligation issued for the account of a Subsidiary, a Joint Venture or a Consortium of such Person to support only trade payables or non-financial performance obligations of such Subsidiary, Joint Venture or Consortium, and (c) any parent company guarantee or other direct or indirect liability, contingent or otherwise, of such Person with respect to trade payables or non-financial performance obligations of a Subsidiary, a Joint Venture or a Consortium of such Person, if the purpose of such Person in incurring such liability is to provide assurance to the obligee that such contractual obligation will be performed, or that any agreement relating thereto will be complied with.
“Performance Letter of Credit” means (a) a standby Letter of Credit issued to secure ordinary course performance obligations in connection with project engineering, procurement, construction, maintenance and other similar projects (including projects about to be commenced) or bids for prospective project engineering, procurement, construction, maintenance and other similar projects, and (b) a standby Letter of Credit issued to back a bank guarantee, surety bond, performance bond or other similar obligation in each case issued to support ordinary course performance obligations in connection with project engineering, procurement, construction, maintenance and other similar projects (including projects about to be commenced) or bids for prospective project engineering, procurement, construction, maintenance and other similar projects.
“Permit” means any permit, approval, authorization, license, variance or permission required from a Governmental Authority under any applicable Requirements of Law.
“Permitted Acquisition” means, the Acquisition of an Acquired Entity; provided that:
(a) such Acquisition was approved by the board of directors of such Acquired Entity;
(b) the Acquired Entity shall be in an Eligible Line of Business;
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(c) the Borrower and its Subsidiaries shall comply with Sections 6.22 and 6.23, as applicable, within the time periods set forth in such Sections;
(d) at the time of such transaction:
(i) both before and after giving effect thereto, no Default shall have occurred and be continuing;
(ii) the Borrower would be in compliance with the Senior Leverage Ratio set forth in Section 7.16(b) as of the last day of the most recently completed four Fiscal Quarter period ended prior to such transaction for which the financial statements and certificates required by Section 6.01(a) or 6.01(b) have been delivered, after giving pro forma effect to such transaction and to any other event occurring after such period as to which pro forma recalculation is appropriate as if such transaction had occurred as of the first day of such period (assuming, for purposes of pro forma compliance with Section 7.16(b), that the maximum Senior Leverage Ratio permitted at the time by such Section was in fact 0.25 to 1.00 more restrictive than the Senior Leverage Ratio actually provided for in such Section at such time); and
(iii) if the purchase price for such Acquisition is in excess of $50,000,000, the Borrower shall have delivered (prior to or simultaneously with the closing of such Acquisition) a certificate of a Responsible Officer, certifying as to the foregoing and containing reasonably detailed calculations in support thereof, in form and substance reasonably satisfactory to the Administrative Agent; and
(e) if (i) the Borrower is a party to such transaction, it shall be a surviving entity thereof and shall continue as the Borrower hereunder, and (ii) if any party to any such transaction is a Guarantor, the surviving entity of such transaction shall either be a Guarantor or become a Guarantor pursuant to Section 6.22.
“Permitted L/C Party” means (a) the Borrower, (b) any Subsidiary of the Borrower, (c) any Joint Venture and (d) any Consortium.
“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.
“Plan” means an asset divestiture plan, which plan will include a detailed description of the analysis performed by the CIO to determine what assets to sell or retain, the process and timing to effectuate such sales and a detailed rationale for such decisions.
“Platform” has the meaning specified in Section 6.01.
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“Pledged Interests” means (a) the Stock and Stock Equivalents of each of the existing or hereafter organized or acquired direct Domestic Subsidiaries of a Loan Party; and (b) 100% of the Voting Stock (or if the relevant Person shall own less than 100% of such Voting Stock, then 100% of the Voting Stock owned by such Person) and 100% of the nonvoting Stock and Stock Equivalents of each existing or hereafter organized or acquired First-Tier Foreign Subsidiary; provided that Pledged Interests shall not include any Stock or Stock Equivalents in (i) any Captive Insurance Subsidiary, (ii) any Joint Venture to the extent that the Constituent Documents of such Joint Venture prohibit such a security interest to be granted to the Administrative Agent, or (iii) any Subsidiary that is not a Loan Party or any Joint Venture (provided that this clause (iii) shall not prohibit or exclude any pledge of the Stock and Stock Equivalents of any Foreign Subsidiary that is required to be pledged pursuant to this Agreement) to the extent that such Joint Venture or Subsidiary has incurred Non-Recourse Indebtedness the terms of which either (A) require security interests in such Stock and Stock Equivalents to be granted to secure such Non-Recourse Indebtedness or (B) prohibit such a security interest to be granted to the Administrative Agent; provided, further, that the Pledged Interests (x) shall not include any Stock or Stock Equivalents of a Foreign Subsidiary owned by any Person other than the Borrower or a Guarantor, and (y) shall not include any Stock or Stock Equivalents of any Excluded Domestic Subsidiary.
“Prepayment Event” means:
(a) (i) any Asset Sale (other than an Asset Sale permitted by any of Section 7.04(a), (b), (c), (e), (f), (g), (h), (j), (k), (l) or (n)), (ii) any sale and leaseback transaction (whether or not permitted by Section 7.13) resulting in aggregate Net Cash Proceeds in excess of $3,000,000 for any single transaction or a series of related transactions or (iii) any Recovery Event; or
(b) the incurrence by the Borrower or any of its Subsidiaries of any Indebtedness, other than Indebtedness permitted under Section 7.01; or
(c) receipt by any Loan Party or any other Subsidiary of Released Cash Collateral (notwithstanding the obligations set forth in Section 6.26).
“Project Burn” means the Asset Sale consummated pursuant to the Stock Purchase Agreement, in substantially the form provided to the Administrative Agent on August 7, 2018, between Covanta Pasco, Inc. and Power Systems Operations, Inc.
“Project Top Hat” means the Asset Sale consummated pursuant to the Asset Purchase Agreement, in substantially the form provided to the Administrative Agent on March 8, 2018, between Cemtek Environmental Incorporated and The Babcock & Wilcox Company.
“Projections” means those financial projections prepared by management of the Borrower consisting of balance sheets, income statements and cashflow statements of the Borrower and its Subsidiaries (giving effect to the Spinoff and the related transactions) covering the Fiscal Years ending in 2015 through 2019, inclusive, delivered to the Administrative Agent by the Borrower.
“Public Lender” has the meaning specified in Section 6.01.
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“Qualified Rights Offering” has the meaning specified in the definition of “Additional Term Loan Prepayment”.
“Rabbi Trust” means a “rabbi trust” or other similar arrangement established by the Borrower or any of its Subsidiaries to hold assets in connection with an employee benefit plan or arrangement.
“Real Property” means all Mortgaged Property and all other real property owned or leased from time to time by any Loan Party or any of its Subsidiaries.
“Recapitalization Transaction” means, prior to May 22, 2018, (i) the Borrower’s receipt of net cash proceeds of at least $240,000,000 from the issuance of Stock (other than Disqualified Stock) of the Borrower in accordance with the terms and conditions of the Equity Backstop Commitment Letter and the rights offering described therein and (ii) the use of such proceeds to immediately effect a Discharge of Second Priority Obligations, with the remainder to be retained by the Borrower and its Subsidiaries for working capital purposes.
“Recipient” means the Administrative Agent, any Lender or any L/C Issuer.
“Recovery Event” means any settlement of or payment in respect of any property or casualty insurance claim or professional liability insurance claims (other than to the extent reflected in the Borrower’s financial statements prior to the Amendment No. 6 Effective Date) or any taking or condemnation proceeding relating to any asset of the Borrower or any Subsidiary resulting in aggregate Net Cash Proceeds in excess of $3,000,000 for any single transaction or a series of related transactions.
“Recovery Event Proceeds Account” means a blocked deposit account established at the Administrative Agent, as depository bank, to hold the proceeds of Recovery Events as required by Section 2.05(b)(vii).
“Register” has the meaning specified in Section 10.06(c).
“Related Parties” means, with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees, agents, trustees, administrators, managers, advisors and representatives of such Person and of such Person’s Affiliates.
“Release” means, with respect to any Person, any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration, in each case, of any Contaminant into the indoor or outdoor environment or into or out of any property owned by such Person, including the movement of Contaminants through or in the air, soil, surface water, ground water or property and, in each case, in violation of Environmental Law.
“Released Cash Collateral” has the meaning set forth in Section 6.26.
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“Relief Period” means the period commencing on the Amendment No. 2 Effective Date and terminating on the Relief Period Termination Date. For the avoidance of doubt, only one Relief Period may occur during the term of this Agreement, and no Relief Period may be in effect after the first date on which the Relief Period Termination Date occurs.
“Relief
Period Sublimit” means the lesser of (a) (x) commencing on the Amendment No. 16
Effective Date through September 30, 2019, $210,000,000, (y) from October 1, 2019 through January 24, 2020, $205,000,000 or (z)
thereafter, $190,000,000,$205,000,000, plus, in each case,
the principal amount of Revolving Credit Loans made pursuant to Section 2.03(c)(ii) (other than on account of
any Extended Letter of Credit having been treated as drawn pursuant to Section 6.26) that have not been repaid, and (b) the Revolving
Credit Facility. The Relief Period Sublimit is part of, and not in addition to, the Revolving Credit Facility. For purposes of
this definition of “Relief Period Sublimit”, repayments and prepayments of Revolving Credit Loans shall be deemed to
be applied, first, to Revolving Credit Loans not made pursuant to Section 2.03(c)(ii) and, second,
to Revolving Credit Loans made pursuant to Section 2.03(c)(ii).
“Relief Period Termination Date” means the date, which may be no earlier than the date of delivery of the Compliance Certificate for the fiscal quarter of the Borrower ending December 31, 2019, on which the Borrower has made a written request for the termination of the Relief Period, and has attached thereto a certification (including reasonably detailed calculations with respect thereto) demonstrating that (a) the Senior Leverage Ratio (calculated as of the last day of the most recent Fiscal Quarter ending on or prior to such day for which the financial statements and certificates required by Section 6.01(a) or 6.01(b) have been delivered) is not greater than 2.25 to 1.00 and (b) the Interest Coverage Ratio (calculated as of the last day of the most recent Fiscal Quarter ending on or prior to such day for which the financial statements and certificates required by Section 6.01(a) or 6.01(b) have been delivered) is not less than 4.00 to 1.00.
“Remainco Credit Facilities” means the senior secured credit facilities to be entered into by (a) BWC on or about the Execution Date and (b) certain of its Subsidiaries (other than the Borrower and its Subsidiaries) on or about the Closing Date.
“Remedial Action” means all actions required by any applicable Requirement of Law to (a) clean up, remove, treat or in any other way address any Contaminant in the indoor or outdoor environment, (b) prevent the Release or threat of Release or minimize the further Release so that a Contaminant does not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment or (c) perform pre remedial studies and investigations and post remedial monitoring and care.
“Repayment Deadline” has the meaning set forth in Section 2.05(b)(vi).
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“Request for Credit Extension” means (a) with respect to a Borrowing, conversion or continuation of Term Loans or Revolving Credit Loans, a Committed Loan Notice, (b) with respect to an L/C Credit Extension, a Letter of Credit Application, and (c) with respect to a Swing Line Loan, a Swing Line Loan Notice.
“Required Lenders” means, as of any date of determination, Lenders holding more than 50% of the sum of (a) the Total Outstandings (with the aggregate amount of each Revolving Credit Lender’s risk participation and funded participation in L/C Obligations and Swing Line Loans being deemed “held” by such Lender for purposes of this definition) and (b) the unused Aggregate Commitments. The Commitment of, and the portion of the Total Outstandings held or deemed held by, any Defaulting Lender shall be excluded for purposes of making a determination of Required Lenders; provided that the amount of any participation in any Swing Line Loan and any Unreimbursed Amounts that such Defaulting Lender has failed to fund that have not been reallocated to and funded by another Lender shall be deemed to be held by the Lender that is the Swing Line Lender or applicable L/C Issuer, as the case may be, in making such determination.
“Required Term Loan Lenders” means, as of any date of determination, Term Loan Lenders holding more than 50% of the Outstanding Amount of the Term Loan Facility on such date; provided that the portion of the Term Loan Facility held by any Defaulting Lender shall be excluded for purposes of making a determination of Required Term Loan Lenders.
“Requirement of Law” means, with respect to any Person, the common law and all federal, state, local and foreign laws, rules and regulations, orders, judgments, decrees and other determinations of any Governmental Authority or arbitrator, applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.
“Responsible Officer” means the chief executive officer, president, chief financial officer, treasurer or controller of a Loan Party and, solely for purposes of notices given for Credit Extensions, amendments to Letters of Credit, and continuations and conversions of Loans, any other officer or employee of the applicable Loan Party so designated by any of the foregoing officers in a notice to the Administrative Agent (which such notice shall include a specimen signature and incumbency confirmation reasonably satisfactory to the Administrative Agent). 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.
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“Restricted
Payment” means (a) any dividend, distribution or any other payment whether direct or indirect, on account of any Stock
or Stock Equivalents of the Borrower or any of its Subsidiaries now or hereafter outstanding, except a dividend payable solely
in Stock or Stock Equivalents (other than Disqualified Stock) or a dividend or distribution payable solely to the Borrower or
one or more Guarantors, (b) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value,
direct or indirect, of any Stock or Stock Equivalents of the Borrower or any of its Subsidiaries now or hereafter outstanding
other than one payable solely to the Borrower or one or more Guarantors and, (c)
any payment or prepayment of principal, premium (if any), interest, fees (including fees to obtain any waiver or consent in connection
with any Indebtedness) or other charges on, or redemption, purchase, retirement, defeasance, sinking fund or similar payment with
respect to, any Subordinated Debt of the Borrower or any other Loan Party, other than any Intercompany Subordinated Debt
Payment or any required (in each case) payment, prepayment, redemption, retirement, purchases or other payments,
in each case to the extent permitted to be made by the terms of such Subordinated Debt and (d)
any payment in connection with matured or drawn obligations with respect to the [***] Letter of Credit, except in the form of
payments or prepayments of Tranche A-5 Term Loans, subject to the provisions of Article XI and any other subordination terms set
forth herein.
“Revaluation Date” means, with respect to any Letter of Credit, each of the following: (a) each date of issuance of a Letter of Credit denominated in an Alternative Currency, (b) each date of an amendment of any such Letter of Credit having the effect of increasing the amount thereof (solely with respect to the increased amount), (c) each date of any payment by an L/C Issuer under any Letter of Credit denominated in an Alternative Currency, (d) in the case of Letters of Credit denominated in an Alternative Currency and outstanding as of the Closing Date under the Existing Credit Agreement for the account of a Permitted L/C Party, the Closing Date, and (e) such additional dates as the Administrative Agent or the applicable L/C Issuer shall determine or the Required Lenders shall require.
“Revolving Credit Borrowing” means a borrowing consisting of simultaneous Revolving Credit Loans of the same Type and, in the case of Eurocurrency Rate Loans, having the same Interest Period made by each of the Lenders pursuant to Section 2.01.
“Revolving Credit Commitment” means, as to each Revolving Credit Lender, its obligation to make Revolving Loans to the Borrower pursuant to Section 2.01, (b) purchase participations in L/C Obligations, and (c) purchase participations in Swing Line Loans, in an aggregate principal amount at any one time outstanding not to exceed the Dollar amount set forth opposite such Lender’s name on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement.
“Revolving Credit Exposure” means, as to any Lender at any time, the aggregate principal amount at such time of its outstanding Revolving Credit Loans and such Lender’s participation in L/C Obligations and Swing Line Loans at such time.
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“Revolving Credit Facility” means, at any time, the aggregate amount of the Lenders’ Revolving Credit Commitments at such time. As of the Amendment No. 15 Effective Date, the aggregate amount of the Lenders’ Revolving Credit Commitments shall equal $346,983,706.46.
“Revolving Credit Facility Maturity Date” means the fifth anniversary of the Closing Date, provided that if such date is not a Business Day, the Maturity Date shall be the next preceding Business Day.
“Revolving Credit Facility Termination Date” means the date on which (a) the Aggregate Revolving Credit Commitment has been terminated in accordance with the terms hereof, (b) aggregate principal amount of all Revolving Credit Loans made to the Borrower outstanding and all other Obligations with respect to the Revolving Credit Facility have been indefeasibly paid in full in cash (other than contingent indemnification claims as to which no claim has been asserted) or, with respect to Letters of Credit constituting Obligations with respect to the Revolving Credit Facility, such Letters of Credit have been Cash Collateralized at 105% of face value pursuant to documentation in form and substance satisfactory to the Administrative Agent and (c) satisfactory arrangements have been made by the Borrower with the applicable Revolving Credit Lender and/or its Affiliate with respect to all Secured Cash Management Agreements and Secured Hedge Agreements.
“Revolving Credit Increase” has the meaning specified in Section 2.14(a).
“Revolving Credit Increase Lender” has the meaning specified in Section 2.14(d)(ii).
“Revolving Credit Lender” means each Lender that has a Revolving Credit Commitment or holds Revolving Credit Loans, participations in L/C Obligations or participations in Swing Line Loans.
“Revolving Credit Loan” has the meaning specified in Section 2.01.
“S&P” means Standard & Poor’s Financial Services LLC, a subsidiary of The McGraw-Hill Companies, Inc. and any successor thereto.
“Sale Milestone” means the receipt by the Borrower and its Subsidiares of Net Cash Proceeds in excess of $100,000,000 from one or more Prepayment Events in connection with Asset Sales of Selected Assets occurring after the Amendment No. 5 Effective Date.
“Same Day Funds” means (a) with respect to disbursements and payments in Dollars, immediately available funds, and (b) with respect to disbursements and payments in an Alternative Currency, same day or other funds as may be determined by the Administrative Agent or the applicable L/C Issuer, as the case may be, to be customary in the place of disbursement or payment for the settlement of international banking transactions in the relevant Alternative Currency.
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“Sanction(s)” means any sanction or trade embargo imposed, administered or enforced at the time of determination by the United States Government (including without limitation, OFAC), the United Nations Security Council, the European Union, Her Majesty’s Treasury or other relevant sanctions authority exercising jurisdiction over the Borrower or its Subsidiaries from time to time, the violation of which constitutes a violation of the law of the United States or, as to any Subsidiary that is organized under the laws of any non-United States jurisdiction, the law of that jurisdiction.
“SEC” means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.
“Second Lien Credit Agreement” means that certain Second Lien Term Loan Agreement, dated as of the Amendment No. 3 Effective Date (as amended or otherwise modified in accordance with the terms of the Intercreditor Agreement), by and among the Borrower, Lightship Capital LLC, as administrative agent, the lenders party thereto and the other entities party thereto.
“Secured Cash Management Agreement” means any Cash Management Agreement that is entered into by and between or among the Borrower and/or any (or one or more) Subsidiary of the Borrower and any Cash Management Bank.
“Secured Hedge Agreement” means any Secured Swap Contract that is entered into by and between or among the Borrower and/or any (or one or more) Subsidiary of the Borrower and any Hedge Bank.
“Secured Parties” means, collectively, the Administrative Agent, the Lenders, each L/C Issuer, the Hedge Banks, the Cash Management Banks, each co-agent or sub-agent appointed by the Administrative Agent from time to time pursuant to Section 9.05, and the other Persons the Obligations owing to which are or are purported to be secured by the Collateral under the terms of the Security Instruments.
“Secured Swap Contracts” means all Swap Contracts entered into by the Borrower and/or any (or one or more) Subsidiary of the Borrower designed to alter the risks of any Person arising from fluctuations in interest rates, currency values or commodity prices.
“Security” means any Stock, Stock Equivalent, voting trust certificate, bond, debenture, promissory note or other evidence of Indebtedness, whether secured, unsecured, convertible or subordinated, or any certificate of interest, share or participation in, or any temporary or interim certificate for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing, but shall not include any evidence of the Obligations.
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“Security Instruments” means, collectively, the Collateral Agreement, the Mortgages, each Intellectual Property Security Agreement, and all other agreements (including Joinder Agreements, control agreements, supplements, collateral assignments and similar agreements), instruments and other documents, whether now existing or hereafter in effect, pursuant to which the Borrower, any Subsidiary or other Person (other than a Lender) shall grant or convey to the Administrative Agent (for the benefit of the Secured Parties) a Lien in, or any other Person shall acknowledge any such Lien in, property as security for all or any portion of the Obligations or any other obligation under any Loan Document.
“Selected Assets” means assets identified by the CIO under either the Plan or the Orion Plan.
“Senior Leverage Ratio” means, with respect to the Borrower and its Subsidiaries as of any day, the ratio of (a) Financial Covenant Debt (other than the Indebtedness incurred pursuant to the Second Lien Credit Agreement) of the Borrower and its Subsidiaries determined on a consolidated basis in accordance with GAAP as of such day to (b) EBITDA for the Borrower and its Subsidiaries for the last four full Fiscal Quarters ending on or prior to such day for which the financial statements and certificates required by Section 6.01(a) or 6.01(b) have been delivered.
“Solvent” means, with respect to any Person, that the value of the assets of such Person (both at fair value and present fair saleable value) is, on the date of determination, greater than the total amount of liabilities (including contingent and unliquidated liabilities) of such Person as of such date and that, as of such date, such Person is able to pay all liabilities of such Person as such liabilities are expected to mature and does not have unreasonably small capital for its then current business activities. In computing the amount of contingent or unliquidated liabilities at any time, such liabilities shall be computed at the amount that, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.
“Spinoff” means the distribution of 100% of the issued and outstanding Stock of the Borrower to the shareholders of BWC, to occur on or after the Closing Date, the result of which is that immediately thereafter 100% of the Stock of the Borrower shall be owned directly by the shareholders of BWC immediately prior to such Restricted Payment.
“Spot Rate” for a currency means the rate determined by the applicable L/C Issuer, with notice thereof to the Administrative Agent, to be the rate quoted by the Person acting in such capacity as the spot rate for the purchase by such Person of such currency with another currency through its principal foreign exchange trading office at approximately 11:00 a.m. on the date two Business Days prior to the date as of which the foreign exchange computation is made; provided that the applicable L/C Issuer may obtain such spot rate from another financial institution designated by such L/C Issuer if the Person acting in such capacity does not have as of the date of determination a spot buying rate for any such currency; and provided further that such L/C Issuer may use such spot rate quoted on the date as of which the foreign exchange computation is made in the case of any Letter of Credit denominated in an Alternative Currency.
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“Stock” means shares of capital stock (whether denominated as common stock or preferred stock), partnership or membership interests, equity participations or other equivalents (regardless of how designated) of or in a corporation, partnership, limited liability company or similar business entity, whether voting or non-voting.
“Stock Equivalents” means all securities convertible into or exchangeable for Stock and all warrants, options or other rights to purchase or subscribe for any Stock, whether or not presently convertible, exchangeable or exercisable.
“Subordinated Debt” means (a) the Indebtedness incurred pursuant to the Second Lien Credit Agreement and (b) other Indebtedness (other than with respect to the Term Loan Facility) of the Borrower or any of its Subsidiaries pursuant to terms and conditions acceptable to the Administrative Agent and the Required Lenders in their respective sole discretion that is, by its terms, expressly subordinated to the prior payment of any of the Obligations pursuant to subordination terms and conditions acceptable to the Administrative Agent and the Required Lenders in their respective sole discretion. The terms of any Subordinated Debt may permit Intercompany Subordinated Debt Payments.
“Subsidiary” of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person; provided that any reference herein or in any other Loan Document to a “Subsidiary” of the Borrower shall exclude any Person whose financial statements are not consolidated with the financial statements of the Borrower in accordance with GAAP. Unless otherwise specified, all references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of the Borrower.
“Swap Contract” means (a) any and all interest rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “Master Agreement”), including any such obligations or liabilities under any Master Agreement.
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“Swap Obligations” means, with respect to any Guarantor, any obligation to pay or perform under any agreement, contract or transaction that constitutes a “swap” within the meaning of Section 1a(47) of the Commodity Exchange Act.
“Swing Line Borrowing” means a borrowing of a Swing Line Loan pursuant to Section 2.04.
“Swing Line Lender” means Bank of America in its capacity as provider of Swing Line Loans, or any successor swing line lender hereunder.
“Swing Line Loan” has the meaning specified in Section 2.04(a).
“Swing Line Loan Notice” means a notice of a Swing Line Borrowing pursuant to Section 2.04(b), which, if in writing, shall be substantially in the form of Exhibit B or such other form as approved by the Administrative Agent (including any form on an electronic platform or electronic transmission system as shall be approved by the Administrative Agent), appropriately completed and signed by a Responsible Officer of the Borrower.
“Swing Line Sublimit” means an amount equal to $0.00. The Swing Line Sublimit is part of, and not in addition to, the Revolving Credit Facility.
“Tax Affiliate” means, with respect to any Person, (a) any Subsidiary of such Person, and (b) any Affiliate of such Person with which such Person files or is eligible to file consolidated U.S. federal income tax returns or consolidated, combined, unitary or similar tax returns for state, local or foreign tax purposes.
“Tax Return” has the meaning specified in Section 5.08.
“Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
“Term Loan”
means a Tranche A-1 Term Loan, a Tranche A-2 Term Loan, a Tranche A-3 Term Loan a Tranche A-4 Term
Loan or a Tranche A-35 Term
Loan, as the context may require.
“Term Loan
Borrowing” means any Tranche A-1 Term Loan Borrowing, any Tranche A-2 Term Loan Borrowing,
any Tranche A-3 Term Loan Borrowing, any Tranche A-4 Term Loan Borrowing or any Tranche A-35 Term
Loan Borrowing, as the context may require.
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“Term Loan
Commitment” means any Tranche A-1 Term Loan Commitment, any Tranche A-2 Term Loan Commitment,
any Tranche A-3 Term Loan Commitment, any Tranche A-4 Term Loan Commitment or any Tranche A-35 Term
Loan Commitment, as the context may require.
“Term Loan Facility” means, at any time, the aggregate principal amount of all the Term Loans outstanding at such time. As of the Amendment No. 9 Effective Date, the aggregate amount of the Tranche A-1 Term Loan Lenders’ Term Loan Commitments shall equal $35,000,000, plus an amount equal to the reasonable fees and expenses incurred by the Tranche A-1 Term Loan Lender with respect to the preparation and negotiation of the Tranche A Last Out Facility Commitment Letter and Amendment No. 9, which amounts are reimbursable under the Tranche A Last Out Facility Commitment Letter for which related invoices have been delivered to the Borrower and the Administrative Agent within two (2) Business Days after the Amendment No. 9 Effective Date (the “Initial Funding Term Loan Lender Expenses”). As of the Amendment No. 15 Effective Date, the aggregate amount of the Tranche A-2 Term Loan Lenders’ Term Loan Commitments shall equal $10,000,000. As of the Amendment No. 16 Effective Date, the aggregate amount of the Tranche A-3 Term Loan Lenders’ Term Loan Commitments shall equal $150,000,000. As of the Amendment No. 20 Effective Date, the aggregate amount of the Tranche A-4 Term Loan Lenders’ Term Loan Commitments shall equal $30,000,000.
“Term Loan Facility Maturity Date” means December 31, 2020.
“Term Loan Increase” has the meaning set forth in Section 2.14A(a).
“Term Loan Increase Effective Date” has the meaning set forth in Section 2.14A(c).
“Term Loan Lender” means each Lender that has a Term Loan Commitment or holds Term Loans.
“Term Loan Prefunding Requirement” has the meaning set forth in Section 2.02(b).
“Test Date” has the meaning set forth in Section 2.05(b)(vi).
“Title IV Plan” means an “employee pension benefit plan” (as defined by Section 3(2) of ERISA), other than a Multiemployer Plan, covered by Title IV of ERISA or Section 412 of the Code and to which the Borrower, any of its Subsidiaries, any Guarantor or any ERISA Affiliate has any obligation or liability (contingent or otherwise).
“Total Outstandings” means the aggregate Outstanding Amount of all Loans and all L/C Obligations.
“Total Revolving Outstandings” means the aggregate Outstanding Amount of all Revolving Credit Loans and all L/C Obligations.
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“Tranche”
means, with respect to a Term Loan, its character as a Tranche A-1 Term Loan, a Tranche A-2 Term Loan,
a Tranche A-3 Term Loan, a Tranche A-4 Term Loan or a Tranche A-35 Term
Loan.
“Tranche A Last Out Facility Commitment Letter” means each of (a) that certain letter regarding the last out term loan financing commitment, dated as of the Amendment No. 8 Effective Date, between Vintage Capital Management, LLC and B. Riley FBR, Inc. and (b) that certain letter regarding the last out term loan financing commitment, dated as of the Amendment No. 8 Effective Date, between the Borrower and Vintage Capital Management, LLC.
“Tranche A-1 Term Loan” has the meaning specified in Section 2.01A.
“Tranche A-1 Term Loan Borrowing” means a borrowing consisting of simultaneous Term Loans of the same Type and, in the case of Eurocurrency Rate Loans, having the same Interest Period made by each of the Lenders pursuant to Section 2.01A.
“Tranche A-1 Term Loan Commitment” means, as to each Tranche A-1 Term Loan Lender, its obligation to make Term Loans to the Borrower pursuant to Section 2.01A in an aggregate principal amount not to exceed the Dollar amount set forth opposite such Tranche A-1 Term Loan Lender’s name on Schedule 2.01 or opposite such caption in the Assignment and Assumption pursuant to which such Tranche A-1 Term Loan Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement. Each Tranche A-1 Lender’s Term Loan Commitment shall be permanently reduced by the amount of Tranche A-1 Term Loans made to the Borrower by such Tranche A-1 Term Loan Lender.
“Tranche A-1 Term Loan Lender” means each Lender that has a Term Loan Commitment pursuant to Section 2.01A or holds Tranche A-1 Term Loans.
“Tranche A-2 Term Loan” has the meaning specified in Section 2.01B.
“Tranche A-2 Term Loan Borrowing” means a borrowing consisting of simultaneous Term Loans of the same Type and, in the case of Eurocurrency Rate Loans, having the same Interest Period made by each of the Lenders pursuant to Section 2.01B.
“Tranche A-2 Term Loan Commitment” means, as to each Tranche A-2 Term Loan Lender, its obligation to make Term Loans to the Borrower pursuant to Section 2.01B in an aggregate principal amount not to exceed the Dollar amount set forth opposite such Tranche A-2 Term Loan Lender’s name on Schedule 2.01 or opposite such caption in the Assignment and Assumption pursuant to which such Tranche A-2 Term Loan Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement. Each Tranche A-2 Lender’s Term Loan Commitment shall be permanently reduced by the amount of Tranche A-2 Term Loans made to the Borrower by such Tranche A-2 Term Loan Lender.
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“Tranche A-2 Term Loan Lender” means each Lender that has a Term Loan Commitment pursuant to Section 2.01B or holds Tranche A-2 Term Loans.
“Tranche A-3 Term Loan” has the meaning specified in Section 2.01C.
“Tranche A-3 Term Loan Borrowing” means the borrowing consisting of a Tranche A-3 Term Loan made pursuant to Section 2.01C.
“Tranche A-3 Term Loan Commitment” means, as to each Tranche A-3 Term Loan Lender, its obligation to make Term Loans to the Borrower pursuant to Section 2.01C in an aggregate principal amount not to exceed the Dollar amount set forth opposite such Tranche A-3 Term Loan Lender’s name on Schedule 2.01 or opposite such caption in the Assignment and Assumption pursuant to which such Tranche A-3 Term Loan Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement. Each Tranche A-3 Term Loan Lender’s Term Loan Commitment shall be permanently reduced by the amount of Tranche A-3 Term Loans made to the Borrower by such Tranche A-3 Term Loan Lender.
“Tranche A-3 Term Loan Lender” means each Lender that has a Term Loan Commitment pursuant to Section 2.01C or holds Tranche A-3 Term Loans.
“Tranche A-4 Term Loan” has the meaning specified in Section 2.01D.
“Tranche A-4 Term Loan Borrowing” means the borrowing consisting of a Tranche A-4 Term Loan made pursuant to Section 2.01D.
“Tranche A-4 Term Loan Commitment” means, as to each Tranche A-4 Term Loan Lender, its obligation to make Term Loans to the Borrower pursuant to Section 2.01D in an aggregate principal amount not to exceed the Dollar amount set forth opposite such Tranche A-4 Term Loan Lender’s name on Schedule 2.01 or opposite such caption in the Assignment and Assumption pursuant to which such Tranche A-4 Term Loan Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement. Each Tranche A-4 Term Loan Lender’s Term Loan Commitment shall be permanently reduced by the amount of Tranche A-4 Term Loans made to the Borrower by such Tranche A-4 Term Loan Lender.
“Tranche A-4 Term Loan Lender” means each Lender that has a Term Loan Commitment pursuant to Section 2.01D or holds Tranche A-4 Term Loans.
“Tranche A-5 Term Loan” has the meaning specified in Section 2.01E.
“Tranche A-5 Term Loan Borrowing” means a borrowing consisting of a Tranche A-5 Term Loan made pursuant to Section 2.01E.
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“Tranche A-5 Term Loan Commitment” means, as to the Tranche A-5 Term Loan Lender, the deemed making of Term Loans to the Borrower pursuant to Section 2.01E in an aggregate principal amount not to exceed the Indebtedness described in Section 7.01(r).
“Tranche A-5 Term Loan Lender” means B. Riley Financial, Inc.
“Trigger Event” has the meaning set forth in Section 2.05(b)(vi).
“Type” means, with respect to a Loan, its character as a Base Rate Loan, a Eurocurrency Rate Loan or (with respect to Terms Loans only) a Fixed Rate Loan.
“UCC” has the meaning specified in the Collateral Agreement.
“UCP” means, with respect to any Letter of Credit, the Uniform Customs and Practice for Documentary Credits, International Chamber of Commerce (“ICC”) Publication No. 600 (or such later version thereof as may be in effect at the time of issuance).
“United States” and “U.S.” mean the United States of America.
“Universal” means Babcock & Wilcox Universal, Inc. and its Subsidiaries.
“Unreimbursed Amount” has the meaning specified in Section 2.03(c)(i).
“U.S. Person” means any Person that is a “United States person” as defined in Section 7701(a)(30) of the Code.
“U.S. Tax Compliance Certificate” has the meaning specified in Section 3.01(f)(ii)(B)(III).
“Vølund Projects” means projects related to the manufacture, construction, maintenance and operation of renewable energy plants in the United Kingdom, Denmark, Sweden, other Scandinavian countries and Indonesia by Babcock & Wilcox Vølund A/S, an indirect Subsidiary of the Borrower, and/or one or more Subsidiaries or Affiliates of Babcock & Wilcox Vølund A/S, including Babcock & Wilcox Vølund A/B.
“Vølund Projects Schedule” means, for each Vølund Project, the Project Status Report schedule for such project most recently delivered to FTI prior to the Amendment No. 5 Effective Date.
“Vølund Projects Settlements” means (a) with respect to the Vølund Project located at [***], the Termination and Settlement Agreement, dated March 29, 2019 between [***], [***], Babcock & Wilcox Vølund A/S and The Babcock & Wilcox Company, (b) with respect to the Vølund Project located at [***], the Deed of Termination of Construction Contract for [***], dated February 28, 2019, between [***], [***] and The Babcock & Wilcox Company and (c) with respect to the Vølund Project located at [***], the Deed of Agreement and Settlement of Claims relating to an EPC contract dated 23 January 2015 in relation to [***], dated March 29, 2019, between [***], Babcock & Wilcox Vølund A/S, [***] and The Babcock and Wilcox Company.
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“Voting Stock” means Stock of any Person having ordinary power to vote in the election of members of the board of directors, managers, trustees or similar controlling Persons, of such Person (irrespective of whether, at the time, Stock of any other class or classes of such entity shall have or might have voting power by reason of the happening of any contingency).
“Wholly-Owned” means, in respect of any Subsidiary of any Person, a circumstance where all of the Stock of such Subsidiary (other than director’s qualifying shares, and the like, as may be required by applicable law) is owned by such Person, either directly or indirectly through one or more Wholly-Owned Subsidiaries thereof.
“Withdrawal Liability” means, with respect to the Borrower, any of its Subsidiaries or any Guarantor, the aggregate liability incurred (whether or not assessed) with respect to all Multiemployer Plans pursuant to Section 4201 of ERISA.
“Write-Down and Conversion Powers” means, with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule.
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 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, (i) any definition of or reference to any agreement, instrument or other document (including any Constituent Document) shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or in any other Loan Document), (ii) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (iii) the words “hereto,” “herein,” “hereof” and “hereunder,” and words of similar import when used in any Loan Document, shall be construed to refer to such Loan Document in its entirety and not to any particular provision thereof, (iv) all references in a Loan Document to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, the Loan Document in which such references appear, (v) any reference to any law shall include all statutory and regulatory provisions consolidating, amending, replacing or interpreting such law and any reference to any law or regulation shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time, and (vi) 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.
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(b) 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.”
(c) 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.
Accounting Terms.
(a) Generally. 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 applied on a consistent basis, as in effect from time to time, applied in a manner consistent with that used in preparing the audited financial statements for the Fiscal Year ended December 31, 2014, except as otherwise specifically prescribed herein. Notwithstanding the foregoing, for purposes of determining compliance with any covenant (including the computation of any financial covenant) contained herein, Indebtedness of the Borrower and its Subsidiaries shall be deemed to be carried at 100% of the outstanding principal amount thereof, and the effects of FASB ASC 825 and FASB ASC 470-20 on financial liabilities shall be disregarded.
(b) Changes in GAAP. If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either the Borrower or the Required Lenders shall so request, the Administrative Agent, the Lenders and the Borrower shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Required Lenders); provided that, until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) the Borrower shall provide to the Administrative Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP. Without limiting the foregoing, leases (including leases entered into or renewed after the Closing Date) shall be classified and accounted for (and the interest component thereof calculated) on a basis consistent with that reflected in the audited financial statements for the Fiscal Year ended December 31, 2014 for all purposes of this Agreement, notwithstanding any change in GAAP relating thereto, unless the parties hereto shall enter into a mutually acceptable amendment addressing such changes, as provided for above.
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(c) Consolidation of Variable Interest Entities. All references herein to consolidated financial statements of the Borrower and its Subsidiaries or to the determination of any amount for the Borrower and its Subsidiaries on a consolidated basis or any similar reference shall, in each case, be deemed to include each variable interest entity that the Borrower is required to consolidate pursuant to FASB ASC 810 as if such variable interest entity were a Subsidiary as defined herein.
Rounding. Any financial ratios required to be maintained by the Borrower pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).
Exchange Rates; Currency Equivalents.
(a) The applicable L/C Issuer shall determine the Spot Rates (and notify the Administrative Agent of the same) as of each Revaluation Date to be used for calculating Dollar Equivalent amounts of L/C Credit Extensions and Outstanding Amounts denominated in Alternative Currencies. Such Spot Rates shall become effective as of such Revaluation Date and shall be the Spot Rates employed in converting any amounts between the applicable currencies until the next Revaluation Date to occur. Except for purposes of financial statements delivered by Loan Parties hereunder or calculating financial covenants hereunder or except as otherwise provided herein, the applicable amount of any currency (other than Dollars) for purposes of the Loan Documents shall be such Dollar Equivalent amount as so determined by the Administrative Agent or the applicable L/C Issuer, as applicable.
(b) Wherever in this Agreement in connection with the issuance, amendment or extension of a Letter of Credit, an amount, such as a required minimum or multiple amount, is expressed in Dollars, but such Letter of Credit is denominated in an Alternative Currency, such amount shall be the relevant Alternative Currency Equivalent of such Dollar amount (rounded to the nearest unit of such Alternative Currency, with 0.5 of a unit being rounded upward), as determined by the Administrative Agent or the applicable L/C Issuer, as the case may be.
Alternative Currencies.
(a) The Borrower may from time to time request that one or more L/C Issuers issue and maintain Letters of Credit denominated in a currency other than Dollars. Any such request shall be subject to the approval of the L/C Issuer that will be issuing Letters of Credit in such currency.
(b) Any such request shall be made by the Borrower to one or more L/C Issuers not later than 11:00 a.m., ten Business Days prior to the date of the desired issuance of a Letter of Credit in such currency (or such other time or date as may be agreed by any such L/C Issuer, in its sole discretion).
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(c) If any L/C Issuer consents to the issuance of Letters of Credit in such requested currency, such L/C Issuer shall so notify the Borrower and the Administrative Agent, and such currency shall thereupon be deemed for all purposes to be an Alternative Currency hereunder for purposes of any Letter of Credit issuances by each such approving L/C Issuer (but not by any L/C Issuer not approving such currency).
(d) Prior to the Closing Date, each L/C Issuer may agree, or may have agreed under the Existing Credit Agreement, with the Borrower to issue Letters of Credit in particular currencies (other than Dollars) immediately upon, and at all times after, the Closing Date, or under the Existing Credit Agreement, and each L/C Issuer and the Borrower shall notify the Administrative Agent (if not already notified pursuant to the Existing Credit Agreement) of the currencies (other than Dollars) approved by such L/C Issuer prior to or on the Closing Date.
Times of Day; Rates.
(a) Unless otherwise specified, all references herein to times of day shall be references to Eastern time (daylight or standard, as applicable).
(b) The Administrative Agent does not warrant, nor accept responsibility, nor shall the Administrative Agent have any liability with respect to, the administration, submission or any other matter related to the rates in the definition of “Eurocurrency Rate” or with respect to any comparable or successor rate thereto.
Letter of Credit Amounts. Unless otherwise specified herein, the amount of a Letter of Credit at any time shall be deemed to be the Dollar Equivalent of the stated amount of such Letter of Credit in effect at such time; provided, however, that with respect to any Letter of Credit that, by its terms or the terms of any Issuer Document related thereto, provides for one or more automatic increases in the stated amount thereof, the amount of such Letter of Credit shall be deemed to be the Dollar Equivalent of the maximum stated amount of such Letter of Credit after giving effect to all such increases, whether or not such maximum stated amount is in effect at such time.
Surviving Provisions
Perpetual1.10 . Unless otherwise specified herein, each of the parties hereto
expressly intend that any provision herein stated to survive the payment in full of the Obligations and the termination of this
Agreement is of perpetual duration.
ARTICLE II
THE COMMITMENTS AND CREDIT EXTENSIONS
Revolving Credit Loans. Subject to the terms and conditions set forth herein, each Revolving Credit Lender severally agrees to make loans to the Borrower in Dollars (each such loan, a “Revolving Credit Loan”) from time to time, on any Business Day during the Availability Period for the Revolving Credit Facility, in an aggregate amount not to exceed at any time outstanding the amount of such Lender’s Revolving Credit Commitment; provided, however, that after giving effect to any Revolving Credit Borrowing, (i) the Total Revolving Outstandings shall not exceed the Revolving Credit Facility, (ii) the Revolving Credit Exposure of any Lender shall not exceed such Lender’s Revolving Credit Commitment and (iii) during the Relief Period, the aggregate outstanding principal amount of Revolving Credit Loans shall not exceed the Relief Period Sublimit. Within the limits of each Lender’s Revolving Credit Commitment, and subject to the other terms and conditions hereof, the Borrower may borrow under this Section 2.01, prepay under Section 2.05, and reborrow under this Section 2.01. Revolving Credit Loans may be Base Rate Loans or Eurocurrency Rate Loans, as further provided herein.
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2.01A Tranche A-1 Term Loans. Subject to the terms and conditions set forth herein, each Tranche A-1 Term Loan Lender severally agrees to make loans to the Borrower in Dollars (each such loan, a “Tranche A-1 Term Loan”) from time to time, on any Business Day during the Availability Period with respect to the Term Loan Facility, in an aggregate amount not to exceed such Term Loan Lender’s Term Loan Commitment. Tranche A-1 Term Loans may be Base Rate Loans or Eurocurrency Rate Loans prior to the Amendment No. 16 Effective Date and, thereafter, shall be Fixed Rate Loans, as further provided herein. Subject to the other terms and conditions hereof, the Borrower may prepay the Tranche A-1 Term Loans pursuant to Section 2.05, subject to any subordination terms set forth herein. Amounts so prepaid or repaid may not be reborrowed.
2.01B Tranche A-2 Term Loans. Subject to the terms and conditions set forth herein, each Tranche A-2 Term Loan Lender severally agrees to make loans to the Borrower in Dollars (each such loan, a “Tranche A-2 Term Loan”) on the Amendment No. 15 Effective Date, in an aggregate amount not to exceed such Term Loan Lender’s Term Loan Commitment. Tranche A-2 Term Loans may be Base Rate Loans or Eurocurrency Rate Loans prior to the Amendment No. 16 Effective Date and, thereafter, shall be Fixed Rate Loans, as further provided herein. Subject to the other terms and conditions hereof, the Borrower may prepay the Tranche A-2 Term Loans pursuant to Section 2.05, subject to any subordination terms set forth herein. Amounts so prepaid or repaid may not be reborrowed.
2.01C Tranche A-3 Term Loans. Subject to the terms and conditions set forth herein, each Tranche A-3 Term Loan Lender severally agrees to make loans to the Borrower in Dollars (each such loan, a “Tranche A-3 Term Loan”) on the Amendment No. 16 Effective Date, in an aggregate amount not to exceed such Term Loan Lender’s Tranche A-3 Term Loan Commitment. Tranche A-3 Term Loans shall be Fixed Rate Loans, as further provided herein. Subject to the other terms and conditions hereof, the Borrower may prepay the Tranche A-3 Term Loans pursuant to Section 2.05, subject to any subordination terms set forth herein. Amounts so prepaid or repaid may not be reborrowed.
2.01D Tranche A-4 Term Loans. Subject to the terms and conditions set forth herein, each Tranche A-4 Term Loan Lender severally agrees to make loans to the Borrower in Dollars (each such loan, a “Tranche A-4 Term Loan”) on the Amendment No. 20 Effective Date, in an aggregate amount not to exceed such Term Loan Lender’s Tranche A-4 Term Loan Commitment. Tranche A-4 Term Loans shall be Fixed Rate Loans, as further provided herein. Subject to the other terms and conditions hereof, the Borrower may prepay the Tranche A-4 Term Loans pursuant to Section 2.05, subject to any subordination terms set forth herein. Amounts so prepaid or repaid may not be reborrowed.
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2.01E Tranche A-5 Term Loans. Subject to the terms and conditions set forth herein, each Tranche A-5 Term Loan Lender shall be deemed to have made loans to the Borrower in Dollars (each such loan, a “Tranche A-5 Term Loan”) on any Business Day during the Availability Period with respect to the Term Loan Facility (which date shall correspond with the date that the principal amount of such Tranche A-5 Term Loans was drawn under the [***] Letter of Credit as set forth in a Committed Loan Notice, and the Borrower shall deliver such a Committed Loan Notice within two (2) Business Days of any such drawing (or such longer period, not to exceed five (5) Business Days, in the Administrative Agent’s reasonable discretion) with respect to such Tranche A-5 Term Loan, in an aggregate amount not to exceed the Term Loan Lender’s Tranche A-5 Term Loan Commitment; provided that the Tranche A-5 Term Loan Lender shall also deliver a [***] Drawing Certificate to the Administrative Agent certifying that such amounts have been drawn under the [***] Letter of Credit. Tranche A-5 Term Loans shall be Fixed Rate Loans, as further provided herein. Subject to the other terms and conditions hereof, the Borrower may prepay the Tranche A-5 Term Loans pursuant to Section 2.05, subject to any subordination terms set forth herein. Amounts so prepaid or repaid may not be reborrowed. The Administrative Agent shall not be responsible for or have any duty to request any [***] Drawing Certificate or ascertain or inquire into any [***] Drawing Certificate or the contents of any [***] Drawing Certificate.
Borrowings, Conversions and Continuations of Loans.
(a) Each Borrowing, each conversion of Loans from one Type to the other, and each continuation of Eurocurrency Rate Loans shall be made upon the Borrower’s irrevocable notice to the Administrative Agent, which may be given by (A) telephone or (B) a Committed Loan Notice; provided that any telephonic notice must be confirmed promptly by delivery to the Administrative Agent of a Committed Loan Notice. Each such notice must be received by the Administrative Agent not later than 1:00 p.m. (i) (x) three Business Days prior to the requested date of any Revolving Credit Borrowing or Term Loan Borrowing of, conversion to or continuation of Eurocurrency Rate Loans or of any conversion of Eurocurrency Rate Loans to Base Rate Loans or, (y) on any date prior to the termination of the Availability Period with respect to the Term Loans, eight Business Days prior to such requested date of any such Revolving Credit Borrowing or Term Loan Borrowing and (ii) (x) on the requested date of any Revolving Credit Borrowing or Term Loan Borrowing of Base Rate Loans or (y) on any date prior to the termination of the Availability Period with respect to the Term Loans, three Business Days prior to such requested date of any such Revolving Credit Borrowing or Term Loan Borrowing; provided however that such notice with respect to the Initial Tranche A Term Loan Funding must be received by the Administrative Agent not later than 1:00 p.m. one Business Day prior to such Term Loan Borrowing; provided further that if the Borrower wishes to request Eurocurrency Rate Loans having an Interest Period other than one, two, three or six months in duration as provided in the definition of “Interest Period,” the applicable notice must be received by the Administrative Agent not later than 1:00 p.m. four Business Days prior to the requested date of such Borrowing, conversion or continuation of Eurocurrency Rate Loans, whereupon the Administrative Agent shall give prompt notice to the Lenders under the applicable Facility of such request and determine whether the requested Interest Period is acceptable to all of them. Not later than 1:00 p.m., three Business Days before the requested date of such Borrowing, conversion or continuation of Eurocurrency Rate Loans having an Interest period other than one, two, three or six months in duration as provided in the definition of “Interest Period”, the Administrative Agent shall notify the Borrower (which notice may be by telephone) whether or not the requested Interest Period has been consented to by all such Lenders. Each Revolving Credit Borrowing of, conversion to or continuation of Eurocurrency 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 2.03(c) and 2.04(c), each Revolving Credit Borrowing of or conversion to Base Rate Loans shall be in a principal amount of $500,000 or a whole multiple of $100,000 in excess thereof. Each Committed Loan Notice shall specify (i) whether the Borrower is requesting a Revolving Credit Borrowing and/or a Term Loan Borrowing, a conversion of Loans from one Type to the other, or a continuation of Eurocurrency Rate Loans, (ii) the requested date of the Borrowing(s), conversion or continuation, as the case may be (which shall be a Business Day), (iii) the principal amount of Revolving Credit Loans and/or Term Loans to be borrowed, converted or continued, (iv) the Type of Loans to be borrowed or to which existing Loans are to be converted, and (v) if applicable, the duration of the Interest Period with respect thereto. If the Borrower fails to specify a Type of Loan in a Committed Loan Notice or if the Borrower fails to give a timely notice requesting a conversion or continuation, then the applicable Loans shall be made as, or converted to, Base Rate Loans. Any such automatic conversion to Base Rate Loans shall be effective as of the last day of the Interest Period then in effect with respect to the applicable Eurocurrency Rate Loans. If the Borrower requests a Borrowing of, conversion to, or continuation of Eurocurrency 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 month. Notwithstanding anything to the contrary herein, a Swing Line Loan may not be converted to a Eurocurrency Rate Loan. Notwithstanding the above, all Term Loans shall automatically be converted into Fixed Rate Loans on the Amendment No. 16 Effective Date.
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(b) Following receipt of a Committed Loan Notice, the Administrative Agent shall promptly notify each Lender of the amount of its Applicable Percentage of the 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 conversion to Base Rate Loans as described in Section 2.02(a). In the case of a Revolving Credit Borrowing, each Lender shall make the amount of its Revolving Credit Loan available to the Administrative Agent in Same Day Funds at the Administrative Agent’s Office not later than (i) 1:00 p.m. on the Business Day specified in the applicable Committed Loan Notice so long as such Committed Loan Notice was received prior to the Business Day specified for such Revolving Credit Borrowing in such Committed Loan Notice and (ii) 3:00 p.m. in the case of any Revolving Credit Borrowing requested in a Committed Loan Notice that was received on the same Business Day as the Business Day specified for such Revolving Credit Borrowing in the applicable Committed Loan Notice. In the case of a Term Loan Borrowing, each Term Loan Lender shall make the amount of its Term Loan available (less any Amendment No. 9 Closing Fee, Initial Funding Term Loan Lender Expenses and/or OID to be netted against any Tranche A-1 Term Loan Borrowing on such proposed Term Loan Borrowing date in accordance with clause (y) below) to the Administrative Agent in Same Day Funds at the Administrative Agent’s Office not later than (i) 11:00 a.m. on the Business Day specified for such Term Loan Borrowing in the applicable Committed Loan Notice and (ii) solely with respect to the Initial Tranche A Term Loan Funding, 3:00 p.m. on the Business Day immediately prior to the Business Day specified for such Term Loan Borrowing in the applicable Committed Loan Notice (clauses (i) and (ii) together, the “Term Loan Prefunding Requirement”). Upon satisfaction of the applicable conditions set forth in Sections 4.03, 4.04, 4.05, 4.06 and 4.07 (and, if such Borrowing is the initial Credit Extension, Section 4.02), 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 (other than the Recovery Event Proceeds Account) of the Borrower on the books of Bank of America with the amount of such funds or (ii) wire transfer of such funds, in each case in accordance with instructions provided to (and reasonably acceptable to) the Administrative Agent by the Borrower; provided, however, that (x) if on the date a Committed Loan Notice with respect to a Borrowing is given by the Borrower, there are L/C Borrowings outstanding, then the proceeds of such Borrowing, first, shall be applied to the payment in full of any such L/C Borrowings, and second, shall be made available to the Borrower as provided above, and (y) (A) if such Borrowing includes a Tranche A-1 Term Loan Borrowing, any Amendment No. 9 Closing Fee, Initial Funding Term Loan Lender Expenses or OID shall be netted from the amounts to be made available to the Borrower as provided above and (B) to the extent any Term Loan Borrowing results in a Trigger Event or if a Repayment Deadline exists, proceeds of the applicable Term Loan Borrowing may be applied to the prepayment of Revolving Credit Loans in amounts equal to the excess of the thresholds set forth in the definition of “Trigger Event”. For the avoidance of doubt, the Administrative Agent shall have no obligation to make any amounts available to the Borrower on a proposed date of any Borrowing if such amounts have not been received by the Administrative Agent from the applicable Lenders.
(c) Except as otherwise provided herein, a Eurocurrency Rate Loan may be continued or converted only on the last day of an Interest Period for such Eurocurrency Rate Loan. During the existence of a Default, no Loans may be requested as, converted to or continued as Eurocurrency Rate Loans without the consent of the Required Lenders.
(d) The Administrative Agent shall promptly notify the Borrower and the Lenders of the interest rate applicable to any Interest Period for Eurocurrency Rate Loans upon determination of such interest rate. At any time that Base Rate Loans are outstanding, the Administrative Agent shall notify the Borrower and the Lenders of any change in Bank of America’s prime rate used in determining the Base Rate promptly following the public announcement of such change.
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(e) After giving effect to all Revolving Credit Borrowings, all conversions of Revolving Credit Loans from one Type to the other, and all continuations of Revolving Credit Loans as the same Type, there shall not be more than five Interest Periods in effect in respect of the Revolving Credit Facility. After giving effect to all Term Loan 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 Interest Periods in effect in respect of the Term Loan Facility.
(f) Notwithstanding anything set forth above, all Revolving Credit Borrowings and Tranche A-1 Term Loan Borrowings made during the Availability Period with respect to the Term Loan Facility shall be made in amounts such that the proportions thereof satisfy the Funding Ratio.
(g) No amounts funded to the Administrative Agent in satisfaction of the Term Loan Prefunding Requirement shall earn or accrue interest hereunder or otherwise until such funds are made available to the Borrower in accordance with clause (b) above.
Letters of Credit.
(a) The Letter of Credit Commitment.
(i) Subject to the terms and conditions set forth herein, (A) (x) each L/C Issuer agrees to issue Letters of Credit and (y) notwithstanding their respective approval rights under Section 2.03(a)(ii) but subject to the proviso therein, each Extended Letter of Credit Issuer agrees to issue Extended Letters of Credit, in reliance upon the agreements of the Revolving Credit Lenders set forth in this Section 2.03, (1) from time to time on any Business Day during the period from the Closing Date until the Letter of Credit Expiration Date, denominated in Dollars or in one or more Alternative Currencies applicable to such L/C Issuer for the account of any Permitted L/C Party, and to amend or extend Letters of Credit previously issued by it, in accordance with subsection (b) below, and (2) to honor drawings under the Letters of Credit; and (B) the Revolving Credit Lenders severally agree to participate in Letters of Credit issued for the account of any Permitted L/C Party and any drawings thereunder, including Extended Letters of Credit; provided that after giving effect to any L/C Credit Extension with respect to any Letter of Credit, (v) the Total Revolving Outstandings shall not exceed the Revolving Credit Facility, (w) the Revolving Credit Exposure of any Revolving Credit Lender shall not exceed such Lender’s Revolving Credit Commitment, (x) the Outstanding Amount of the L/C Obligations in Alternative Currencies shall not exceed the Alternative Currency Sublimit, (y) the aggregate Outstanding Amount of all Financial Letters of Credit and commercial letters of credit at any time shall not exceed (i) other than during the Relief Period, $150,000,000 and (ii) during the Relief Period, $35,000,000 and (z) the Outstanding Amount of L/C Obligations of any L/C Issuer shall not exceed the L/C Issuer Sublimit of such L/C Issuer. Each request by the Borrower or a Permitted L/C Party for the issuance or amendment of a Letter of Credit shall be deemed to be a representation by the Borrower that the L/C Credit Extension so requested complies with the conditions set forth in the proviso to the preceding sentence. Within the foregoing limits, and subject to the terms and conditions hereof, the Borrower’s ability to obtain Letters of Credit shall be fully revolving, and accordingly the Borrower may, during the foregoing period listed in subclause (A)(1) of this Section, obtain Letters of Credit to replace Letters of Credit that have expired or that have been drawn upon and reimbursed. For the avoidance of doubt, all Letters of Credit outstanding under the Existing Credit Agreement as of the Closing Date for the account of a Permitted L/C Party shall in each case be deemed to have been Letters of Credit issued pursuant hereto, and from and after the Closing Date shall be subject to and governed by the terms and conditions hereof.
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(ii) No L/C Issuer shall issue any Letter of Credit if the expiry date of such requested Letter of Credit would occur after the date that is seven Business Days prior to the Revolving Credit Facility Maturity Date (each such issued Letter of Credit, an “Extended Letter of Credit”) unless the applicable L/C Issuer has approved such later expiry date, it being acknowledged and agreed that each such Extended Letter of Credit shall be Cash Collateralized in accordance with Section 6.26; provided that the Extended Letters of Credit Issuers are deemed to approve of each such later expiry date so long as such expiry date is not later than the one year anniversary of the Revolving Credit Facility Maturity Date.
(iii) No L/C Issuer shall be under any obligation to issue any Letter of Credit if:
(A) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain such L/C Issuer from issuing the Letter of Credit, or any Requirement of Law applicable to such L/C Issuer or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over such L/C Issuer shall prohibit, or request that such L/C Issuer refrain from, the issuance of letters of credit generally or the Letter of Credit in particular or shall impose upon such L/C Issuer with respect to the Letter of Credit any restriction, reserve or capital requirement (for which such the L/C Issuer is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon such L/C Issuer any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which such L/C Issuer in good faith deems material to it;
(B) the issuance of the Letter of Credit would violate one or more policies of such L/C Issuer applicable to letters of credit generally;
(C) except as otherwise agreed by such L/C Issuer, the Letter of Credit is in an initial stated amount less than $100,000, in the case of a commercial Letter of Credit, or $500,000, in the case of a standby Letter of Credit;
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(D) except as otherwise agreed by such L/C Issuer, the Letter of Credit is to be denominated in a currency other than Dollars or an Alternative Currency applicable to such L/C Issuer;
(E) such L/C Issuer does not, as of the issuance date of such requested Letter of Credit, issue Letters of Credit in the requested currency; or
(F) any Revolving Credit Lender is at that time a Defaulting Lender, unless such L/C Issuer has entered into arrangements, including the delivery of Cash Collateral, satisfactory to such L/C Issuer (in its sole discretion) with the Borrower or such Lender to eliminate such L/C Issuer’s actual or potential Fronting Exposure (after giving effect to Section 2.16(a)(iv)) with respect to the Defaulting Lender arising from either the Letter of Credit then proposed to be issued or that Letter of Credit and all other L/C Obligations as to which such L/C Issuer has actual or potential Fronting Exposure, as it may elect in its sole discretion.
(iv) No L/C Issuer shall amend any Letter of Credit if such L/C Issuer would not be permitted at such time to issue the Letter of Credit in its amended form under the terms hereof.
(v) No L/C Issuer shall be under any obligation to amend any Letter of Credit if (A) such L/C Issuer would have no obligation at such time to issue the Letter of Credit in its amended form under the terms hereof, or (B) the beneficiary of the Letter of Credit does not accept the proposed amendment to the Letter of Credit.
(vi) Each L/C Issuer shall act on behalf of the Revolving Credit Lenders with respect to any Letters of Credit issued by it and the documents associated therewith, and each L/C Issuer shall have all of the benefits and immunities (A) provided to the Administrative Agent in Article IX with respect to any acts taken or omissions suffered by such L/C Issuer in connection with Letters of Credit issued by it or proposed to be issued by it and Issuer Documents pertaining to such Letters of Credit as fully as if the term “Administrative Agent” as used in Article IX included the L/C Issuers with respect to such acts or omissions, and (B) as additionally provided herein with respect to the L/C Issuers or any of them.
(vii) Notwithstanding anything to the contrary contained herein, from and after the Amendment No. 5 Effective Date, L/C Credit Extensions (other than on account of Financial Letters of Credit) shall be limited to the following purposes: (A) renewals of existing Letters of Credit, provided that increases to the Outstanding Amount thereof shall not exceed 105% of such Outstanding Amount, (B) L/C Credit Extensions solely on account of the operations of the power segment (i.e., the Borrower and its Subsidiaries’ portion of their business that provides the supply of and aftermarket services for steam-generating, environmental, and auxiliary equipment for power generation and other industrial applications), (C) L/C Credit Extensions solely on account of the operations of Babcock & Wilcox MEGTEC Holdings, Inc. and its Subsidiaries, (D) L/C Credit Extensions solely on account of the operations of Babcock & Wilcox SPIG Inc., (E) L/C Credit Extensions on account of the operations of Babcock & Wilcox Loibl GmbH of an aggregate Outstanding Amount not to exceed €7,500,000, (F) L/C Credit Extensions solely on account of the operations of Babcock & Wilcox Universal, Inc. and its Subsidiaries (other than Foreign Subsidiaries), (G) L/C Credit Extensions on account of the operations of any Vølund Project of an aggregate Outstanding Amount not to exceed $20,000,000 and (H) other purposes upon prior written approval by the Administrative Agent and the Required Lenders.
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(b) Procedures for Issuance and Amendment of Letters of Credit; Auto-Extension Letters of Credit.
(i) Each Letter of Credit shall be issued or amended, as the case may be, upon the request of the Borrower delivered to the applicable L/C Issuer (with a copy to the Administrative Agent) in the form of a Letter of Credit Application, appropriately completed and signed by a Responsible Officer of the Borrower or the applicable Permitted L/C Party. Such Letter of Credit Application may be sent by facsimile, by United States mail, by overnight courier, by electronic transmission using the system provided by the applicable L/C Issuer, by personal delivery or by any other means acceptable to such L/C Issuer. Such Letter of Credit Application must be received by the L/C Issuer and the Administrative Agent not later than 11:00 a.m. at least two Business Days (or such later date and time as the Administrative Agent and the L/C Issuer may agree in a particular instance in their sole discretion) prior to the proposed issuance date or date of amendment, as the case may be. In the case of a request for an initial issuance of a Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the L/C Issuer: (A) the proposed issuance date of the requested Letter of Credit (which shall be a Business Day unless otherwise permitted by such L/C Issuer); (B) the amount and currency thereof; (C) the expiry date thereof; (D) the name and address of the beneficiary thereof; (E) the documents to be presented by such beneficiary in case of any drawing thereunder; (F) the full text of any certificate to be presented by such beneficiary in case of any drawing thereunder; (G) whether such requested Letter of Credit is a Performance Letter of Credit, a Financial Letter of Credit or a commercial Letter of Credit; (H) the Permitted L/C Party for whom such Letter of Credit is to be issued; and (I) such other matters as the L/C Issuer may require. In the case of a request for an amendment of any outstanding Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the L/C Issuer (A) the Letter of Credit to be amended; (B) the proposed date of amendment thereof (which shall be a Business Day unless otherwise permitted by such L/C Issuer); (C) the nature of the proposed amendment; and (D) such other matters as the L/C Issuer may reasonably require. Additionally, the Borrower shall furnish to the L/C Issuer and the Administrative Agent such other documents and information pertaining to such requested Letter of Credit issuance or amendment, including any Issuer Documents, as the L/C Issuer or the Administrative Agent may reasonably require.
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(ii) Promptly after receipt of any Letter of Credit Application, the applicable L/C Issuer will confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has received a copy of such Letter of Credit Application from the Borrower and, if not, the L/C Issuer will provide the Administrative Agent with a copy thereof. Unless the L/C Issuer has received written notice from any Lender, the Administrative Agent or any Loan Party, at least one Business Day prior to the requested date of issuance or amendment of the applicable Letter of Credit, that one or more applicable conditions contained in Article IV shall not then be satisfied, then, subject to the terms and conditions hereof, the L/C Issuer shall, on the requested date, issue a Letter of Credit for the account of the applicable Permitted L/C Party or enter into the applicable amendment, as the case may be, in each case in accordance with the L/C Issuer’s usual and customary business practices. Immediately upon the issuance of each Letter of Credit, each Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the L/C Issuer a risk participation in such Letter of Credit in an amount equal to the product of the Applicable Percentage of such Lender times the amount of such Letter of Credit.
(iii) If the Borrower or any Permitted L/C Party so requests in any applicable Letter of Credit Application, the applicable L/C Issuer may, in its sole discretion, agree to issue a Letter of Credit that has automatic extension provisions (each, an “Auto-Extension Letter of Credit”); provided that any such Auto-Extension Letter of Credit must permit the L/C Issuer to prevent any such extension at least once prior to the then applicable expiration date of such Letter of Credit (without giving effect to the next ensuing extension thereof) by giving prior notice to the beneficiary thereof not later than a day (the “Non-Extension Notice Date”) to be agreed upon at the time such Letter of Credit is issued. Unless otherwise directed by the L/C Issuer, the Borrower shall not be required to make a specific request to the L/C Issuer for any such extension. Once an Auto-Extension Letter of Credit has been issued, the Lenders shall be deemed to have authorized (but may not require) the L/C Issuer to permit such extensions of such Letter of Credit; provided that if any such extension results in any such Letter of Credit becoming an Extended Letter of Credit the Borrower shall provide Cash Collateral therefor in accordance with Section 6.26; provided, however, that the L/C Issuer shall not permit any such extension if (A) the L/C Issuer has determined that it would not be permitted, or would have no obligation, at such time to issue such Letter of Credit in its revised form (as extended) under the terms hereof (by reason of the provisions of clause (ii) or (iii) of Section 2.03(a) or otherwise), or (B) it has received notice (which may be by telephone or in writing) on or before the day that is seven Business Days before the Non-Extension Notice Date (1) from the Administrative Agent that the Required Lenders have elected not to permit such extension or (2) from the Administrative Agent, any Lender or the Borrower that one or more of the applicable conditions specified in Section 4.03 is not then satisfied, and in each such case directing the L/C Issuer not to permit such extension.
(iv) Promptly after its 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, the L/C Issuer will also deliver to the Borrower and the Administrative Agent a true and complete copy of such Letter of Credit or amendment.
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(c) Drawings and Reimbursements; Funding of Participations.
(i) Upon receipt from the beneficiary of any Letter of Credit of any notice of a drawing under such Letter of Credit, the applicable L/C Issuer shall notify the Borrower and the Administrative Agent thereof. In the case of any draw under a Letter of Credit denominated in an Alternative Currency, the L/C Issuer shall notify the Borrower of the Dollar Equivalent of the amount of the drawing promptly following the determination thereof. The Borrower agrees to pay to the L/C Issuer of any Letter of Credit that has been drawn upon the amount of all draws thereunder, in Dollars (or the Dollar Equivalent of such payment if such payment was made in an Alternative Currency), no later than (x) the Business Day on which the L/C Issuer has provided notice thereof to the Borrower if such notice has been provided prior to 11:00 a.m. on such Business Day, or (y) no later than 10:00 a.m. on the next succeeding Business Day after the Borrower receives such notice from such L/C Issuer if such notice is not received prior to 11:00 a.m. on such day (each such date, an “Honor Date”), and such L/C Issuer shall provide prompt notice to the Administrative Agent of such reimbursement. If the Borrower fails to so reimburse the applicable L/C Issuer by such time, such L/C Issuer shall promptly notify the Administrative Agent of the Honor Date and the amount of the unreimbursed drawing (expressed in Dollars in the amount of the Dollar Equivalent thereof in the case of a Letter of Credit denominated in an Alternative Currency) (the “Unreimbursed Amount”), and the Administrative Agent shall provide such notice, along with the amount of such Lender’s Applicable Percentage thereof, to each Lender. In such event, the Borrower shall be deemed to have requested a (x) Revolving Credit Borrowing of Base Rate Loans to be disbursed on the Honor Date in an amount equal to the Unreimbursed Amount, without regard to the minimum and multiples specified in Section 2.02 for the principal amount of Base Rate Loans, but subject to the amount of the unutilized portion of the Revolving Credit Commitments and the conditions set forth in Section 4.03 (other than the delivery of a Committed Loan Notice), and, (y) during the period (I) commencing after the occurrence of the Initial Tranche A Term Loan Funding and (II) ending on the last day of the Availability Period with respect to the Term Loan Facility, a Term Loan Borrowing in the amount of such Revolving Credit Borrowing (plus any OID to be netted against such Term Loan Borrowing), but subject to the amount of the unutilized portion of the Term Loan Commitments and the conditions set forth in Section 4.05 (other than the delivery of a Committed Loan Notice). Any notice given by any L/C Issuer or the Administrative Agent pursuant to this Section 2.03(c)(i) may be given by telephone if immediately confirmed in writing; provided that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice.
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(ii) Each Revolving Credit Lender shall upon any notice pursuant to Section 2.03(c)(i) make funds available (and the Administrative Agent may apply Cash Collateral provided for this purpose) for the account of the L/C Issuer, in Dollars, at the Administrative Agent’s Office for Dollar-denominated payments in an amount equal to its Applicable Percentage of the Unreimbursed Amount not later than 1:00 p.m. on the Business Day specified in such notice by the Administrative Agent, whereupon, subject to the provisions of Section 2.03(c)(iii), each Revolving Credit Lender that so makes funds available shall be deemed to have made a Base Rate Loan to the Borrower in such amount. The Administrative Agent shall remit the funds so received to the L/C Issuer in Dollars.
(iii) With respect to any Unreimbursed Amount that is not fully refinanced by a Revolving Credit Borrowing of Base Rate Loans because the conditions set forth in Section 4.03 cannot be satisfied or for any other reason, the Borrower shall be deemed to have incurred from the L/C Issuer an L/C Borrowing in the amount of the Unreimbursed Amount that is not so refinanced, which L/C Borrowing shall be due and payable on demand (together with interest) and shall bear interest at the Default Rate. In such event, each Lender’s payment to the Administrative Agent for the account of the L/C Issuer pursuant to Section 2.03(c)(ii) shall be deemed payment in respect of its participation in such L/C Borrowing and shall constitute an L/C Advance from such Lender in satisfaction of its participation obligation under this Section 2.03.
(iv) Until each Lender funds its Revolving Credit Loan or L/C Advance pursuant to this Section 2.03(c) to reimburse the applicable L/C Issuer for any amount drawn under any Letter of Credit, interest in respect of such Lender’s Applicable Percentage of such amount shall be solely for the account of the applicable L/C Issuer.
(v) Each Lender’s obligation to make Revolving Credit Loans or L/C Advances to reimburse the L/C Issuer for amounts drawn under Letters of Credit, as contemplated by this Section 2.03(c), shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff, counterclaim, recoupment, defense or other right which such Lender may have against any L/C Issuer, the Borrower, any Subsidiary or any other Person for any reason whatsoever; (B) the occurrence or continuance of a Default, or (C) any other occurrence, event or condition, whether or not similar to any of the foregoing; provided, however, that each Lender’s obligation to make Revolving Credit Loans pursuant to this Section 2.03(c) is subject to the conditions set forth in Section 4.03 (other than delivery by the Borrower of a Committed Loan Notice). No such making of an L/C Advance shall relieve or otherwise impair the obligation of the Borrower to reimburse the applicable L/C Issuer for the amount of any payment made by the L/C Issuer under any Letter of Credit, together with interest as provided herein.
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(vi) If any Lender fails to make available to the Administrative Agent for the account of any L/C Issuer any amount required to be paid by such Lender pursuant to the foregoing provisions of this Section 2.03(c) by the time specified in Section 2.03(c)(ii), then, without limiting the other provisions of this Agreement, the applicable L/C Issuer shall be entitled to recover from such Lender (acting through the Administrative Agent), on demand, such amount with interest thereon for the period from the date such payment is required to the date on which such payment is immediately available to the L/C Issuer at a rate per annum equal to the applicable Overnight Rate from time to time in effect, plus any administrative, processing or similar fees customarily charged by the L/C Issuer in connection with the foregoing. If such Lender pays such amount (with interest and fees as aforesaid), the amount so paid shall constitute such Lender’s Revolving Credit Loan included in the relevant Revolving Credit Borrowing or L/C Advance in respect of the relevant L/C Borrowing, as the case may be. A certificate of the applicable L/C Issuer submitted to any Lender (through the Administrative Agent) with respect to any amounts owing under this clause (vi) shall be conclusive absent manifest error.
(d) Repayment of Participations.
(i) At any time after the L/C Issuer has made a payment under any Letter of Credit and has received from any Lender such Lender’s L/C Advance in respect of such payment in accordance with Section 2.03(c), if the Administrative Agent receives for the account of the L/C Issuer any payment in respect of the related Unreimbursed Amount or interest thereon (whether directly from the Borrower or otherwise, including proceeds of Cash Collateral applied thereto by the Administrative Agent), the Administrative Agent will distribute to such Lender its Applicable Percentage thereof in Dollars and in the same funds as those received by the Administrative Agent.
(ii) If any payment received by the Administrative Agent for the account of the L/C Issuer pursuant to Section 2.03(c)(i) is required to be returned under any of the circumstances described in Section 10.05 (including pursuant to any settlement entered into by the L/C Issuer in its discretion), each Lender shall pay to the Administrative Agent for the account of the L/C Issuer its Applicable Percentage thereof on demand of the Administrative Agent, plus interest thereon from the date of such demand to the date such amount is returned by such Lender, at a rate per annum equal to the applicable Overnight Rate from time to time in effect. The obligations of the Lenders under this clause shall survive the payment in full of the Obligations and the termination of this Agreement.
(e) Obligations Absolute. The obligation of the Borrower to reimburse the applicable L/C Issuer for each drawing under each Letter of Credit and, without duplication, to repay each L/C Borrowing shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including the following:
(i) any lack of validity or enforceability of such Letter of Credit, this Agreement, or any other Loan Document;
(ii) the existence of any claim, counterclaim, setoff, defense or other right that the Borrower or any Subsidiary may have at any time against any beneficiary or any transferee of such Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), the L/C Issuer or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by such Letter of Credit or any agreement or instrument relating thereto, or any unrelated transaction;
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(iii) any draft, demand, certificate or other document presented under such Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under such Letter of Credit;
(iv) waiver by the L/C Issuer of any requirement that exists for the L/C Issuer’s protection and not the protection of the Borrower or any waiver by the L/C Issuer which does not in fact materially prejudice the Borrower;
(v) any payment made by the L/C Issuer in respect of an otherwise complying item presented after the date specified as the expiration date of, or the date by which documents must be received under such Letter of Credit if presentation after such date is authorized by the UCC, the ISP or the UCP, as applicable;
(vi) any payment by the L/C Issuer under such Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of such Letter of Credit; or any payment made by the L/C Issuer under such Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of such Letter of Credit, including any arising in connection with any proceeding under any Debtor Relief Law;
(vii) any adverse change in the relevant exchange rates or in the availability of the relevant Alternative Currency to the Borrower or any Subsidiary or in the relevant currency markets generally; or
(viii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Borrower or any Subsidiary.
The Borrower shall promptly examine a copy of each Letter of Credit and each amendment thereto that is delivered to it and, in the event of any claim of noncompliance with the Borrower’s instructions or other irregularity, the Borrower will immediately notify the L/C Issuer. The Borrower shall be conclusively deemed to have waived any such claim against the L/C Issuer and its correspondents unless such notice is given as aforesaid, but only to the extent not prohibited by any applicable Requirement of Law.
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(f) Role of L/C Issuer. Each Lender and the Borrower agree that, in paying any drawing under a Letter of Credit, no L/C Issuer shall have any responsibility to obtain any document (other than any sight draft, certificates and documents expressly required by the Letter of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. None of the L/C Issuers, the Administrative Agent, any of their respective Related Parties nor any correspondent, participant or assignee of any L/C Issuer shall be liable to any Lender for (i) any action taken or omitted in connection herewith at the request or with the approval of the Lenders or the Required Lenders, as applicable; (ii) any action taken or omitted in the absence of gross negligence or willful misconduct; or (iii) the due execution, effectiveness, validity or enforceability of any document or instrument related to any Letter of Credit or Issuer Document. The Borrower hereby assumes all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit; provided, however, that this assumption is not intended to, and shall not, preclude the Borrower’s pursuing such rights and remedies as it may have against the beneficiary or transferee at law or under any other agreement. None of the L/C Issuers, the Administrative Agent, any of their respective Related Parties nor any correspondent, participant or assignee of any L/C Issuer shall be liable or responsible for any of the matters described in clauses (i) through (viii) of Section 2.03(e); provided, however, that anything in such clauses to the contrary notwithstanding, the Borrower may have a claim against the applicable L/C Issuer, and the applicable L/C Issuer may be liable to the Borrower, to the extent, but only to the extent, of any direct, as opposed to consequential or exemplary, damages suffered by the Borrower which the Borrower proves were caused by the L/C Issuer’s willful misconduct or gross negligence or the L/C Issuer’s willful failure to pay under any Letter of Credit after the presentation to it by the beneficiary of a sight draft and certificate(s) strictly complying with the terms and conditions of a Letter of Credit. In furtherance and not in limitation of the foregoing, each L/C Issuer may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary, and no L/C Issuer shall be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason. The applicable L/C Issuer may send a Letter of Credit or conduct any communication to or from the beneficiary via the Society for Worldwide Interbank Financial Telecommunication (“SWIFT”) message or overnight courier, or any other commercially reasonable means of communicating with a beneficiary.
(g) Applicability of ISP and UCP; Limitation of Liability. Unless otherwise expressly agreed by the applicable L/C Issuer and the Borrower when a Letter of Credit is issued, (i) the rules of the ISP shall apply to each standby Letter of Credit, and (ii) the rules of the UCP shall apply to each commercial Letter of Credit. Notwithstanding the foregoing, no L/C Issuer shall be responsible to the Borrower or any other Permitted L/C Party for, and no L/C Issuer’s rights and remedies against the Borrower or any other Permitted L/C Party shall be impaired by, any action or inaction of such L/C Issuer required or permitted under any law, order, or practice that is required or permitted to be applied to any Letter of Credit or this Agreement, including any Requirement of Law or any order of a jurisdiction where the applicable L/C Issuer or the beneficiary is located, the practice stated in the ISP or UCP, as applicable, or in the decisions, opinions, practice statements, or official commentary of the ICC Banking Commission, the Bankers Association for Finance and Trade - International Financial Services Association (BAFT-IFSA), or the Institute of International Banking Law & Practice, whether or not any Letter of Credit chooses such law or practice.
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(h) Letter of Credit Fees. The Borrower shall pay to the Administrative Agent for the account of each Revolving Credit Lender (subject to Section 2.16) in accordance with its Applicable Percentage, in Dollars, a Letter of Credit fee (the “Letter of Credit Fee”) (i) for each commercial Letter of Credit equal to the Applicable Rate for commercial Letters of Credit times the Dollar Equivalent of the daily amount available to be drawn under such Letter of Credit, and (ii) for each standby Letter of Credit equal to the Applicable Rate for such type (Financial Letter of Credit or Performance Letter of Credit) of such Letter of Credit times the Dollar Equivalent of the daily amount available to be drawn under such Letter of Credit. For purposes of computing the Dollar Equivalent of the daily amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.08. Letter of Credit Fees shall be (i) due and payable on the tenth Business Day after the last Business Day of each March, June, September and December, commencing with the first such date to occur after the issuance of such Letter of Credit, on the Letter of Credit Expiration Date and thereafter on demand and (ii) computed on a quarterly basis in arrears. If there is any change in the Applicable Rate during any quarter, the Dollar Equivalent of the daily amount available to be drawn under each Letter of Credit shall be computed and multiplied by the Applicable Rate separately for each period during such quarter that such Applicable Rate was in effect. Notwithstanding anything to the contrary contained herein, upon the request of the Required Lenders, while any Event of Default exists, all Letter of Credit Fees shall accrue at the Default Rate.
(i) Fronting Fee and Documentary and Processing Charges Payable to L/C Issuer. The Borrower shall pay directly to the applicable L/C Issuer for its own account, in Dollars, a fronting fee (i) with respect to each commercial Letter of Credit, at a rate separately agreed to between the Borrower and such L/C Issuer, computed on the Dollar Equivalent of the amount of such Letter of Credit, and payable upon the issuance thereof, (ii) with respect to any amendment of a commercial Letter of Credit increasing the amount of such Letter of Credit, at a rate separately agreed between the Borrower and such L/C Issuer, computed on the Dollar Equivalent of the amount of such increase, and payable upon the effectiveness of such amendment, and (iii) with respect to each standby Letter of Credit, at the rate per annum specified in the applicable Fee Letter or otherwise agreed between such L/C Issuer and the Borrower, computed on the Dollar Equivalent of the daily amount available to be drawn under such Letter of Credit on a quarterly basis in arrears. Such fronting fee with respect to standby Letters of Credit shall be due and payable on the tenth Business Day after the last Business Day of each March, June, September and December in respect of the then-ended quarterly period (or portion thereof, in the case of the first payment), commencing with the first such date to occur after the issuance of such Letter of Credit, on the Letter of Credit Expiration Date and thereafter on demand. Such fronting fee with respect to commercial Letters of Credit shall be due and payable as provided in subparts (i) and (ii) above. For purposes of computing the daily amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.08. In addition, the Borrower shall pay directly to the applicable L/C Issuer for its own account, in Dollars, the customary issuance, presentation, amendment and other processing fees, and other standard costs and charges, of the L/C Issuer relating to letters of credit as from time to time in effect. Such customary fees and standard costs and charges are due and payable on demand and are nonrefundable.
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(j) Conflict with Issuer Documents. In the event of any conflict between the terms hereof and the terms of any Issuer Document, the terms hereof shall control.
(k) Letters of Credit Issued for Permitted L/C Parties. Notwithstanding that a Letter of Credit issued or outstanding hereunder is in support of any obligations of, is for the account of, or the applicant therefor is, a Permitted L/C Party other than the Borrower, the Borrower shall be obligated to reimburse the L/C Issuer hereunder for any and all drawings under such Letter of Credit. The Borrower hereby acknowledges that the issuance of Letters of Credit for the account, or upon the application, of Permitted L/C Parties other than the Borrower inures to the benefit of the Borrower, and that the Borrower’s business derives substantial benefits from the businesses of such Permitted L/C Parties.
(l) Additional L/C Issuers. In addition to Bank of America and each L/C Issuer listed on the signature pages hereto as an “L/C Issuer,” the Borrower may from time to time, with notice to the Lenders and the consent of the Administrative Agent and the applicable Lender being so appointed, appoint additional Lenders to be L/C Issuers hereunder, provided that the total number of L/C Issuers at any time shall not exceed six Lenders (or such larger number of additional Lenders as the Administrative Agent may agree to permit from time to time). Upon the appointment of a Lender as an L/C Issuer hereunder such Person shall become vested with all of the rights, powers, privileges and duties of an L/C Issuer hereunder.
(m) Removal of L/C Issuers. The Borrower may at any time remove Bank of America or any L/C Issuer that is appointed pursuant to subpart (l) above, if either such Person is at such time a Defaulting Lender or such Person consents to such removal; provided that (i) such removal shall be made upon not less than 30 days’ prior written notice to such L/C Issuer and the Administrative Agent (or such shorter time as such L/C Issuer shall agree) and (ii) such removed L/C Issuer shall retain all the rights, powers, privileges and duties of an L/C Issuer hereunder with respect to all Letters of Credit issued by such L/C Issuer and outstanding as of the effective date of its removal as L/C Issuer and all L/C Obligations with respect thereto (including the right to require the Lenders to make Revolving Credit Loans or fund risk participations in Unreimbursed Amounts pursuant to Section 2.03(c)). Without limiting the foregoing, upon the removal of a Lender as an L/C Issuer hereunder, the Borrower may, or at the request of such removed L/C Issuer the Borrower shall use commercially reasonable efforts to, arrange for one or more of the other L/C Issuers to issue Letters of Credit hereunder in substitution for the Letters of Credit, if any, issued by such removed L/C Issuer and outstanding at the time of such removal, or make other arrangements satisfactory to the removed L/C Issuer to effectively cause another L/C Issuer to assume the obligations of the removed L/C Issuer with respect to any such Letters of Credit.
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(n) Reporting of Letter of Credit Information and L/C Issuer Sublimit. At any time that there is more than one L/C Issuer, then on (i) the last Business Day of each calendar month, and (ii) each date that an L/C Credit Extension occurs with respect to any Letter of Credit, each L/C Issuer (or, in the case of part (ii), the applicable L/C Issuer) shall deliver to the Administrative Agent a report setting forth in form and detail reasonably satisfactory to the Administrative Agent information with respect to each Letter of Credit issued by such L/C Issuer that is outstanding hereunder, including any auto-renewal or termination of auto-renewal provisions in such Letter of Credit. In addition, each L/C Issuer shall provide notice to the Administrative Agent of its L/C Issuer Sublimit, or any change thereto, promptly upon it becoming an L/C Issuer or making any change to its L/C Issuer Sublimit. No failure on the part of any L/C Issuer to provide such information pursuant to this Section 2.03(n) shall limit the obligation of the Borrower or any Lender hereunder with respect to its reimbursement and participation obligations, respectively, pursuant to this Section 2.03.
(o) Cash Collateralized
Letters of Credit. If the Borrower has fully Cash Collateralized the applicable L/C Issuer with respect to any Extended Letter
of Credit issued by such L/C Issuer in accordance with Section 6.26 and the Borrower and the applicable L/C Issuer
have made arrangements between them with respect to the pricing and fees associated therewith (each such Extended Letter of Credit
a “Cash Collateralized Letter of Credit”), then on the day that is 95 days (or such shorter period of time permitted
by such L/C Issuer) after the date of notice to the Administrative Agent thereof by the applicable L/C Issuer (so long as such
Cash Collateral has remained in place for the entirety of such 95-day (or applicable shorter) period), and for so long as such
Cash Collateral remains in place (i) such Cash Collateralized Letter of Credit shall cease to be a “Letter of Credit”
hereunder, (ii) such Cash Collateralized Letter of Credit shall not constitute utilization of
the Revolving Credit Facility and (ii) [reserved], (iii) no Lender
shall have any further obligation to fund participations, L/C Borrowings or Revolving Credit Loans to reimburse any drawing under
any such Cash Collateralized Letter of Credit, (iv) no Letter of Credit Fee shall be due or payable to the Lenders, or any of them,
hereunder with respect to such Cash Collateralized Letter of Credit, and (v) any fronting fee, issuance fee or other fee with respect
to such Cash Collateralized Letter of Credit shall be as agreed separately between the Borrower and such L/C Issuer.
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Swing Line Loans.
(a) The Swing Line. Subject to the terms and conditions set forth herein, the Swing Line Lender, in reliance upon the agreements of the other Lenders set forth in this Section 2.04, may in its sole discretion make loans in Dollars (each such loan, a “Swing Line Loan”) to the Borrower from time to time on any Business Day during the Availability Period with respect to the Revolving Credit Facility in an aggregate amount not to exceed at any time outstanding the amount of the Swing Line Sublimit, notwithstanding the fact that such Swing Line Loans, when aggregated with the Applicable Percentage of the Outstanding Amount of Revolving Credit Loans and L/C Obligations of the Lender acting as Swing Line Lender, may exceed the amount of such Lender’s Revolving Credit Commitment; provided that after giving effect to any Swing Line Loan, (i) the Total Revolving Outstandings shall not exceed the Revolving Credit Facility at such time and (ii) the Revolving Credit Exposure of any Lender shall not exceed such Lender’s Commitment; provided further that the Borrower shall not use the proceeds of any Swing Line Loan to refinance any outstanding Swing Line Loan. Within the foregoing limits, and subject to the other terms and conditions hereof, the Borrower may borrow under this Section 2.04, prepay under Section 2.05, and reborrow under this Section 2.04. Each Swing Line Loan shall be a Base Rate Loan. Immediately upon the making of a Swing Line Loan, each Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Swing Line Lender a risk participation in such Swing Line Loan in an amount equal to the product of such Lender’s Applicable Percentage times the amount of such Swing Line Loan.
(b) Borrowing Procedures. Each Swing Line Borrowing shall be made upon the Borrower’s irrevocable notice to the Swing Line Lender and the Administrative Agent, which may be given by (A) telephone or (B) by a Swing Line Loan Notice; provided that any telephonic notice must be confirmed promptly by delivery to the Swing Line Lender and the Administrative Agent of a Swing Line Loan Notice. Each such notice must be received by the Swing Line Lender and the Administrative Agent not later than 1:00 p.m. on the requested borrowing date, and shall specify (i) the amount to be borrowed, which shall be a minimum of $100,000, and (ii) the requested borrowing date, which shall be a Business Day. Promptly after receipt by the Swing Line Lender of any telephonic Swing Line Loan Notice, the Swing Line Lender will confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has also received such Swing Line Loan Notice and, if not, the Swing Line Lender will notify the Administrative Agent of the contents thereof. Unless the Swing Line Lender has received notice (by telephone or in writing) from the Administrative Agent (including at the request of any Lender) prior to 2:00 p.m. on the date of the proposed Swing Line Borrowing (A) directing the Swing Line Lender not to make such Swing Line Loan as a result of the limitations set forth in the first proviso to the first sentence of Section 2.04(a), or (B) that one or more of the applicable conditions specified in Article IV is not then satisfied, then, subject to the terms and conditions hereof, the Swing Line Lender will, not later than 3:00 p.m. on the borrowing date specified in such Swing Line Loan Notice, make the amount of its Swing Line Loan available to the Borrower.
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(c) Refinancing of Swing Line Loans.
(i) The Swing Line Lender at any time in its sole and absolute discretion may request, on behalf of the Borrower (which hereby irrevocably authorizes the Swing Line Lender to so request on its behalf), that each Revolving Credit Lender make a Base Rate Loan in an amount equal to such Lender’s Applicable Percentage of the amount of Swing Line Loans then outstanding. Such request shall be made in writing (which written request shall be deemed to be a Committed Loan Notice for purposes hereof) and in accordance with the requirements of Section 2.02, without regard to the minimum and multiples specified therein for the principal amount of Base Rate Loans, but subject to the unutilized portion of the Aggregate Revolving Credit Commitment and the conditions set forth in Section 4.03. The Swing Line Lender shall furnish the Borrower with a copy of the applicable Committed Loan Notice promptly after delivering such notice to the Administrative Agent. Each Revolving Credit Lender shall make an amount equal to its Applicable Percentage of the amount specified in such Committed Loan Notice available to the Administrative Agent in Same Day Funds (and the Administrative Agent may apply Cash Collateral available with respect to the applicable Swing Line Loan) for the account of the Swing Line Lender at the Administrative Agent’s Office for Dollar-denominated payments not later than 1:00 p.m. on the day specified in such Committed Loan Notice, whereupon, subject to Section 2.04(c)(ii), each Lender that so makes funds available shall be deemed to have made a Base Rate Loan to the Borrower in such amount. The Administrative Agent shall remit the funds so received to the Swing Line Lender.
(ii) If for any reason any Swing Line Loan cannot be refinanced by such a Revolving Credit Borrowing in accordance with Section 2.04(c)(i), the request for Base Rate Loans submitted by the Swing Line Lender as set forth herein shall be deemed to be a request by the Swing Line Lender that each of the Lenders fund its risk participation in the relevant Swing Line Loan and each Lender’s payment to the Administrative Agent for the account of the Swing Line Lender pursuant to Section 2.04(c)(i) shall be deemed payment in respect of such participation.
(iii) If any Revolving Credit Lender fails to make available to the Administrative Agent for the account of the Swing Line Lender any amount required to be paid by such Lender pursuant to the foregoing provisions of this Section 2.04(c) by the time specified in Section 2.04(c)(i), the Swing Line Lender shall be entitled to recover from such Lender (acting through the Administrative Agent), on demand, such amount with interest thereon for the period from the date such payment is required to the date on which such payment is immediately available to the Swing Line Lender at a rate per annum equal to the applicable Overnight Rate from time to time in effect, plus any administrative, processing or similar fees customarily charged by the Swing Line Lender in connection with the foregoing. If such Lender pays such amount (with interest and fees as aforesaid), the amount so paid shall constitute such Lender’s Revolving Credit Loan included in the relevant Revolving Credit Borrowing or funded participation in the relevant Swing Line Loan, as the case may be. A certificate of the Swing Line Lender submitted to any Lender (through the Administrative Agent) with respect to any amounts owing under this clause (iii) shall be conclusive absent manifest error.
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(iv) Each Lender’s obligation to make Revolving Credit Loans or to purchase and fund risk participations in Swing Line Loans pursuant to this Section 2.04(c) shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff, counterclaim, recoupment, defense or other right which such Lender may have against the Swing Line Lender, the Borrower or any other Person for any reason whatsoever, (B) the occurrence or continuance of a Default, or (C) any other occurrence, event or condition, whether or not similar to any of the foregoing; provided, however, that each Lender’s obligation to make Revolving Credit Loans pursuant to this Section 2.04(c) is subject to the conditions set forth in Section 4.03. No such funding of risk participations shall relieve or otherwise impair the obligation of the Borrower to repay Swing Line Loans, together with interest as provided herein.
(d) Repayment of Participations.
(i) At any time after any Lender has purchased and funded a risk participation in a Swing Line Loan, if the Swing Line Lender receives any payment on account of such Swing Line Loan, the Swing Line Lender will distribute to such Lender its Applicable Percentage thereof in the same funds as those received by the Swing Line Lender.
(ii) If any payment received by the Swing Line Lender in respect of principal or interest on any Swing Line Loan is required to be returned by the Swing Line Lender under any of the circumstances described in Section 10.05 (including pursuant to any settlement entered into by the Swing Line Lender in its discretion), each Lender shall pay to the Swing Line Lender its Applicable Percentage thereof on demand of the Administrative Agent, plus interest thereon from the date of such demand to the date such amount is returned, at a rate per annum equal to the applicable Overnight Rate. The Administrative Agent will make such demand upon the request of the Swing Line Lender. The obligations of the Lenders under this clause shall survive the payment in full of the Obligations and the termination of this Agreement.
(e) Interest for Account of Swing Line Lender. The Swing Line Lender shall be responsible for invoicing the Borrower for interest on the Swing Line Loans. Until each Revolving Credit Lender funds its Base Rate Loan or risk participation pursuant to this Section 2.04 to refinance such Lender’s Applicable Percentage of any Swing Line Loan, interest in respect of such Applicable Percentage shall be solely for the account of the Swing Line Lender.
(f) Payments Directly to Swing Line Lender. The Borrower shall make all payments of principal and interest in respect of the Swing Line Loans directly to the Swing Line Lender.
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Prepayments.
(a) Optional.
(i) The Borrower may, upon notice to the Administrative Agent, at any time or from time to time voluntarily prepay Loans in whole or in part without premium or penalty (except as provided in clause (iv) below); provided that (i) such notice must be in a form acceptable to the Administrative Agent and be received by the Administrative Agent not later than 11:00 a.m. (A) three Business Days prior to any date of prepayment of Eurocurrency Rate Loans, (B) on the date of prepayment of Base Rate Loans, (C) five Business Days prior to any date of prepayment of Fixed Rate Loans; (ii) any prepayment of Eurocurrency Rate Loans shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof; and (iii) any prepayment of Base Rate Loans shall be in a principal amount of $500,000 or a whole multiple of $100,000 in excess thereof or, in each case, if less, the entire principal amount thereof then outstanding. Each such notice shall (x) specify the date and amount of such prepayment and the Facility and Type(s) of Loans to be prepaid and, if Eurocurrency Rate Loans are to be prepaid, the Interest Period(s) of such Loans and (y) in the case of a prepayment that is an Additional Term Loan Prepayment, such notice shall be accompanied by (I) a certificate of a Responsible Officer to the Administrative Agent, countersigned by each of the Term Loan Lenders, certifying that the requirements for such Additional Term Loan Prepayment have been satisfied and the amount of any Additional Cashless Term Loan Prepayment and (II) any other tax documentation reasonably requested by the Administrative Agent from the Borrower or any applicable Term Loan Lender. The Administrative Agent will promptly notify each Lender of its receipt of each such notice, and of the amount of such Lender’s ratable portion of such prepayment (based on such Lender’s Applicable Percentage in respect of the Aggregate Revolving Credit Commitment or Aggregate Term Loan Commitment, as applicable). If such notice is given by the Borrower, the Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein. Any prepayment of a Eurocurrency Rate Loan shall be accompanied by all accrued interest on the amount prepaid, together with any additional amounts required pursuant to Section 3.05 (including the capitalization of any interest to be paid-in-kind). Any Additional Term Loan Prepayment of a Fixed Rate Loan shall be accompanied by all accrued interest on the amount prepaid (including the capitalization of any interest to be paid-in-kind) to the extent that such interest is permitted to be paid under Section 11.01. Subject to Section 2.16, each such prepayment shall be paid to the Lenders in accordance with their respective Applicable Percentages in respect of each of the relevant Facilities; provided that, if a joint notice signed by each Term Loan Lender in form reasonably satisfactory to the Administrative Agent is delivered to the Administrative Agent at least one Business Day prior to the date of an Additional Term Loan Prepayment, such prepayment shall be applied among the Term Loan Lenders as directed by such joint notice.
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(ii) The Borrower may, upon notice to the Swing Line Lender (with a copy to the Administrative Agent), at any time or from time to time, voluntarily prepay Swing Line Loans in whole or in part without premium or penalty; provided that (i) such notice must be received by the Swing Line Lender and the Administrative Agent not later than 1:00 p.m. on the date of the prepayment, and (ii) any such prepayment shall be in a minimum principal amount of $100,000. Each such notice shall specify the date and amount of such prepayment. If such notice is given by the Borrower, the Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein.
(iii) Except as set forth in clause (d) of Section 11.01 and notwithstanding anything to the contrary contained herein, the Borrower shall not be permitted to prepay the Term Loan Facility (pursuant to Section 2.05(a)(i) or otherwise) until the occurrence of the Revolving Credit Facility Termination Date, provided that the Administrative Agent, in its sole discretion, may permit a prepayment in full of the Term Loan Facility on the Revolving Credit Facility Termination Date, provided further that the Administrative Agent will not release funds paid with respect to the Term Loan Facility to any Term Loan Lender until the Administrative Agent has deemed, in its reasonable discretion, that the Revolving Credit Facility Termination Date has occurred.
(iv) The Administrative Agent shall apply an Additional Cashless Term Loan Prepayment by reducing the principal of the outstanding Term Loans to be prepaid as set forth in the relevant notice described in clause (i) of this Section 2.05(a).
(b) Mandatory.
(i) In the event, and on each occasion, that any Net Cash Proceeds are received by or on behalf of the Borrower or any of its Subsidiaries in respect of any Prepayment Event, the Borrower shall, within five Business Days after such Net Cash Proceeds are received (or, in the case of a Prepayment Event described in clauses (b) or (c) of the definition of the term “Prepayment Event”, on or before the next succeeding Business Day following the occurrence of such Prepayment Event, or, in the case of a Prepayment Event on account of Recovery Events, on or before the later of (x) five Business Days after such Net Cash Proceeds are received and (y) the establishment of the Recovery Event Proceeds Account), prepay the Revolving Credit Facility in an aggregate amount equal to 100% of the amount of such Net Cash Proceeds (such mandatory prepayments to be applied as set forth in clause (ii) below).
(ii) Each prepayment of the Revolving Credit Facility pursuant to Section 2.05(b)(i) and (vi) shall be applied to the Revolving Credit Facility (without permanent reduction of the Commitments except as provided in Section 2.06(a)(ii)) in the manner set forth in clause (iv) or clause (vii), as applicable, of this Section 2.05(b).
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(iii) If (A) the Administrative Agent notifies the Borrower at any time during the Relief Period that the aggregate outstanding principal amount of Revolving Credit Loans exceeds the Relief Period Sublimit in effect at such time, then, within two Business Days after receipt of such notice, the Borrower shall prepay Revolving Credit Loans in an aggregate amount sufficient to reduce such outstanding principal amount of Revolving Credit Loans as of such date of payment to an amount not to exceed the Relief Period Sublimit then in effect, or (B) the Administrative Agent notifies the Borrower at any time that the Total Revolving Outstandings at such time exceed the Aggregate Revolving Credit Commitment in effect at such time, then, within two Business Days after receipt of such notice, the Borrower shall prepay Loans and/or Cash Collateralize the L/C Obligations in an aggregate amount sufficient to reduce such Outstanding Amount as of such date of payment to an amount not to exceed the Aggregate Revolving Credit Commitment then in effect; provided, however, that the Borrower shall not be required to Cash Collateralize the L/C Obligations pursuant to this Section 2.05(b)(iii) unless, after the prepayment in full of the Revolving Credit Loans, the Total Revolving Outstandings exceed the Aggregate Revolving Credit Commitment then in effect. The Administrative Agent may, at any time and from time to time after the initial deposit of such Cash Collateral, request that additional Cash Collateral be provided in order to protect against the results of further exchange rate fluctuations.
(iv) Except as otherwise
provided in Section 2.16,2.16
or clause (vii) below, prepayments of the Revolving Credit Facility made pursuant to this Section 2.05(b), first,
shall be applied ratably to the L/C Borrowings and the Swing Line Loans, second, shall be applied ratably to the outstanding
Revolving Credit Loans, and, third, shall be used to Cash Collateralize the remaining L/C Obligations in full; and,
in the case of prepayments of the Revolving Credit Facility required pursuant to clause (i) of this Section
2.05(b), the amount remaining, if any, after the prepayment in full of all L/C Borrowings, Swing Line Loans and Revolving Credit
Loans outstanding at such time and the Cash Collateralization of the remaining L/C Obligations in full may be retained by the Borrower
for use in the ordinary course of its business. Upon the drawing of any Letter of Credit that has been Cash Collateralized, the
funds held as Cash Collateral shall be applied (without any further action by or notice to or from the Borrower or any other Loan
Party or any Defaulting Lender that has provided Cash Collateral) to reimburse the applicable L/C Issuer or the applicable Lenders,
as applicable.
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(v) Notwithstanding anything to the contrary contained in any other provision of this Section 2.05(b), to the extent any mandatory prepayment required pursuant to Section 2.05(b)(i) (without giving effect to this Section 2.05(b)(v)) is attributable to a Prepayment Event by a Foreign Subsidiary of the Borrower or an Excluded Domestic Subsidiary, no such prepayment (or a portion thereof) shall be required to be made if such prepayment (or portion thereof, or dividend or distribution to facilitate such prepayment) shall, at the time it is required to be made, be prohibited by applicable Requirement of Law (including by reason of financial assistance, corporate benefit, restrictions on upstreaming or transfer of cash intra group and the fiduciary and statutory duties of the directors of relevant Subsidiaries), provided that the Borrower and its Subsidiaries shall make commercially reasonable efforts with respect to such Requirement of Law to permit such prepayment (or portion thereof, or dividend or distribution to facilitate such prepayment) in accordance therewith (it being understood that such efforts shall not require (x) any expenditure in excess of a nominal amount of funds or (y) modifications to the organizational or tax structure of the Borrower and its Subsidiaries to permit such prepayment (or portion thereof, or dividend or distribution to facilitate such prepayment)). Notwithstanding anything in the preceding sentence to the contrary, in the event the limitations or restrictions described therein cease to apply to any prepayment (or portion thereof, or dividend or distribution to facilitate such prepayment) required under Section 2.05(b)(i), the Borrower shall make such prepayment in an amount equal to the lesser of (x) the amount of such prepayment previously required to have been made without having given effect to such limitations or restrictions and (y) the amount of cash and Cash Equivalents on hand at such time, in each case, less the amount by which the Net Cash Proceeds from the Prepayment Event were previously used for the permanent repayment of Indebtedness (including any reductions in commitments related thereto).
(vi) In the event, and on each occasion, at the close of any Business Day (the “Test Date”), the aggregate unrestricted cash and Cash Equivalents (a) of the Borrower and its Subsidiaries exceeds $45,000,000 or (b) of the Non-Loan Parties exceeds $40,000,000 (a “Trigger Event”), in either case for each of the preceding three Business Days, the Borrower shall prepay the Revolving Credit Loans in an aggregate amount equal to 100% of the amount of such excess such that after giving effect to such repayment, the Borrower and its Subsidiaries and/or the Non-Loan Parties, as applicable, do not hold unrestricted cash and Cash Equivalents in amounts in excess of the above (such mandatory prepayments to be applied as set forth in clause (ii) above) on or prior to (A) the first Business Day after the Test Date or (B) the third Business Day after the Test Date solely with respect to any cash held in a deposit account owned by a Foreign Subsidiary of the Borrower required to be used for such prepayment (each of such dates, a “Repayment Deadline”).
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(vii) Except as otherwise provided in Section 2.16, prepayments of the Revolving Credit Facility on account of Recovery Events made pursuant to this Section 2.05(b), first, shall be applied ratably to the L/C Borrowings, second, 50% of the remainder of such prepayment shall be used to fund the Recovery Event Proceeds Account until such funds equal 105% of the Revolving Credit Facility (less Cash Collateral actually provided to L/C Issuers as required pursuant to Section 2.15(a) or Section 6.26), and third, shall be applied ratably to the outstanding Revolving Credit Loans; and, in the case of prepayments of the Revolving Credit Facility on account of Recovery Events required pursuant to clause (i) of this Section 2.05(b), the amount remaining, if any, after the prepayment in full of all L/C Borrowings outstanding at such time, the funding requirement for the Recovery Event Proceeds Account and Revolving Credit Loans outstanding at such time may be retained by the Borrower for use in the ordinary course of its business. If at any time the funds in the Recovery Event Proceeds Account exceeds 105% of the Revolving Credit Facility (less Cash Collateral actually provided to L/C Issuers as required pursuant to Section 2.15(a) or Section 6.26), the Administrative Agent, at the written request of the Borrower to the Administrative Agent, shall cause such excess to be returned to the Borrower for use in the ordinary course of its business within 5 Business Days either by (i) crediting the account (other than the Recovery Event Proceeds Account) of the Borrower on the books of Bank of America with the amount of such funds or (ii) wire transfer of such funds, in each case in accordance with instructions provided to (and reasonably acceptable to) the Administrative Agent by the Borrower. With respect to any Unreimbursed Amount that is not fully refinanced by a Revolving Credit Borrowing of Base Rate Loans because the conditions set forth in Section 4.03 cannot be satisfied or for any other reason, if the applicable Letter of Credit has not been Cash Collateralized, the funds held in the Recovery Event Proceeds Account shall be applied to outstanding L/C Borrowings or L/C Advances on account of such Letter of Credit (without any further action by or notice to or from the Borrower or any other Loan Party) to reimburse the applicable L/C Issuer or the applicable Lenders, as applicable, and the Borrower hereby authorizes the Administrative Agent to apply funds therein in such manner.
Termination or Reduction of Commitments.
(a) Reductions.
(i) Optional.
The Borrower may, upon notice to the Administrative Agent, terminate the Aggregate Revolving Credit Commitment or Aggregate Term
Loan Commitment, or from time to time permanently reduce the Aggregate Revolving Credit Commitment or Aggregate Term Loan Commitment; provided that
(a) any such notice shall be received by the Administrative Agent not later than 11:00 a.m. five Business Days prior to the date
of termination or reduction, (b) any such partial reduction shall be in an aggregate amount of $10,000,000 or any whole multiple
of $1,000,000 in excess thereof, (c) the Borrower shall not terminate or reduce the Aggregate Revolving Credit Commitment if, after
giving effect thereto and to any concurrent prepayments hereunder, the Total Revolving Outstandings would exceed the Aggregate
Revolving Credit Commitment, (d) if, after giving effect to any reduction of the Revolving Credit Commitment, the Alternative Currency
Sublimit or the Swing Line Sublimit exceeds the amount of the Aggregate Revolving Credit Commitment, such Sublimit shall be automatically
reduced by the amount of such excess, and (e) the Borrower shall have
no right to terminate or reduce any Lender’s Term Loan Commitment prior to the Revolving Credit Facility Termination Date and
(f) the Borrower shall have no right to terminate or reduce the Tranche A-5 Term Loan Commitment without the written consent of
the Tranche A-5 Term Loan Lender. Except as provided in the preceding sentence, the amount of any such Revolving Credit
Commitment reduction shall not be applied to the Alternative Currency Sublimit or the Swing Line Sublimit unless otherwise specified
by the Borrower.
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(ii) Mandatory. In the event, and on each occasion, that during the Relief Period a Commitment Reduction Event occurs (after giving effect to any reinvestment period, and regardless of whether the Borrower is permitted to retain any or all of such Net Cash Proceeds thereof pursuant to the application of Section 2.05(b)(iv)), the Borrower shall, on or prior to the Business Day (x) the related prepayment is made (or, if not made, is required to be made) with respect to a Commitment Reduction Event described in clause (a) of the definition of “Commitment Reduction Amount” or (y) any other Commitment Reduction Event occurs, give notice thereof, and of the Commitment Reduction Amount with respect thereto, to the Administrative Agent. Promptly (and in any event not later than the next succeeding Business Day) after receiving such notice, the Administrative Agent shall reduce the Aggregate Revolving Credit Commitment by an amount equal to such Commitment Reduction Amount. In connection with each such reduction, the Borrower shall be required to prepay Revolving Credit Loans and, if the Revolving Credit Loans are paid in full, Cash Collateralize Letters of Credit to the extent that any such reduction of the Aggregate Revolving Credit Commitment would result in the Total Revolving Outstandings exceeding the Aggregate Revolving Credit Commitment (as so reduced), including any costs or expenses pursuant to Section 3.05. If, after giving effect to any such reduction of the Aggregate Revolving Credit Commitment, the Alternative Currency Sublimit, the Relief Period Sublimit or the Swing Line Sublimit exceeds the amount of the Aggregate Revolving Credit Commitment, such sublimit shall be automatically reduced by the amount of such excess. Except as provided in the preceding sentence, the amount of any such Aggregate Revolving Credit Commitment reduction shall not be applied to the Alternative Currency Sublimit, the Relief Period Sublimit or the Swing Line Sublimit unless otherwise specified by the Borrower.
(b) Application of Commitment Reductions; Payment of Fees.
(i) The Administrative Agent will promptly notify the Lenders of any notice of (or mandatory) termination or reduction of the Aggregate Revolving Credit Commitment. Any reduction of the Aggregate Revolving Credit Commitment shall be applied to the Revolving Credit Commitment of each Lender according to its Applicable Percentage. All fees in respect of the Revolving Credit Facility accrued until the effective date of any termination of the Aggregate Revolving Credit Commitment shall be paid on the effective date of such termination.
(ii) Notwithstanding anything to the contrary contained herein, a notice of termination of the Aggregate Revolving Credit Commitments or the Aggregate Term Loan Commitments and the prepayment in full of the Loans in connection therewith may state that such notice is conditioned upon the effectiveness of other credit facilities, and if any notice so states it may be revoked by the Borrower by notice to the Administrative Agent on or prior to the date specified for the termination of the Aggregate Revolving Credit Commitments or Aggregate Term Loan Commitments, as applicable, and such prepayment that the refinancing condition has not been met and the termination and prepayment is to be revoked, provided that the Borrower will continue to be responsible for any costs or expenses pursuant to Section 3.05 in connection with the failure to prepay Loans resulting from such revocation.
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Repayment of Loans.
(a) Revolving Credit Loans. The Borrower shall repay to the Revolving Credit Lenders on the Revolving Credit Facility Maturity Date the aggregate principal amount of all Revolving Credit Loans made to the Borrower outstanding on such date.
(b) Swing Line Loans. The Borrower shall repay each Swing Line Loan on the earlier to occur of (i) the date 10 Business Days after such Loan is made and (ii) the Revolving Credit Facility Maturity Date.
(c) Term Loans. The Borrower shall repay to the Lenders on the Term Loan Facility Maturity Date the aggregate principal amount of all Term Loans made to the Borrower capitalized as principal outstanding on such date, subject to any subordination terms set forth herein.
Interest.
(a) Subject to the provisions of subsection (b) below, (i) each Eurocurrency Rate Loan shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to the Eurocurrency Rate for such Interest Period plus the Applicable Rate; (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; (iii) each Swing Line 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 for Base Rate Loans; and (iv) on and after the Amendment No. 16 Effective Date, each Term Loan shall bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the Fixed Rate.
(b) (i) If any amount of principal of any Loan is not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Requirements of Law.
(i) If any amount (other than principal of any Loan) payable by the Borrower under any Loan Document is not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, then upon the request of the Required Lenders, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Requirements of Law.
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(ii) Upon the request of the Required Lenders, while any Event of Default exists (other than as set forth in clauses 2.08(b)(i) and (b)(ii) above), the Borrower shall pay interest on the principal amount of all outstanding Obligations hereunder at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Requirements of Law.
(iii) Accrued and unpaid interest on past due amounts (including interest on past due interest) shall be due and payable upon the demand of the Administrative Agent.
(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.
(d) Term Loan Interest Payments.
(i) During the period (A) commencing after the occurrence of the Initial Tranche A Term Loan Funding and ending the day immediately prior to the Amendment No. 16 Effective Date, a portion of the interest payable with respect to the Term Loans equal to (x) 5.50% per annum, with respect to Eurocurrency Rate Loans, and (y) 4.50% per annum, with respect to Base Rate Loans, on each Interest Payment Date occurring prior to the Amendment No. 16 Effective Date (and the Interest Payment Date occurring on June 28, 2019 with respect to any accrued interest outstanding as of the Amendment No. 16 Effective Date) shall be paid in cash on the applicable Interest Payment Date, with the remainder of the interest due on such Interest Payment Date to be paid-in-kind (which payment-in-kind shall be capitalized on the applicable Interest Payment Date and such capitalized amount shall be added to the then outstanding principal amount of the applicable Term Loans and constitute outstanding principal for all purposes hereof) and (B) commencing on the Amendment No. 16 Effective Date, a portion of interest payable with respect to the Term Loans equal to 7.50% per annum on each Interest Payment Date occurring on or after the Amendment No. 16 Effective Date shall be paid in cash on the applicable Interest Payment Date, with the remainder of the interest due on such Interest Payment Date to be paid-in-kind (which payment-in-kind shall be capitalized on the applicable Interest Payment Date and such capitalized amount shall be added to the then outstanding principal amount of the applicable Term Loans and constitute outstanding principal for all purposes hereof), provided that, commencing on the Business Day immediately after the delivery of a Fixed Rate Certificate to the Administrative Agent, all such interest shall be paid in cash.
(ii) Upon and during the continuance of an Event of Default and until the occurrence of the Revolving Credit Facility Termination Date, all interest with respect to the Term Loans, including such interest at the Default Rate, shall not be payable, provided that such interest shall continue to accrue.
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(iii) The Borrower shall deliver to the Administrative Agent a Fixed Rate Certificate on the date of the consummation of a Qualified Rights Offering. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any Fixed Rate Certificate or Additional Term Loan Prepayment Extension Certificate. The Administrative Agent shall not be responsible for or have any duty to request any Fixed Rate Certificate or Additional Term Loan Prepayment Extension Certificate or ascertain or inquire into any Fixed Rate Certificate or Additional Term Loan Prepayment Extension Certificate or the contents of any Fixed Rate Certificate or Additional Term Loan Prepayment Extension Certificate.
Fees. In addition to certain fees described in subsections (h) and (i) of Section 2.03:
(a) Commitment Fee.
(i) The Borrower shall pay to the Administrative Agent for the account of each Revolving Credit Lender (subject to Section 2.16(a)(iii) with respect to Defaulting Lenders) in accordance with its Applicable Percentage, a commitment fee in Dollars equal to the Applicable Rate times the actual daily amount by which the Aggregate Revolving Credit Commitment exceeds the sum of (i) the Outstanding Amount of Revolving Credit Loans and (ii) the Outstanding Amount of L/C Obligations, subject to adjustment as provided in Section 2.16. The commitment fee with respect to the Revolving Credit Facility shall accrue at all times during the Availability Period with respect to the Revolving Credit Facility, including at any time during which one or more of the conditions in Article IV is not met, and shall be due and payable quarterly in arrears on the tenth Business Day after the last Business Day of each March, June, September and December, commencing with the first such date to occur after the Closing Date, and on the last day of the Availability Period for the Revolving Credit Facility.
(ii) The commitment fees set forth in clause (i) above shall be calculated quarterly in arrears, and if there is any change in the Applicable Rate during any quarter, the actual daily amount shall be computed and multiplied by such Applicable Rate separately for each period during such quarter that such Applicable Rate was in effect.
(b) Other Fees.
(i) The Borrower shall pay to the Arrangers and the Administrative Agent for their own respective accounts, in Dollars, fees in the amounts and at the times specified in the Fee Letters. Such fees shall be fully earned when paid and shall not be refundable for any reason whatsoever.
(ii) The Borrower shall pay to the Lenders, in Dollars, 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.
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(iii) The Borrower shall pay to the Administrative Agent for the account of the Revolving Credit Lenders in accordance with its Applicable Percentage, in Dollars, an annual facility fee of $1,500,000. Such fee shall be payable the first Business Day of each calendar year, shall be fully earned when paid and shall not be refundable for any reason whatsoever, provided that the facility fee for the calendar year in which the Revolving Credit Facility Maturity Date is set to occur shall be prorated in accordance with Section 2.10 (Computation of Interest and Fees) for the actual number of days to elapse until such Maturity Date.
(iv) The Borrower shall
pay to the Administrative Agent for the account of each Revolving Credit Lender in accordance with its Applicable Percentage, in
Dollars, a deferred facility fee equal to a percentage per annum of 2.50% oftimes the portion
of theactual daily amount Revolving Credit Facility held
by such Lender as of the date of payment of such fee (the “Deferred Facility Fee”), provided that
such percentage shall be decreased by 0.50% upon the occurrence of each Deferred Facility Fee Decrease Event, up to an aggregate
decrease of 1.50%. Commencing upon the occurrence of the Recapitalization Transaction, the Deferred Facility Fee shall accrue at
all times during the Availability Period with respect to the Revolving
Credit Facilityuntil the Amendment No. 20 Effective Date, including at
any such time during which one or more of the conditions in Article IV is
not met, and shall be fully earned when accrued, shall not be refundable for any reason whatsoever and shall be payable on the
last day of the Availability Period with respect to the Revolving Credit Facility. For the avoidance of doubt, the Deferred Facility
Fee set forth in this clause (iv) shall be in addition to the facility fee set forth in clause (iii) above.
(v) The Borrower agrees to pay original issue discount to the Administrative Agent for the account of (A) each Tranche A-1 Term Loan Lender on the date of each Tranche A-1 Term Loan Borrowing in an aggregate amount equal to 10.0% of the gross cash proceeds of the Tranche A-1 Term Loan received by the Borrower on the date of such Term Loan Borrowing; and (B) each Tranche A-3 Term Loan Lender on the date of the Tranche A-3 Term Loan Borrowing in an aggregate amount equal to 3.2% of the gross cash proceeds of the Tranche A-3 Term Loan received by the Borrower on the date of such Term Loan Borrowing (“OID”).
(vi) The Borrower
shall pay to the Administrative Agent for the account of each Revolving Credit Lender in accordance with its Applicable
Percentage, in Dollars, deferred ticking fees equal to a percentage of 1.00% of the portion of the Revolving Credit Facility
held by such Lender as of the date of payment of such fees (the “Deferred Ticking Fees”). Until
the occurrence of the Revolving Credit Facility TerminationAmendment
No. 20 Effective Date, including at any time during which one or more of the conditions in Article
IV is not met, the Deferred Ticking Fees shall be fully earned on December 15, 2019 and on the 15th day of each
succeeding calendar month thereafter, shall not be refundable for any reason whatsoever and shall be payable on the earlier
of (A) MarchMay 15, 2020
and (B) the last day of the Availability Period with respect to the Revolving Credit Facility. For the avoidance of doubt,
the Deferred Ticking Fees set forth in this clause (vi) shall be in addition to the facility fee and deferred facility fee
set forth in clauses (iii) and (iv) above.
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Computation of Interest and Fees.
(a) All computations of interest for Base Rate Loans (including Base Rate Loans determined by reference to the Eurocurrency Rate) shall be made on the basis of a year of 365 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 2.12(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) [reserved].
Evidence of Debt.
(a) The Credit Extensions made by each Lender shall be evidenced by one or more accounts or records maintained by such Lender and by the Administrative Agent in the ordinary course of business. The accounts or records maintained by the Administrative Agent and each Lender shall be conclusive absent manifest error of the amount of the Credit Extensions made 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 in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error. Promptly after the request of any Lender to the Borrower made through the Administrative Agent, the Borrower shall execute and deliver to such Lender (through the Administrative Agent) a Note, which shall evidence such Lender’s Loans to the Borrower in addition to such accounts or records. Each Lender may attach schedules to a Note and endorse thereon the date, Type (if applicable), amount and maturity of its Loans and payments with respect thereto.
(b) In addition to the accounts and records referred to in subsection (a), each Lender and the Administrative Agent shall maintain in accordance with its usual practice accounts or records evidencing the purchases and sales by such Lender of participations in Letters of Credit and Swing Line Loans. 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.
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Payments Generally; Administrative Agent’s Clawback.
(a) General. All payments to be made by the Borrower shall be made free and clear and 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 Administrative Agent’s Office in Dollars and in Same Day Funds not later than 2:00 p.m. on the date specified herein, except to the extent any such payment is to be paid-in-kind pursuant to Section 2.08(d). Without limiting the generality of the foregoing, the Administrative Agent may require that any payments due under this Agreement be made in the United States. The Administrative Agent will promptly distribute to each Lender its Applicable Percentage (or other applicable share as provided herein) of such payment in like funds as received by wire transfer to such Lender’s Lending Office. All payments received by the Administrative Agent or the applicable L/C Issuer after 2:00 p.m. shall be deemed received on the next succeeding Business Day and any applicable interest or fee shall continue to accrue. 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.
(b) (i) Funding by Lenders; Presumption by Administrative Agent. Unless the Administrative Agent shall have received notice from a Revolving Credit Lender prior to the proposed date of any Revolving Credit Borrowing of Eurocurrency Rate Loans (or, in the case of any Revolving Credit Borrowing of Base Rate Loans, prior to (A) 12:00 noon on the date of such Revolving Credit Borrowing if such Revolving Credit Borrowing is to be made on a Business Day other than the date the Administrative Agent received the applicable Committed Loan Notice with respect to such Revolving Credit Borrowing and (B) 2:00 p.m. on the date of such Revolving Credit Borrowing if such Revolving Credit Borrowing is to be made on the same Business Day as the date the Administrative Agent received the applicable Committed Loan Notice with respect to such Revolving Credit Borrowing) that such Lender will not make available to the Administrative Agent such Lender’s share of such Revolving Credit Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with Section 2.02 (or, in the case of a Revolving Credit Borrowing of Base Rate Loans, that such Lender has made such share available in accordance with and at the time required by Section 2.02) and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Revolving Credit Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount in Same Day Funds with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (A) in the case of a payment to be made by such Lender, the Overnight Rate, plus any administrative, processing or similar fees customarily charged by the Administrative Agent in connection with the foregoing, and (B) in the case of a payment to be made by the Borrower, the interest rate applicable to Base Rate Loans. 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 Lender’s 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.
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(ii) Payments by Borrower; Presumptions by Administrative Agent. Unless the Administrative Agent shall have received notice from the Borrower prior to the time at which any payment is due to the Administrative Agent for the account of the Revolving Credit Lenders or the applicable L/C Issuer hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or the applicable L/C Issuer, as the case may be, the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Revolving Credit Lenders or the applicable L/C Issuer, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or such L/C Issuer, in Same Day Funds with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the Overnight Rate.
A notice of the Administrative Agent to any Lender or the Borrower with respect to any amount owing under this subsection (b) shall be conclusive, absent manifest error.
(c) Failure to Satisfy Conditions Precedent. If any Lender makes available to the Administrative Agent funds for any Loan (including funds made available to satisfy the Term Loan Prefunding Requirement) to be made by such Lender to the Borrower 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 Credit Extension set forth in Article IV 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.
(d) Obligations of Lenders Several. The obligations of the Lenders hereunder to make Term Loans and Revolving Credit Loans, to fund participations in Letters of Credit and Swing Line Loans and to make payments pursuant to Section 10.04(c) are several and not joint. The failure of any Lender to make any Loan, to fund any such participation or to make any payment under Section 10.04(c) 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, to purchase its participation or to make its payment under Section 10.04(c).
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(e) Funding Source. 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.
(f) Insufficient Funds. Subject to the application of Section 8.03 by its terms, if at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, L/C Borrowings, interest and fees then due hereunder, such funds shall be applied (i) first, toward payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, toward payment of principal and L/C Borrowings then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal and L/C Borrowings then due to such parties; provided that no payments may be made to the Term Loan Lenders pursuant to this clause (f) until the occurrence of the Revolving Credit Facility Termination Date.
Sharing of Payments by Lenders. Subject to the turnover provisions set forth in Section 11.02, if any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of the Revolving Credit Loans or Term Loans made by it, or the participations in L/C Obligations or in Swing Line Loans held by it resulting in such Lender’s receiving payment of a proportion of the aggregate amount of such Revolving Credit Loans, Term Loans or participations and accrued interest thereon greater than its pro rata share thereof as provided herein, then the Lender receiving such greater proportion shall (a) notify the Administrative Agent of such fact, and (b) purchase (for cash at face value) participations in the Revolving Credit Loans or Term Loans and subparticipations in L/C Obligations and Swing Line Loans of the other Lenders, or make such other adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Revolving Credit Loans, Term Loans and other amounts owing them, provided that:
(i) if any such participations or subparticipations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations or subparticipations shall be rescinded and the purchase price restored to the extent of such recovery, without interest; and
(ii) the provisions of this Section shall not be construed to apply to (x) any payment made by or on behalf of the Borrower pursuant to and in accordance with the express terms of this Agreement (including the application of funds arising from the existence of a Defaulting Lender), (y) the application of Cash Collateral provided for in Section 2.15, or (z) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or subparticipations in L/C Obligations or Swing Line Loans to any assignee or participant, other than an assignment to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this Section shall apply).
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The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.
Increase in Revolving Credit Commitments.
(a) Request for Increase. The Borrower may, from time to time (other than during the Relief Period, during which time, notwithstanding anything to the contrary in this Agreement, no increase pursuant to this Section 2.14 may be requested or consummated), request by written notice to the Administrative Agent one or more increases in the Revolving Credit Facility (each, a “Revolving Credit Increase”); provided that (i) the principal amount for all such Revolving Credit Increases, in the aggregate, since the Closing Date (including the then requested Revolving Credit Increase) shall not exceed the sum (with utilization being determined by the Borrower subject to the limits provided herein) of (x) $200,000,000 plus (y) a principal amount such that, after giving effect to such proposed Revolving Credit Increase (measured assuming the entire principal amount of any proposed Revolving Credit Increase being incurred pursuant to this clause (y) is fully drawn), any repayment of other Indebtedness in connection therewith and any other appropriate pro forma adjustment events, the Senior Leverage Ratio is not greater than 2.00 to 1.00; (ii) any such request shall be in a minimum amount of $10,000,000 (or a lesser amount in the event such amount represents all remaining availability under this Section) and the Borrower may make a maximum of five such requests (excluding any requests that are not consummated); (iii) no Revolving Credit Increase shall increase the Swing Line Sublimit without the consent of the Swing Line Lender; (iv) any Revolving Credit Increase may, at the request of the Borrower, be available for the issuance of Letters of Credit within the limits of the L/C Issuer Sublimits; and (v) each Revolving Credit Increase shall constitute Obligations hereunder and shall be guaranteed and secured pursuant to the Guaranty, Collateral Agreement and the other Security Instruments on a pari passu basis with the other Obligations hereunder.
(b) Process for Increase. Revolving Credit Increases may be (but shall not be required to be) provided by any existing Lender, in each case on terms permitted in this Section 2.14 and otherwise on terms reasonably acceptable to the Borrower and the Administrative Agent, or by any other Person that qualifies as an Eligible Assignee (each such other Person, an “Additional Lender”) pursuant to a joinder agreement in form and substance reasonably satisfactory to the Administrative Agent; provided that (i) the Administrative Agent shall have consented (in each case, such consent not to be unreasonably withheld, delayed or conditioned) to each proposed Additional Lender providing such Revolving Credit Increase to the extent the Administrative Agent would be required to consent to an assignment to such Additional Lender pursuant to Section 10.06(b)(iii) and (ii) each L/C Issuer and the Swing Line Lender shall have consented to each such Lender or proposed Additional Lender providing such Revolving Credit Increase if such consent by the L/C Issuers or the Swing Line Lender, as the case may be, would be required under Section 10.06(b)(iii) for an assignment of Revolving Credit Loans or Commitments to such Lender or proposed Additional Lender; provided further that the Borrower shall not be required to offer or accept commitments from existing Lenders for any Revolving Credit Increase. No Lender shall have any obligation to increase its Revolving Credit Commitment pursuant to a request for a Revolving Credit Increase, and no consent of any Lender, other than the Lenders agreeing to provide any portion of a Revolving Credit Increase, shall be required to effectuate such Revolving Credit Increase.
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(c) Effective Date and Allocations. The Administrative Agent and the Borrower shall determine the effective date of any Revolving Credit Increase (the “Increase Effective Date”). The Administrative Agent shall promptly notify the Borrower and the Lenders of the final allocation of such Revolving Credit Increase and the Increase Effective Date.
(d) Conditions.
(i) As a condition precedent to each Revolving Credit Increase, the Borrower shall deliver to the Administrative Agent a certificate of the Borrower and, if reasonably determined by the Administrative Agent to be necessary or desirable under applicable Requirements of Law with respect to the Loan Documents of a Guarantor, of each such Guarantor, dated as of the Increase Effective Date, signed by a Responsible Officer of the Borrower or each such Guarantor, as applicable, and (A) certifying and attaching the resolutions adopted by the Borrower or such Guarantor approving or consenting to such Revolving Credit Increase (which, with respect to any such Loan Party, may, if applicable, be the resolutions entered into by such Loan Party in connection with the incurrence of the Obligations on the Closing Date) and (B) certifying that (1) both before and immediately after giving effect to such Revolving Credit Increase, as of the Increase Effective Date no Default or Event of Default shall exist and be continuing, (2) immediately after giving effect to such Revolving Credit Increase, as of the Increase Effective Date the Borrower shall be in pro forma compliance (after giving effect to the incurrence of such Revolving Credit Increase and the use of proceeds thereof) with each of the financial covenants contained in Section 7.16 and (3) the representations and warranties of the Borrower and each other Loan Party contained in Article V or any other Loan Document, or which are contained in any document furnished at any time under or in connection herewith or therewith, are true and correct in all material respects (or, with respect to representations and warranties modified by a materiality or Material Adverse Effect standard, in all respects) on and as of the Increase Effective Date, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct in all material respects (or, with respect to representations and warranties modified by a materiality or Material Adverse Effect standard, in all respects) as of such earlier date, and except that for purposes of this clause (i)(B)(3), the representations and warranties contained in Sections 5.04(a) and (b) shall be deemed to refer to the most recent statements furnished pursuant to Sections 6.01(a) and (b), respectively. In addition, as a condition precedent to each Revolving Credit Increase, the Borrower shall deliver or cause to be delivered such other officer’s certificates, Organization Documents and legal opinions of the type delivered on the Closing Date as are reasonably requested by, and in form and substance reasonably satisfactory to, the Administrative Agent.
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(ii) Each Revolving Credit Increase shall have the same terms as the outstanding Revolving Credit Loans and be part of the existing Revolving Credit Facility hereunder. Upon each Revolving Credit Increase (x) each Lender having a Commitment immediately prior to such increase will automatically and without further act be deemed to have assigned to each Lender providing a portion of the Revolving Credit Increase (each, a “Revolving Credit Increase Lender”) in respect of such increase, and each such Revolving Credit Increase Lender will automatically and without further act be deemed to have assumed a portion of such Lender’s participations hereunder in outstanding Letters of Credit and Swing Line Loans such that, after giving effect to each such deemed assignment and assumption of participations, the percentage of the aggregate outstanding participations hereunder in (1) Letters of Credit and (2) Swing Line Loans, will, in each case, equal each Lender’s Applicable Percentage (after giving effect to such increase in the Revolving Credit Facility) and (y) if, on the date of such increase there are any Revolving Credit Loans outstanding, the Lenders shall make such payments among themselves as the Administrative Agent may reasonably request to the extent necessary to keep the outstanding Revolving Credit Loans ratable with any revised Applicable Percentages arising from such Revolving Credit Increase, and the Borrower shall pay to the applicable Lenders any amounts required to be paid pursuant to Section 3.05 in connection with such payments among the Lenders as if such payments were effected by prepayments of Revolving Credit Loans.
(e) Conflicting Provisions. This Section shall supersede any provisions in Section 2.13 or 10.01 to the contrary.
2.14A Incremental Term Loans.
(a) Request for Increase. Subject to the consent of the Administrative Agent in its sole discretion, the Borrower may, from time to time, request by written notice to the Administrative Agent one or more increases to the Term Loan Facility (each, a “Term Loan Increase”); provided that (i) the principal amount of the Term Loan Increase shall not exceed $15,000,000; and (ii) any such request shall be in a minimum amount of $5,000,000 (or a lesser amount in the event such amount represents all remaining availability under this Section) and the Borrower may make a maximum of three such requests (excluding any requests that are not consummated); and (iii) each Term Loan Increase shall constitute Obligations hereunder and shall be guaranteed and secured pursuant to the Guaranty, Collateral Agreement and the other Security Instruments on a pari passu basis with the other Obligations hereunder, subject to any subordination terms set forth herein. It is expressly understood that the Term Loan Increase has not been committed to by the Administrative Agent or any Term Loan Lender and the decision as to whether to agree to any such request may be made by each Term Loan Lender in its sole discretion.
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(b) Process for Increase. Any Term Loan Increase may be provided by any Person that qualifies as an Eligible Assignee of Term Loans (each such other Person, an “Additional Term Lender”) pursuant to a joinder agreement in form and substance reasonably satisfactory to the Administrative Agent, which joinder agreement may effect amendments to this Agreement and the other Loan Documents as may be necessary or appropriate, in the reasonable opinion of the Administrative Agent, to effect the provisions of this Section 2.14A, including the creation of a new tranche of Term Loans; provided that the Administrative Agent shall have consented in its sole discretion to each proposed Additional Term Lender providing such Term Loan Increase. No consent of any Lender, other than the Lenders agreeing to provide any portion of a Term Loan Increase, shall be required to effectuate such Term Loan Increase.
(c) Effective Date and Allocations. The Administrative Agent and the Borrower shall determine the effective date of any Term Loan Increase (the “Term Loan Increase Effective Date”). The Administrative Agent shall promptly notify the Borrower and the Lenders of the final allocation of such Term Loan Increase and the Term Loan Effective Date.
(d) Conditions.
(i) As a condition precedent to each Term Loan Increase, the Borrower shall deliver to the Administrative Agent a certificate of the Borrower and, if reasonably determined by the Administrative Agent to be necessary or desirable under applicable Requirements of Law with respect to the Loan Documents of a Guarantor, of each such Guarantor, dated as of the Term Loan Increase Effective Date, signed by a Responsible Officer of the Borrower or each such Guarantor, as applicable, and (A) certifying and attaching the resolutions adopted by the Borrower or such Guarantor approving or consenting to such Term Loan Increase (which, with respect to any such Loan Party, may, if applicable, be the resolutions entered into by such Loan Party in connection with the incurrence of the Obligations on the Closing Date) and (B) certifying that (1) both before and immediately after giving effect to such Term Loan Increase, as of the Term Loan Increase Effective Date no Default or Event of Default shall exist and be continuing and (2) the representations and warranties of the Borrower and each other Loan Party contained in Article V or any other Loan Document, or which are contained in any document furnished at any time under or in connection herewith or therewith, are true and correct in all material respects (or, with respect to representations and warranties modified by a materiality or Material Adverse Effect standard, in all respects) on and as of the Term Loan Increase Effective Date, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct in all material respects (or, with respect to representations and warranties modified by a materiality or Material Adverse Effect standard, in all respects) as of such earlier date, and except that for purposes of this clause (i)(B)(3), the representations and warranties contained in Sections 5.04(a) and (b) shall be deemed to refer to the most recent statements furnished pursuant to Sections 6.01(a) and (b), respectively. In addition, as a condition precedent to each Term Loan Increase, the Borrower shall deliver or cause to be delivered such other officer’s certificates, Organization Documents and legal opinions of the type delivered on the Closing Date as are reasonably requested by, and in form and substance reasonably satisfactory to, the Administrative Agent.
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(ii) Each Term Loan Increase shall have the same terms as the outstanding Term Loan Loans and be part of the existing Term Loan Facility hereunder.
Cash Collateral.
(a) Certain Credit Support Events. If (i) as of the Letter of Credit Expiration Date, any L/C Obligation for any reason remains outstanding, (ii) the Borrower shall be required to provide Cash Collateral pursuant to Section 8.02(c), or (iii) there shall exist a Defaulting Lender with a Revolving Credit Commitment, the Borrower shall immediately (in the case of clause (ii) above) or within one Business Day (in all other cases) (or such longer period of time permitted by the Administrative Agent and the applicable L/C Issuer) following any request by the Administrative Agent or the applicable L/C Issuer, provide Cash Collateral in an amount not less than the applicable Minimum Collateral Amount (determined in the case of Cash Collateral provided pursuant to clause (iii) above, after giving effect to Section 2.16(a)(iv) and any Cash Collateral provided by the Defaulting Lender). If at any time the Administrative Agent determines that any funds held as Cash Collateral pursuant to the preceding sentence are subject to any right or claim of any Person other than the Administrative Agent or that the total amount of such funds is less than the applicable Minimum Collateral Amount as required by the preceding sentence, the Borrower will, forthwith upon demand by the Administrative Agent, pay to the Administrative Agent, as additional funds to be deposited as Cash Collateral, an amount equal to the excess of (x) such applicable Minimum Collateral Amount over (y) the total amount of funds, if any, then held as Cash Collateral that the Administrative Agent determines to be free and clear of any such right and claim. Upon the drawing of any Letter of Credit for which funds are on deposit as Cash Collateral, such funds shall be applied, to the extent permitted under applicable Laws, to reimburse the applicable L/C Issuer.
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(b) Grant of Security Interest. All Cash Collateral (other than credit support not constituting funds subject to deposit) shall be maintained in blocked, non-interest bearing (unless otherwise agreed by the depositary) deposit accounts at the Administrative Agent or the relevant L/C Issuer, as applicable. To the extent provided by the Borrower, the Borrower, and to the extent provided by any Lender, such Lender, hereby grants to (and subjects to the control of) the relevant L/C Issuer or to the Administrative Agent, for the benefit of the Administrative Agent, the L/C Issuer and the Revolving Credit Lenders (including the Swing Line Lender), as applicable, and agrees to maintain, a first priority security interest in all such cash, deposit accounts and all balances therein, and all other property so provided as collateral pursuant to this Section 2.15, and in all proceeds of the foregoing, all as security for the obligations to which such Cash Collateral may be applied pursuant to Section 2.15(c). If at any time the Administrative Agent determines that Cash Collateral is subject to any right or claim of any Person other than the Administrative Agent or the applicable L/C Issuer as herein provided, or that the total amount of such Cash Collateral is less than the Minimum Collateral Amount, the Borrower or the relevant Defaulting Lender will, promptly (but in any event within five Business Days) after demand by the Administrative Agent, pay or provide to the Administrative Agent additional Cash Collateral in an amount sufficient to eliminate such deficiency. The Borrower shall pay on demand therefor from time to time all customary account opening, activity and other administrative fees and charges in connection with the maintenance and disbursement of Cash Collateral.
(c) Application. Notwithstanding anything to the contrary contained in this Agreement, Cash Collateral provided under any of this Section 2.15 or Sections 2.03, 2.04, 2.05, 2.16 or 8.02 in respect of Letters of Credit or Swing Line Loans shall be held and applied to the satisfaction of the specific L/C Obligations, Swing Line Loans, obligations to fund participations therein (including, as to Cash Collateral provided by a Defaulting Lender, any interest accrued on such obligation) and other obligations for which the Cash Collateral was so provided, prior to any other application of such property as may be provided for herein.
(d) Release. Cash Collateral (or the appropriate portion thereof) provided to reduce Fronting Exposure or to secure other obligations shall be released promptly following (i) the elimination of the applicable Fronting Exposure or other obligations giving rise thereto (including by the termination of Defaulting Lender status of the applicable Lender (or, as appropriate, its assignee following compliance with Section 10.06(b)(vi))) or (ii) the Administrative Agent’s and the applicable L/C Issuer’s good faith determination that there exists excess Cash Collateral; provided that (x) Cash Collateral furnished by or on behalf of a Loan Party shall not be released during the continuance of a Default (and following application as provided in this Section 2.15 may be otherwise applied in accordance with Section 8.03), and (y) the Person providing Cash Collateral and the L/C Issuer or Swing Line Lender, as applicable, may agree that Cash Collateral shall not be released but instead held to support future anticipated Fronting Exposure or other obligations.
Defaulting Lenders.
(a) Adjustments. Notwithstanding anything to the contrary contained in this Agreement, if any Lender becomes a Defaulting Lender, then, until such time as that Lender is no longer a Defaulting Lender, to the extent permitted by applicable Requirements of Law:
(i) Waivers and Amendments. Such Defaulting Lender’s right to approve or disapprove any amendment, waiver or consent with respect to this Agreement shall be restricted as set forth in the definition of “Required Lenders,”, “Required Term Lenders” and Section 10.01.
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(ii) Defaulting Lender Waterfall. Any payment of principal, interest, fees or other amounts received by the Administrative Agent for the account of such Defaulting Lender (whether voluntary or mandatory, at maturity, pursuant to Article VIII or otherwise) or received by the Administrative Agent from a Defaulting Lender pursuant to Section 10.08 shall be applied at such time or times as may be determined by the Administrative Agent as follows: first, to the payment of any amounts owing by such Defaulting Lender to the Administrative Agent hereunder; second, to the payment on a pro rata basis of any amounts owing by such Defaulting Lender to the L/C Issuer or Swing Line Lender hereunder; third, to Cash Collateralize the L/C Issuer’s Fronting Exposure with respect to such Defaulting Lender in accordance with Section 2.15; fourth, as the Borrower may request (so long as no Default exists), to the funding of any Loan in respect of which such Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as determined by the Administrative Agent; fifth, if so determined by the Administrative Agent and the Borrower, to be held in a non-interest bearing (unless otherwise agreed by the depositary) deposit account and released pro rata in order to (x) satisfy such Defaulting Lender’s potential future funding obligations with respect to Loans under this Agreement and (y) Cash Collateralize the L/C Issuer’s future Fronting Exposure with respect to such Defaulting Lender with respect to future Letters of Credit issued under this Agreement, in accordance with Section 2.15; sixth, to the payment of any amounts owing to the Lenders, the L/C Issuer or Swing Line Lender as a result of any judgment of a court of competent jurisdiction obtained by any Lender, the L/C Issuer or the Swing Line Lender against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement; seventh, so long as no Default exists, to the payment of any amounts owing to the Borrower as a result of any judgment of a court of competent jurisdiction obtained by the Borrower against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement; and eighth, to such Defaulting Lender or as otherwise directed by a court of competent jurisdiction; provided that if (x) such payment is a payment of the principal amount of any Loans or L/C Borrowings in respect of which such Defaulting Lender has not fully funded its appropriate share, and (y) such Loans were made or the related Letters of Credit were issued at a time when the conditions set forth in Section 4.03 were satisfied or waived, such payment shall be applied solely to pay the Loans of, and L/C Obligations owed to, all non-Defaulting Lenders on a pro rata basis prior to being applied to the payment of any Loans of, or L/C Obligations owed to, such Defaulting Lender until such time as all Loans and funded and unfunded participations in L/C Obligations and Swing Line Loans are held by the Lenders pro rata in accordance with the Commitments hereunder without giving effect to Section 2.16(a)(iv). Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender or to post Cash Collateral pursuant to this Section 2.16(a)(ii) shall be deemed paid to and redirected by such Defaulting Lender, and each Lender irrevocably consents hereto.
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(iii) Certain Fees.
(A) No Defaulting Lender shall be entitled to receive any commitment fee or facility fee payable under Section 2.09(a) or Section 2.09(b)(iii) or (iv) for any period during which that Lender is a Defaulting Lender (and the Borrower shall not be required to pay any such fee that otherwise would have been required to have been paid to that Defaulting Lender).
(B) Each Defaulting Lender shall be entitled to receive Letter of Credit Fees for any period during which that Lender is a Defaulting Lender only to the extent allocable to its Applicable Percentage of the stated amount of Letters of Credit for which it has provided Cash Collateral pursuant to Section 2.15.
(C) With respect to any Letter of Credit Fee not required to be paid to any Defaulting Lender pursuant to clause (B) above, the Borrower shall (x) pay to each non-Defaulting Lender that portion of any such fee otherwise payable to such Defaulting Lender with respect to such Defaulting Lender’s participation in L/C Obligations that has been reallocated to such non-Defaulting Lender pursuant to clause (iv) below, (y) pay to the applicable L/C Issuer the amount of any such fee otherwise payable to such Defaulting Lender to the extent allocable to such L/C Issuer’s Fronting Exposure to such Defaulting Lender, and (z) not be required to pay the remaining amount of any such fee.
(iv) Reallocation of Applicable Percentages to Reduce Fronting Exposure. All or any part of such Defaulting Lender’s participation in L/C Obligations and Swing Line Loans shall be reallocated among the non-Defaulting Lenders that are Revolving Credit Lenders in accordance with their respective Applicable Percentages (calculated without regard to such Defaulting Lender’s Commitment) but only to the extent that such reallocation does not cause the aggregate Revolving Credit Exposure of any non-Defaulting Lender to exceed such non-Defaulting Lender’s Commitment. No reallocation hereunder shall constitute a waiver or release of any claim of any party hereunder against a Defaulting Lender arising from that Lender having become a Defaulting Lender, including any claim of a non-Defaulting Lender as a result of such non-Defaulting Lender’s increased exposure following such reallocation.
(v) Cash Collateral, Repayment of Swing Line Loans. If the reallocation described in clause (a)(iv) above cannot, or can only partially, be effected, the Borrower shall, without prejudice to any right or remedy available to it hereunder or under any applicable Requirement of Law, (x) first, prepay Swing Line Loans in an amount equal to the Swing Line Lenders’ Fronting Exposure and (y) second, Cash Collateralize the L/C Issuers’ Fronting Exposure in accordance with the procedures set forth in Section 2.15.
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(b) Defaulting Lender Cure. If the Borrower, the Administrative Agent, Swing Line Lender and the L/C Issuer agree in writing that a Lender is no longer a Defaulting Lender (except that during the continuance of an Event of Default, the Borrower’s agreement shall not be required and the agreement of the Swing Line Lender and the L/C Issuer shall not be necessary with respect to a Term Loan Lender), the Administrative Agent will so notify the parties hereto, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein (which may include arrangements with respect to any Cash Collateral), that Lender will, to the extent applicable, purchase at par that portion of outstanding Loans of the other Lenders or take such other actions as the Administrative Agent may determine to be necessary to cause the Loans and funded and unfunded participations in Letters of Credit and Swing Line Loans to be held on a pro rata basis by the Lenders in accordance with their Applicable Percentages (without giving effect to Section 2.16(a)(iv)), whereupon such Lender will cease to be a Defaulting Lender; provided that no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of the Borrower while that Lender was a Defaulting Lender; and provided, further, that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender’s having been a Defaulting Lender.
ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY
Taxes.
(a) L/C Issuer. For purposes of this Section 3.01, the term “Lender” includes any L/C Issuer and the term “Requirements of Law” includes FATCA.
(b) Payments Free of Taxes; Obligation to Withhold; Payments on Account of Taxes.
(i) Any and all payments by or on account of any obligation of any Loan Party under any Loan Document shall be made without deduction or withholding for any Taxes, except as required by applicable Requirements of Law. If any applicable Requirements of Law (as determined in the good faith discretion of the Administrative Agent) require the deduction or withholding of any Tax from any such payment by the Administrative Agent or a Loan Party, then the Administrative Agent or such Loan Party shall be entitled to make such deduction or withholding, upon the basis of the information and documentation to be delivered pursuant to subsection (f) below.
(ii) If any Loan Party or the Administrative Agent shall be required by the Code to withhold or deduct any Taxes, including both United States Federal backup withholding and withholding taxes, from any payment made hereunder or under any other Loan Document, then (A) the Administrative Agent shall withhold or make such deductions as are determined in the good faith discretion of the Administrative Agent to be required based upon the information and documentation it has received pursuant to subsection (f) below, (B) the Administrative Agent shall timely pay the full amount withheld or deducted to the relevant Governmental Authority in accordance with the Code, and (C) to the extent that the withholding or deduction is made on account of Indemnified Taxes, the sum payable by the applicable Loan Party shall be increased as necessary so that after any required withholding or the making of all required deductions (including deductions applicable to additional sums payable under this Section 3.01) the applicable Recipient receives an amount equal to the sum it would have received had no such withholding or deduction for Indemnified Taxes been made.
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(iii) If any Loan Party or the Administrative Agent shall be required by any applicable Requirements of Law other than the Code to withhold or deduct any Taxes from any payment made hereunder or under any other Loan Document, then (A) such Loan Party or the Administrative Agent, as required by such Requirements of Law as determined in the good faith discretion of such Loan Party or the Administrative Agent (as applicable), shall withhold or make such deductions as are determined by it to be required based upon the information and documentation it has received pursuant to subsection (f) below, (B) such Loan Party or the Administrative Agent, to the extent required by such Requirements of Law, shall timely pay the full amount withheld or deducted to the relevant Governmental Authority in accordance with such Requirements of Law, and (C) to the extent that the withholding or deduction is made on account of Indemnified Taxes, the sum payable by the applicable Loan Party shall be increased as necessary so that after any required withholding or the making of all required deductions (including deductions applicable to additional sums payable under this Section 3.01) the applicable Recipient receives an amount equal to the sum it would have received had no such withholding or deduction for Indemnified Taxes been made.
(c) Payment of Other Taxes by the Borrower. The Loan Parties shall timely pay to the relevant Governmental Authority in accordance with applicable Requirements of Law, or at the option of the Administrative Agent timely reimburse it for the payment of, any Other Taxes.
(d) Tax Indemnifications. (i) Each of the Loan Parties shall jointly and severally indemnify each Recipient, within 10 days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section 3.01) payable or paid by such Recipient or required to be withheld or deducted from a payment to such Recipient, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability (setting forth in reasonable detail the basis and calculation of such payment or liability) delivered to the Borrower by a Lender (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error. Notwithstanding anything to the contrary in this Agreement or any other Loan Document, the Loan Parties are not indemnifying any Person for Excluded Taxes, except to the extent provided in the immediately succeeding sentence. Each of the Loan Parties shall jointly and severally indemnify the Administrative Agent, within 10 days after demand therefor, for any amount which a Lender for any reason fails to pay indefeasibly to the Administrative Agent as required pursuant to Section 3.01(d)(ii) below. Upon making such payment to the Administrative Agent, the Borrower shall be subrogated to the rights of the Administrative Agent pursuant to Section 3.01(d)(ii) below against the applicable defaulting Lender (other than the right of set off pursuant to the last sentence of Section 3.01(d)(ii)).
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(ii) Each Lender shall, and does hereby, severally indemnify, and shall make payment in respect thereof within 10 days after demand therefor, (x) the Administrative Agent against any Indemnified Taxes attributable to such Lender (but only to the extent that any Loan Party has not already indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of the Loan Parties to do so), (y) the Administrative Agent and the Loan Parties, as applicable, against any Taxes attributable to such Lender’s failure to comply with the provisions of Section 10.06(d) relating to the maintenance of a Participant Register and (z) the Administrative Agent and the Loan Parties, as applicable, against any Excluded Taxes attributable to such Lender, in each case, that are payable or paid by the Administrative Agent or a Loan Party in connection with any Loan Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error. Each Lender 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 to the Administrative Agent under this clause (ii).
(e) Evidence of Payments. Upon request by the Borrower or the Administrative Agent, as the case may be, after any payment of Taxes by the Borrower or by the Administrative Agent to a Governmental Authority as provided in this Section 3.01, the Borrower shall deliver to the Administrative Agent or the Administrative Agent shall deliver to the Borrower, as the case may be, the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of any return required by Requirements of Law to report such payment or other evidence of such payment reasonably satisfactory to the Borrower or the Administrative Agent, as the case may be.
(f) Status of Lenders; Tax Documentation.
(i) Any Lender that is entitled to an exemption from or reduction of withholding Tax with respect to payments made under any Loan Document shall deliver to the Borrower and the Administrative Agent, at the time or times reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation reasonably requested by the Borrower or the Administrative Agent as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if reasonably requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by Requirements of Law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in Section 3.01(f)(ii)(A), (ii)(B) and (ii)(D) below) shall not be required if in the Lender’s reasonable judgment such completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender.
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(ii) Without limiting the generality of the foregoing,
(A) any Lender that is a U.S. Person shall deliver to the Borrower and the Administrative Agent on or prior to the date on which such Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), and the Administrative Agent shall deliver to the Borrower on or prior to the date it becomes the Administrative Agent under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower), properly completed and executed originals of IRS Form W-9 certifying that such Lender (or the Administrative Agent, as applicable) is exempt from U.S. federal backup withholding tax;
(B) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), whichever of the following is applicable:
(I) | in the case of a Foreign Lender claiming the benefits of an income tax treaty to which the United States is a party (x) with respect to payments of interest under any Loan Document, properly completed and executed originals of IRS Form W-8BEN or W-8BEN-E, as applicable, establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “interest” article of such tax treaty and (y) with respect to any other applicable payments under any Loan Document, properly completed and executed originals of IRS Form W-8BEN or W-8BEN-E, as applicable, establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “business profits” or “other income” article of such tax treaty; |
(II) | properly completed and executed originals of IRS Form W-8ECI; |
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(III) | in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code, (x) a certificate substantially in the form of Exhibit H-1 to the effect that such Foreign Lender is neither a “bank” within the meaning of Section 881(c)(3)(A) of the Code, a “10 percent shareholder” of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, nor a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Code (a “U.S. Tax Compliance Certificate”) and (y) properly completed and executed originals of IRS Form W-8BEN or W-8BEN-E, as applicable; or |
(IV) | to the extent a Foreign Lender is not the beneficial owner, properly completed and executed originals of IRS Form W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN or W-8BEN-E, as applicable, a U.S. Tax Compliance Certificate substantially in the form of Exhibit H-2 or Exhibit H-3, IRS Form W-9, and/or other certification documents from each beneficial owner, as applicable; provided that if the Foreign Lender is a partnership and one or more direct or indirect partners of such Foreign Lender are claiming the portfolio interest exemption, such Foreign Lender may provide a U.S. Tax Compliance Certificate substantially in the form of Exhibit H-4 on behalf of each such direct and indirect partner; |
(C) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), properly completed and executed originals of any other form prescribed by applicable Requirements of Law as a basis for claiming exemption from or a reduction in U.S. federal withholding Tax, duly completed, together with such supplementary documentation as may be prescribed by applicable Requirements of Law to permit the Borrower or the Administrative Agent to determine the withholding or deduction required to be made; and
(D) if a payment made to a Lender under any Loan Document would be subject to U.S. federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by Requirements of Law and at such time or times reasonably requested by the Borrower or the Administrative Agent such documentation prescribed by applicable Requirements of 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 Lender’s obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this clause (D), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.
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(iii) Each Lender and the Administrative Agent agrees that if any form or certification it previously delivered pursuant to this Section 3.01 expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify the Borrower and the Administrative Agent in writing of its legal inability to do so.
(g) Treatment of Certain Refunds. If any party determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes as to which it has been indemnified pursuant to this Section 3.01 (including by the payment of additional amounts pursuant to this Section 3.01), it shall pay to the indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made under this Section with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) of such indemnified party and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund). Such indemnifying party, upon the request of such indemnified party, shall repay to such indemnified party the amount paid over pursuant to this subsection (g) (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) in the event that such indemnified party is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this subsection (g), in no event will the indemnified party be required to pay any amount to an indemnifying party pursuant to this subsection (g) the payment of which would place the indemnified party in a less favorable net after-Tax position than the indemnified party would have been in if the indemnification payments or additional amounts giving rise to such refund had never been paid. This subsection (g) shall not be construed to require any indemnified party to make available its Tax returns (or any other information relating to its Taxes that it deems confidential) to the indemnifying party or any other Person.
(h) Survival. Each party’s obligations under this Section 3.01 shall survive the resignation or replacement of the Administrative Agent or any assignment of rights by, or the replacement of, a Lender, the termination of the Aggregate Commitments and the repayment, satisfaction or discharge of all other Obligations.
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Illegality. If any Lender determines that any Requirement of Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender or its applicable Lending Office to make, maintain or fund Loans whose interest is determined by reference to the Eurocurrency Rate, or to determine or charge interest rates based upon the Eurocurrency 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 applicable interbank market, then, on notice thereof by such Lender to the Borrower through the Administrative Agent, (a) any obligation of such Lender to make or continue Eurocurrency Rate Loans or to convert Base Rate Loans to Eurocurrency Rate Loans shall be suspended, and (b) 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 Eurocurrency 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 Eurocurrency 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 shall, upon demand from such Lender (with a copy to the Administrative Agent), prepay or, if applicable, convert all Eurocurrency 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 Eurocurrency 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 Eurocurrency Rate Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such Eurocurrency Rate Loans and (y) if such notice asserts the illegality of such Lender determining or charging interest rates based upon the Eurocurrency Rate, the Administrative Agent shall during the period of such suspension compute the Base Rate applicable to such Lender without reference to the Eurocurrency 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 Eurocurrency Rate. Upon any such prepayment or conversion, the Borrower shall also pay accrued interest on the amount so prepaid or converted.
Inability to Determine Rates.
(a) If in connection with any request for a Eurocurrency Rate Loan or a conversion to or continuation thereof, (i) the Administrative Agent determines 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 Eurocurrency Rate Loan or (B)(x) adequate and reasonable means do not exist for determining the Eurocurrency Rate for any requested Interest Period with respect to a proposed Eurocurrency Rate Loan or in connection with an existing or proposed Base Rate Loan and (y) the circumstances described in Section 3.03(c)(i) do not apply (in each case with respect to this clause (a), “Impacted Loans”), or (ii) the Required Lenders determine that for any reason the Eurocurrency Rate for any requested Interest Period with respect to a proposed Eurocurrency 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 Eurocurrency Rate Loans shall be suspended (to the extent of the affected Eurocurrency Rate Loans or Interest Periods), and (y) in the event of a determination described in the preceding sentence with respect to the Eurocurrency Rate component of the Base Rate, the utilization of the Eurocurrency 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 Eurocurrency Rate Loans (to the extent of the affected Eurocurrency Rate Loans or Interest Periods) or, failing that, will be deemed to have converted such request into a request for a Revolving Credit Borrowing of Base Rate Loans in the amount specified therein.
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(b) Notwithstanding the foregoing, if the Administrative Agent has made the determination described in clause (a)(i) of this Section, the Administrative Agent, with the consent of the Borrower and in consultation with the affected Lenders, may establish an alternative interest rate for the Impacted Loans, in which case, such alternative rate of interest shall apply with respect to the Impacted Loans until (1) the Administrative Agent revokes the notice delivered with respect to the Impacted Loans under clause (a) of the first sentence of this Section, (2) the Administrative Agent or the affected Lenders notify the Administrative Agent and the Borrower that such alternative interest rate does not adequately and fairly reflect the cost to such Lenders of funding the Impacted Loans, or (3) any Lender determines that any 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 such alternative rate of interest or to determine or charge interest rates based upon such rate or any Governmental Authority has imposed material restrictions on the authority of such Lender to do any of the foregoing and provides the Administrative Agent and the Borrower written notice thereof.
(c) Notwithstanding anything to the contrary in this Agreement or any other Loan Documents, if the Administrative Agent determines (which determination shall be conclusive absent manifest error), or the Borrower or Required Lenders notify the Administrative Agent (with, in the case of the Required Lenders, a copy to Borrower) that the Borrower or Required Lenders (as applicable) have determined, that:
(i) adequate and reasonable means do not exist for ascertaining LIBOR for any requested Interest Period, including, without limitation, because the LIBOR Screen Rate is not available or published on a current basis and such circumstances are unlikely to be temporary; or
(ii) the administrator of the LIBOR Screen Rate or a Governmental Authority having jurisdiction over the Administrative Agent has made a public statement identifying a specific date after which LIBOR or the LIBOR Screen Rate shall no longer be made available, or used for determining the interest rate of loans (such specific date, the “Scheduled Unavailability Date”), or
(iii) syndicated loans in the U.S. market currently being executed, or that include language similar to that contained in this Section, are being executed or amended (as applicable) to incorporate or adopt a new benchmark interest rate to replace LIBOR,
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then, reasonably promptly after such determination by the Administrative Agent or receipt by the Administrative Agent of such notice, as applicable, the Administrative Agent and the Borrower may amend this Agreement to replace LIBOR with an alternate benchmark rate (including any mathematical or other adjustments to the benchmark (if any) incorporated therein), giving due consideration to any evolving or then existing convention for similar U.S. dollar denominated syndicated credit facilities for such alternative benchmarks (any such proposed rate, a “LIBOR Successor Rate”), together with any proposed LIBOR Successor Rate Conforming Changes (as defined below) and any such amendment shall become effective at 5:00 p.m. (New York time) on the fifth Business Day after the Administrative Agent shall have posted such proposed amendment to all Lenders and the Borrower unless, prior to such time, Lenders comprising the Required Lenders have delivered to the Administrative Agent written notice that such Required Lenders do not accept such amendment.
If no LIBOR Successor Rate has been determined and the circumstances under clause (i) above exist or the Scheduled Unavailability Date has occurred (as applicable), the Administrative Agent will promptly so notify the Borrower and each Lender. Thereafter, (x) the obligation of the Lenders to make or maintain Eurocurrency Rate Loans shall be suspended, (to the extent of the affected Eurocurrency Rate Loans or Interest Periods), and (y) the Eurocurrency Rate component shall no longer be utilized in determining the Base Rate. Upon receipt of such notice, the Borrower may revoke any pending request for a Borrowing of, conversion to or continuation of Eurocurrency Rate Loans (to the extent of the affected Eurocurrency Rate Loans or Interest Periods) or, failing that, will be deemed to have converted such request into a request for a Committed Borrowing of Base Rate Loans (subject to the foregoing clause (y)) in the amount specified therein.
Notwithstanding anything else herein, any definition of LIBOR Successor Rate shall provide that in no event shall such LIBOR Successor Rate be less than zero for purposes of this Agreement.
For the purposes hereof, “LIBOR Screen Rate” means the LIBOR quote on the applicable screen page the Administrative Agent designates to determine LIBOR (or such other commercially available source providing such quotations as may be designated by the Administrative Agent from time to time).
For purposes hereof, “LIBOR Successor Rate Conforming Changes” means, with respect to any proposed LIBOR Successor Rate, any conforming changes to the definition of Base Rate, Interest Period, timing and frequency of determining rates and making payments of interest and other administrative matters as may be appropriate, in the discretion of the Administrative Agent, to reflect the adoption of such LIBOR Successor Rate and to permit the administration thereof by the Administrative Agent in a manner substantially consistent with market practice (or, if the Administrative Agent determines that adoption of any portion of such market practice is not administratively feasible or that no market practice for the administration of such LIBOR Successor Rate exists, in such other manner of administration as the Administrative Agent determines in consultation with the Borrower).
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Increased Costs; Reserves on Eurocurrency 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(e)) or the L/C Issuer;
(ii) subject any Recipient to any Taxes (other than (A) Indemnified Taxes, (B) Taxes described in clauses (b) through (d) of the definition of Excluded Taxes and (C) Connection Income Taxes) on its loans, loan principal, letters of credit, commitments, or other obligations, or its deposits, reserves, other liabilities or capital attributable thereto; or
(iii) impose on any Lender or the L/C Issuer or the London interbank market any other condition, cost or expense (other than Taxes) affecting this Agreement or Eurocurrency Rate Loans made by such Lender or any Letter of Credit or participation therein;
and the result of any of the foregoing shall be to increase the cost to such Lender of making, converting to or continuing or maintaining any Loan the interest on which is determined by reference to the Eurocurrency Rate (or of maintaining its obligation to make any such Loan), or to increase the cost to such Lender or the L/C Issuer of participating in, issuing or maintaining any Letter of Credit (or of maintaining its obligation to participate in or to issue any Letter of Credit), or to reduce the amount of any sum received or receivable by such Lender or the L/C Issuer hereunder (whether of principal, interest or any other amount) then, upon request of such Lender or the L/C Issuer, the Borrower will pay to such Lender or the L/C Issuer, as the case may be, such additional amount or amounts as will compensate such Lender or the L/C Issuer, as the case may be, for such additional costs incurred or reduction suffered.
(b) Capital Requirements. If any Lender or the L/C Issuer determines that any Change in Law affecting such Lender or the L/C Issuer or any Lending Office of such Lender or such Lender’s or the L/C Issuer’s holding company, if any, regarding capital or liquidity requirements has or would have the effect of reducing the rate of return on such Lender’s or the L/C Issuer’s capital or on the capital of such Lender’s or the L/C Issuer’s holding company, if any, as a consequence of this Agreement, the Commitments of such Lender or the Loans made by, or participations in Letters of Credit or Swing Line Loans held by, such Lender, or the Letters of Credit issued by the L/C Issuer, to a level below that which such Lender or the L/C Issuer or such Lender’s or the L/C Issuer’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s or the L/C Issuer’s policies and the policies of such Lender’s or the L/C Issuer’s holding company with respect to capital adequacy or liquidity), then from time to time the Borrower will pay to such Lender or the L/C Issuer, as the case may be, such additional amount or amounts as will compensate such Lender or the L/C Issuer or such Lender’s or the L/C Issuer’s holding company for any such reduction suffered.
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(c) Certificates for Reimbursement. A certificate of a Lender or the L/C Issuer setting forth the amount or amounts necessary to compensate such Lender or the L/C Issuer 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 or the L/C Issuer, as the case may be, the amount shown as due on any such certificate within 10 days after receipt thereof.
(d) Delay in Requests. Failure or delay on the part of any Lender or the L/C Issuer to demand compensation pursuant to the foregoing provisions of this Section 3.04 shall not constitute a waiver of such Lender’s or the L/C Issuer’s right to demand such compensation, provided that the Borrower shall not be required to compensate a Lender or the L/C Issuer pursuant to the foregoing provisions of this Section 3.04 for any increased costs incurred or reductions suffered more than nine months prior to the date that such Lender or the L/C Issuer, as the case may be, notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender’s or the L/C Issuer’s intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the nine-month period referred to above shall be extended to include the period of retroactive effect thereof).
(e) Additional Reserve Requirements. The Borrower shall pay to each Lender, (i) 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, additional interest on the unpaid principal amount of each Eurocurrency 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), and (ii) as long as such Lender shall be required to comply with any reserve ratio requirement or analogous requirement of any other central banking or financial regulatory authority imposed in respect of the maintenance of the Commitments or the funding of the Eurocurrency Rate Loans, such additional costs (expressed as a percentage per annum and rounded upwards, if necessary, to the nearest five decimal places) equal to the actual costs allocated to such Commitment or Loan by such Lender (as determined by such Lender in good faith, which determination shall be conclusive), which in each case 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 or costs from such Lender. If a Lender fails to give notice 10 days prior to the relevant Interest Payment Date, such additional interest or costs shall be due and payable 10 days from receipt of such notice, provided that, with respect to interest payable on any Interest Payment Date, the Borrower shall not be required to compensate a Lender pursuant to the foregoing provisions of this Section 3.04(e) for any reserves (or analogous amount) suffered by such Lender more than four months prior to such Interest Payment Date.
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Compensation for Losses. Upon demand of any Lender (with a copy to the Administrative Agent) from time to time, the Borrower shall promptly compensate such Lender for and hold such Lender harmless from any loss, cost or expense incurred by it as a result of:
(a) any continuation, conversion, payment or prepayment of any Loan other than a Base Rate Loan on a day other than 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 Loan other than a Base Rate Loan on the date or in the amount notified by the Borrower;
(c) any failure by the Borrower to make payment of any drawing under any Letter of Credit (or interest due thereon) denominated in an Alternative Currency on its scheduled due date or any payment thereof in a different currency; or
(d) any assignment of a Eurocurrency Rate Loan on a day other than the last day of the Interest Period therefor as a result of a request by the Borrower pursuant to Section 10.13;
including any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Loan, or from fees payable to terminate the deposits from which such funds were obtained, but excluding any loss of profits or margin. The Borrower shall also pay any customary administrative fees charged by such Lender in connection with the foregoing. A certificate of a Lender setting forth the amount of any such loss, cost or expense provided for in this Section and delivered to the Borrower shall be conclusive absent manifest error.
For purposes of calculating amounts payable by the Borrower to the Lenders under this Section 3.05, each Lender shall be deemed to have funded each Eurocurrency Rate Loan made by it at the Eurocurrency Rate for such Loan by a matching deposit or other borrowing in the offshore interbank market for such currency for a comparable amount and for a comparable period, whether or not such Eurocurrency Rate Loan was in fact so funded.
Mitigation Obligations. Each Lender may make any Credit Extension to the Borrower through any Lending Office, provided that the exercise of this option shall not affect the obligation of the Borrower to repay the Credit Extension in accordance with the terms of this Agreement. If any Lender requests compensation under Section 3.04, or the Borrower is required to pay any Indemnified Taxes or any additional amount to any Lender, the L/C Issuer, or any Governmental Authority for the account of any Lender or the L/C Issuer pursuant to Section 3.01, or if any Lender gives a notice pursuant to Section 3.02, then at the request of the Borrower such Lender or the L/C Issuer shall, as applicable, 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 judgment of such Lender or the L/C Issuer, 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 or the L/C Issuer, as the case may be, to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender or the L/C Issuer, as the case may be. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender or the L/C Issuer in connection with any such designation or assignment.
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Survival. All of the Borrower’s obligations under this Article III shall survive termination of the Aggregate Commitments, repayment of all other Obligations hereunder, and resignation of the Administrative Agent.
No Payment to Term Loan Lenders. Notwithstanding the above, until the occurrence of the Revolving Credit Facility Termination Date, no amounts (or portion thereof) owing pursuant to this Article III shall be paid to any Term Loan Lender or Affiliate thereof (and no Default or Event of Default shall occur as a result of such non-payment), provided that such amounts may accrue.
ARTICLE IV
CONDITIONS PRECEDENT TO CREDIT EXTENSIONS
Conditions of Execution Date. The effectiveness of this Agreement and the occurrence of the Execution Date are subject to the Administrative Agent’s receipt of the following, each of which shall be originals, telecopies or electronic images (e.g., “pdf” or “tif”) (followed promptly by originals) unless otherwise specified, each properly executed by a Responsible Officer of the Borrower (to the extent applicable), each dated the Execution Date (or, in the case of certificates of governmental officials, a recent date before the Execution Date) and each in form and substance reasonably satisfactory to the Administrative Agent and each of the Lenders:
(a) executed counterparts of this Agreement, sufficient in number for distribution to the Administrative Agent, each Lender and the Borrower;
(b) a Note executed by the Borrower in favor of each Lender requesting a Note;
(c) such certificates of resolutions or other action, incumbency certificates and/or other certificates of Responsible Officers of the Borrower as the Administrative Agent may require evidencing the identity, authority and capacity of each Responsible Officer thereof authorized to act as a Responsible Officer in connection with this Agreement;
(d) such documents and certifications as the Administrative Agent may reasonably require to evidence that the Borrower is duly organized or formed, and that the Borrower is validly existing and in good standing in its jurisdiction of organization;
(e) a favorable opinion of (A) Baker Botts L.L.P., counsel to the Borrower and (B) Andre Hall, internal counsel to the Borrower, in each case addressed to the Administrative Agent and each Lender, in form and substance reasonably satisfactory to the Administrative Agent and the Lenders and addressing such matters concerning the Borrower and the Loan Documents to be provided on or prior to the Execution Date as the Required Lenders may reasonably request;
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(f) a certificate of a Responsible Officer of the Borrower either (A) attaching copies of all consents, licenses and approvals required in connection with the execution, delivery and performance by the Borrower and the validity against the Borrower of this Agreement, and such consents, licenses and approvals shall be in full force and effect, or (B) stating that no such consents, licenses or approvals are so required;
(g) a certificate of the chief financial officer or treasurer of the Borrower certifying that as of the Execution Date (A) all of the representations and warranties in this Agreement (other than those that speak solely to a date after the Execution Date, including the Closing Date) are true and correct in all material respects (or, to the extent any such representation and warranty is modified by a materiality or Material Adverse Effect standard, in all respects) as of such date (except to the extent that such representations and warranties expressly relate to an earlier date, in which case they shall be true and correct in all material respects (or, to the extent any such representation and warranty is modified by a materiality or Material Adverse Effect standard, in all respects) as of such earlier date) and (B) no Default shall exist, or would result from the occurrence of the Execution Date (determined as if each provision of Section 8.01 applied on the Execution Date, other than Section 8.01(d) (solely with respect to Articles VI and VII) and Section 8.01(i));
(h) such documentation and other information as has been reasonably requested by the Administrative Agent or any Lender prior to the Execution Date with respect to the Loan Parties in connection with the provisions of Sections 6.10 and 6.11 hereof;
(i) the Projections; and
(j) the Form 10, along with any amendments or additions thereto, or modifications thereof, in each case effectuated prior to the Execution Date, which shall include the three years of audited financial statements and any unaudited quarterly financial statements required thereby (and, to the extent not otherwise required to be included in the Form 10, unaudited financial statements of the Borrower and its Subsidiaries for any fiscal quarter ending after December 31, 2014 and at least 45 days prior to the Execution Date).
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 Execution Date specifying its objection thereto.
Conditions of Closing Date. The occurrence of the Closing Date and the obligation of the L/C Issuer and each Lender to make its initial Credit Extension hereunder, are each subject to satisfaction of the following conditions precedent:
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(a) The Administrative Agent’s receipt of the following (to the extent not previously delivered in connection with the Execution Date), each of which shall be originals, telecopies or electronic images (e.g., “pdf” or “tif”) (followed promptly by originals) unless otherwise specified, each properly executed by a Responsible Officer of the signing Loan Party (to the extent applicable), each dated the Closing Date (or, in the case of (x) certificates of governmental officials, a recent date before the Closing Date and (y) documents previously delivered pursuant to Section 4.01, the date of the prior delivery thereof) and each in form and substance reasonably satisfactory to the Administrative Agent and each of the Lenders:
(i) executed counterparts of the Guaranty, sufficient in number for distribution to the Administrative Agent, each Lender and the Borrower;
(ii) executed counterparts of each Security Instrument to be entered into by any Loan Party on or prior to the Closing Date, duly executed by each Loan Party party thereto, together with:
(A) certificates representing the certificated Pledged Interests pledged under the Collateral Agreement, and accompanied by undated stock or other transfer powers executed in blank,
(B) proper financing statements in form appropriate for filing under the Uniform Commercial Code of all jurisdictions that the Administrative Agent may deem necessary or desirable in order to perfect the Liens created under the Collateral Agreement, covering the Collateral described therein,
(C) completed requests for information, dated on or before the Closing Date, listing all effective financing statements filed in the jurisdictions referred to in clause (B) above that name any Loan Party as debtor, together with copies of such financing statements, and
(D) evidence of the completion of all other actions, recordings and filings of or with respect to the Security Instruments to be entered into on the Closing Date, or that have been entered into prior to the Closing Date, that the Administrative Agent may deem necessary or desirable in order to perfect, or to confirm or continue the prior perfection of, the Liens created thereby (including receipt of duly executed payoff letters and UCC-3 termination statements, if any), and
(E) such Intellectual Property Security Agreements as the Administrative Agent may deem necessary or desirable in order to perfect, or provide notice of, the Liens created under the Collateral Agreement in intellectual property Collateral, in form appropriate for filing with the United States Patent and Trademark Office or the United States Copyright Office;
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(iii) with respect to each Mortgaged Property described in clause (a) of such definition, except to the extent the matters set forth in clauses (A), (B), (C) or (F) below are waived by the Administrative Agent (in which case Section 6.27 shall apply to any such matters that are so waived), each of the following:
(A) evidence that counterparts of the Mortgages have been duly executed, acknowledged and delivered and are in form suitable for filing or recording in all filing or recording offices that the Administrative Agent may deem necessary or desirable in order to create, confirm or continue a valid first and subsisting Lien on the property described therein in favor of the Administrative Agent for the benefit of the Secured Parties, excepting only Liens permitted under the Loan Documents, and that all filing, documentary, stamp, intangible and recording taxes and fees have been paid (or the Borrower has made arrangements satisfactory to the Administrative Agent for payment thereof),
(B) fully paid American Land Title Association Lender’s Extended Coverage title insurance policy (or policies) (the “Mortgagee Policies”) or marked up unconditional binder for such insurance, in each case with endorsements and in amounts acceptable to the Administrative Agent, issued, coinsured and reinsured by title insurers acceptable to the Administrative Agent, insuring the Mortgages to be valid first and subsisting Liens on the property described therein, free and clear of all defects (including, but not limited to, mechanics’ and materialmen’s Liens) and encumbrances, excepting only Liens permitted under the Loan Documents,
(C) evidence that all premiums in respect of the Mortgagee Policies have been paid (or the Borrower has made arrangements satisfactory to the Administrative Agent for payment thereof),
(D) a completed “Life-of-Loan” Federal Emergency Management Agency Standard Flood Hazard Determination with respect to each Mortgaged Property (together with a notice about special flood hazard area status and flood disaster assistance duly executed by the Borrower and each Loan Party relating thereto),
(E) evidence satisfactory to each Lender of flood insurance as may be required to comply with the National Flood Insurance Act of 1968, the Flood Disaster Protection Act of 1973, the National Flood Insurance Reform Act of 1994 and the Biggert-Waters Flood Insurance Act of 2012, and
(F) evidence that all other action that the Administrative Agent may deem necessary or desirable in order to create valid first and subsisting Liens (excepting only Liens permitted under the Loan Documents) on the property described in the Mortgages has been taken;
(iv) such certificates of resolutions or other action, incumbency certificates and/or other certificates of Responsible Officers of each Loan Party as the Administrative Agent may require 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;
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(v) such documents and certifications as the Administrative Agent may reasonably require to evidence that each Loan Party is duly organized or formed, and that each Loan Party is validly existing and in good standing in its jurisdiction of organization;
(vi) a favorable opinion of (A) Baker Botts L.L.P., counsel to the Loan Parties, (B) Andre Hall, internal counsel to the Borrower, (C) Vorys, Sater, Seymour and Pease LLP, local Ohio counsel to certain of the Loan Parties, (D) Jones, Walker, Waechter, Poitevent, Carrère & Denègre L.L.P., local Mississippi counsel to certain of the Loan Parties, (E) Beck, Chaet, Bamberger & Polsky, S.C., local Wisconsin counsel to certain of the Loan Parties and (F) K&L Gates, LLP, local Pennsylvania counsel to certain of the Loan Parties, in each case addressed to the Administrative Agent and each Lender, in form and substance reasonably satisfactory to the Administrative Agent and the Lenders and addressing such matters concerning the Loan Parties, this Agreement and the Loan Documents to be executed on the Closing Date as the Required Lenders may reasonably request;
(vii) a certificate of a Responsible Officer of the Borrower (A) either (x) attaching copies of all consents, licenses and approvals required in connection with the execution, delivery and performance by each Loan Party and the validity against each Loan Party of the Loan Documents to which it is a party, and such consents, licenses and approvals shall be in full force and effect, or (y) stating that no such consents, licenses or approvals are so required and (B) either (x) attaching copies of any amendments, additions or modifications to the Form 10 effectuated on or after the Execution Date through and including the Closing Date, provided that the Form 10 shall not have been altered, amended, supplemented or otherwise modified (or the information provided thereby) from the Form 10 provided on or prior to the Execution Date in any manner that could reasonably be expected to be adverse to any material interest of the Administrative Agent or the Lenders (unless approved by the Required Lenders, notwithstanding the provisions of Section 10.01 to the contrary, such approval not to be unreasonably conditioned, withheld or delayed) or (y) stating that no amendments, additions or modifications to the Form 10 have been effectuated on or after the Execution Date;
(viii) a certificate of the chief financial officer or the treasurer of the Borrower, certifying that (A) as of the last day of the most recently ended Fiscal Quarter (but at least 45 days prior to the Closing Date) or Fiscal Year (but at least 90 days prior to the Closing Date), the Borrower is in compliance with the financial covenants in Section 7.16 after giving pro forma effect to the incurrence and repayment of Indebtedness on the Closing Date (and providing such backup evidence as may reasonably be requested), (B) the Securities and Exchange Commission has declared the Form 10 effective and that no stop orders relating to the Spinoff or other restrictions that would otherwise prohibit or enjoin the occurrence of the Spinoff shall be in existence, (C) the conditions specified in Sections 4.03(a) and (b) (with satisfaction of Section 4.03(b) determined as if each provision of Section 8.01, other than Section 8.01(d) (solely with respect to Articles VI and VII) and Section 8.01(i), applied on and after the Execution Date) have been satisfied and (D) that there has been no event or circumstance since December 31, 2014 that has had or would be reasonably expected to have, either individually or in the aggregate, a Material Adverse Effect;
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(ix) evidence that all insurance required to be maintained pursuant to the Loan Documents has been obtained and is in effect, together with the certificates of insurance or other appropriate documentation, naming the Administrative Agent, on behalf of the Secured Parties, as an additional insured or loss payee, as the case may be, under all insurance policies (including flood insurance policies) maintained with respect to the assets and properties of the Loan Parties that constitute Collateral;
(x) such documentation and other information as has been reasonably requested by the Administrative Agent or any Lender prior to the Closing Date with respect to the Loan Parties in connection with the provisions of Sections 6.10 hereof;
(xi) unaudited consolidated financial statements of the Borrower and its Subsidiaries for each fiscal quarter ended after the date of the filing of the Form 10 and at least 45 days prior to the Closing Date;
(xii) a certificate signed by a person that would (if BWC were a Loan Party) be a Responsible Officer of BWC certifying that attached thereto is a true and correct copy of the resolutions of BWC approved and entered into with respect to the approval of the Spinoff, and stating that such resolutions have not been amended, altered or otherwise modified since the date thereof (or attaching any such amendment, alternation or other modification);
(xiii) evidence that the Existing Credit Agreement has been, or substantially concurrently with the Closing Date is being, terminated, all Indebtedness in respect of the Existing Credit Agreement has been, or substantially concurrently with the Closing Date is being, repaid (other than letters of credit thereunder that are being deemed issued under this Agreement or the Remainco Credit Facilities), and all Liens, if any, securing any such repaid and terminated Indebtedness have been or substantially concurrently with the Closing Date are being released; and
(xiv) evidence that the Remainco Credit Facilities have been, or substantially concurrently with the Closing Date are being, entered into by BWC and certain of its Subsidiaries.
(b) The Execution Date shall have occurred.
(c) The Administrative Agent and the Lenders shall have received satisfactory evidence that as of the Closing Date (i) the Borrower is a direct, wholly-owned subsidiary of BWC (unless the Spinoff has occurred or is occurring substantially simultaneously therewith), (ii) BWPGG is a wholly-owned direct or indirect subsidiary of the Borrower, and (iii) substantially all of the subsidiaries of BWPGG (other than Babcock & Wilcox Canada, Ltd. and its subsidiary Intech International, Inc.) are direct or indirect subsidiaries of BWPGG.
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(d) The Closing Date shall have occurred on or prior to September 1, 2015.
(e) (i) All fees required to be paid to the Administrative Agent and the Arrangers on or before the Closing Date shall have been paid and (ii) all fees required to be paid to the Lenders on or before the Closing Date shall have been paid, in each case pursuant to the Fee Letters.
(f) Unless waived by the Administrative Agent, the Borrower shall have paid all reasonable out-of-pocket fees, charges and disbursements of counsel to the Administrative Agent (directly to such counsel if requested by the Administrative Agent) to the extent invoiced at least two Business Days prior to the Closing Date (with reasonable and customary supporting documentation), plus such additional amounts of such fees, charges and disbursements as shall constitute its reasonable estimate of such fees, charges and disbursements incurred or to be incurred by it through the closing proceedings (provided that such estimate shall not thereafter preclude a final settling of accounts between the Borrower and the Administrative Agent).
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 4.02, 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.
Conditions to Revolving Credit Extensions. The obligation of each Revolving Credit Lender, L/C Issuer or Swing Line Lender to honor any Request for Credit Extension with respect to the Revolving Credit Facility (other than a Committed Loan Notice requesting only a conversion of Loans to the other Type, or a continuation of Eurocurrency Rate Loans), including the initial Credit Extension on the Closing Date is subject to the following conditions precedent:
(a) The representations and warranties of (i) the Borrower contained in Article V and (ii) each Loan Party contained in each other Loan Document or in any document furnished at any time under or in connection herewith or therewith, shall be true and correct in all material respects (or, with respect to representations and warranties modified by a materiality or Material Adverse Effect standard, in all respects) on and as of the date of such Credit Extension, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct in all material respects (or, with respect to representations and warranties modified by a materiality or Material Adverse Effect standard, in all respects) as of such earlier date, and except that for purposes of this Section 4.03, the representations and warranties contained in subsections (a) and (b) of Section 5.04 shall be deemed to refer to the most recent statements furnished pursuant to clauses (a) and (b), respectively, of Section 6.01.
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(b) No Default shall exist, or would result from such proposed Credit Extension or the application of the proceeds thereof.
(c) The Administrative Agent and, if applicable, the L/C Issuer or the Swing Line Lender shall have received a Request for Credit Extension in accordance with the requirements hereof.
(d) In the case of an L/C Credit Extension to be denominated in an Alternative Currency, there shall not have occurred any change in national or international financial, political or economic conditions or currency exchange rates or exchange controls which in the reasonable opinion of the applicable L/C Issuer would make it impracticable for such L/C Credit Extension to be denominated in the relevant Alternative Currency.
(e) (i) The Borrower shall be in pro forma compliance with the Senior Leverage Ratio level in effect for the Fiscal Quarter most recently tested calculated as if such Credit Extension had occurred on the first day of the four full Fiscal Quarters ending on or prior to such day for which the financial statements and certificates required by Section 6.01(a) or 6.01(b) have been delivered (including pro forma application of the proceeds of such Credit Extension) as of the date of such Request for Credit Extension, (ii) no Trigger Event would result from such Credit Extension (including pro forma application of the proceeds of such Credit Extension) and no Repayment Deadline exists and (iii) Liquidity, as of the Business Day immediately prior to each of (x) the date of the applicable Committed Loan Notice and (y) the proposed date of the Credit Extension (which may be confirmed by electronic mail notice), shall not be, after giving pro forma effect to the application of proceeds of the good faith intended use of such Credit Extension, less than $30,000,000.
(f) The Term Loan Prefunding Requirement shall have been satisfied in an amount equal to the principal amount of Revolving Credit Loans to be borrowed on such date; provided that the condition specified in this condition (f) shall only apply to Requests for Credit Extension of Revolving Credit Loans the requested date of which is during the period (x) commencing after the occurrence of the Initial Tranche A Term Loan Funding and (y) ending on the last day of the Availability Period with respect to the Term Loan Facility.
Each Request for Credit Extension (other than a Committed Loan Notice requesting only a conversion of Loans to the other Type or a continuation of Eurocurrency Rate Loans) submitted by the Borrower (or with respect to a Letter of Credit Application, any Permitted L/C Party) shall be deemed to be a representation and warranty of the Borrower that the conditions specified in Sections 4.03(a), (b) and (e) have been satisfied on and as of the date of the applicable Credit Extension.
Conditions to the Initial Tranche A Term Loan Funding. The obligation of each Tranche A-1 Term Loan Lender to honor any Request for Credit Extension (other than a Committed Loan Notice requesting only a conversion of Loans to the other Type, or a continuation of Eurocurrency Rate Loans) with respect to the Initial Tranche A Term Loan Funding is subject to the following conditions precedent:
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(a) The Administrative Agent shall have received a Request for Credit Extension in accordance with the requirements hereof.
(b) The consummation of an Asset Sale pursuant to Section 7.04(p).
Conditions to Incremental Tranche A Term Loan Fundings. The obligation of each Tranche A-1 Term Loan Lender to honor any Request for Credit Extension (other than a Committed Loan Notice requesting only a conversion of Loans to the other Type, or a continuation of Eurocurrency Rate Loans) with respect to an Incremental Tranche A Term Loan Funding is subject to the following conditions precedent:
(a) The Administrative Agent shall have received a Request for Credit Extension in accordance with the requirements hereof.
(b) The Revolving Credit Lenders shall concurrently make Revolving Credit Loans to the Borrower in accordance with the Funding Ratio; provided that, for the avoidance of doubt, this clause (b) shall not serve as any excuse or defense for any Term Loan Lender failing to satisfy the Term Loan Prefunding Requirement.
Conditions to Tranche A-2 Term Loan Borrowing. The obligation of each Tranche A-2 Term Loan Lender to honor the Tranche A-2 Term Loan Borrowing is subject to the following condition precedent:
(a) The Administrative Agent shall have received a Request for Credit Extension in accordance with the requirements hereof.
Conditions to Tranche A-3 Term Loan Borrowing. The obligation of each Tranche A-3 Term Loan Lender to honor the Tranche A-3 Term Loan Borrowing is subject to the following condition precedent:
(a) The Administrative Agent shall have received a Request for Credit Extension in accordance with the requirements hereof.
Conditions to Tranche A-4 Term Loan Borrowing. The obligation of each Tranche A-4 Term Loan Lender to honor the Tranche A-4 Term Loan Borrowing is subject to the following condition precedent:
(a) The Administrative Agent shall have received a Request for Credit Extension in accordance with the requirements hereof.
Conditions to Tranche A-5 Term Loan Borrowing. A deemed Tranche A-5 Term Loan Borrowing is subject to the following condition precedent:
(a) The Administrative Agent shall have received a Request for Credit Extension in accordance with the requirements hereof.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES
To induce the Revolving Credit Lenders, the L/C Issuers and the Administrative Agent to enter into this Agreement, the Borrower represents and warrants each of the following to the Revolving Credit Lenders, the L/C Issuers and the Administrative Agent (and after the Revolving Credit Facility Termination Date, the Term Loan Lenders), on and as of the Execution Date (other than those representations and warranties that speak solely to a date after the Execution Date or to a document or agreement executed after the Execution Date), on and as of the Closing Date and the making of Credit Extensions on the Closing Date and on and as of each date as required by Section 4.03 or on any other date required by any Loan Document (with references in this Article V (other than Sections 5.03, 5.04 and 5.05) to “Subsidiaries” to exclude Captive Insurance Subsidiaries):
Corporate Existence, Compliance with Law. Each of the Borrower and the Borrower’s Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) is duly qualified to do business as a foreign corporation and in good standing under the laws of each jurisdiction where such qualification is necessary, except where the failure to be so qualified or in good standing would not have a Material Adverse Effect, (c) has all requisite corporate or other organizational power and authority and the legal right to own, pledge, mortgage and operate its properties, to lease the property it operates under lease and to conduct its business as now or currently proposed to be conducted, (d) is in compliance with its Constituent Documents, (e) is in compliance with all applicable Requirements of Law except where the failure to be in compliance would not, in the aggregate, have a Material Adverse Effect and (f) has all necessary licenses, permits, consents or approvals from or by, has made all necessary filings with, and has given all necessary notices to, each Governmental Authority having jurisdiction, to the extent required for such ownership, operation and conduct, except for licenses, permits, consents, approvals, filings or notices that can be obtained or made by the taking of ministerial action to secure the grant or transfer thereof or the failure of which to obtain or make would not, in the aggregate, have a Material Adverse Effect.
Corporate Power; Authorization; Enforceable Obligations.
(a) The execution, delivery and performance by each Loan Party of the Loan Documents to which it is a party and the consummation of the transactions contemplated thereby:
(i) are within such Loan Party’s corporate, limited liability company, partnership or other organizational powers;
(ii) have been duly authorized by all necessary corporate, limited liability company or partnership action, including the consent of shareholders, partners and members where required;
(iii) do not and will not (A) contravene such Loan Party’s or any of its Subsidiaries’ respective Constituent Documents, (B) violate any other Requirement of Law applicable to such Loan Party (including Regulations T, U and X of the FRB), or any order or decree of any Governmental Authority or arbitrator applicable to such Loan Party, (C) conflict with or result in the breach of, or constitute a default under, or result in or permit the termination or acceleration of, any lawful Contractual Obligation of such Loan Party or any of its Subsidiaries, other than in the case of this clause (C) any such conflict, breach, default, termination or acceleration that could not reasonably be expected to have a Material Adverse Effect, or (D) result in the creation or imposition of any Lien upon any property of such Loan Party or any of its Subsidiaries, other than those in favor of the Secured Parties pursuant to the Security Instruments; and
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(iv) do not require the consent of, authorization by, approval of, notice to, or filing or registration with, any Governmental Authority or any other Person, other than (A) routine tax filings, of which the failure to so file will not result in any Loan Document being unenforceable against, or the performance of any Loan Document being impaired in any way with respect to, any Loan Party, (B) those listed on Schedule 5.02 or that have been or will be, prior to the Closing Date, obtained or made, copies of which have been or will be delivered to the Administrative Agent pursuant to Section 4.02, and each of which on the Closing Date will be in full force and effect and, (C) with respect to the Collateral, filings required to perfect the Liens created by the Security Instruments.
(b) This Agreement has been, and each of the other Loan Documents will have been upon delivery thereof pursuant to the terms of this Agreement, duly executed and delivered by each Loan Party who is a party thereto. This Agreement is, and the other Loan Documents will be, when delivered, the legal, valid and binding obligation of each Loan Party who is a party thereto, enforceable against such Loan Party in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.
Ownership of Borrower; Subsidiaries.
(a) All of the outstanding capital stock of the Borrower is validly issued, fully paid and non-assessable.
(b) Set forth on Schedule 5.03 is a complete and accurate list showing, as of the Closing Date, all Subsidiaries of the Borrower and, as to each such Subsidiary, the jurisdiction of its organization, the number of shares of each class of Stock authorized (if applicable), the number outstanding on the Closing Date, the number and percentage of the outstanding shares of each such class owned (directly or indirectly) by the Borrower. Except as set forth on Schedule 5.03, as of the Closing Date no Stock of any Subsidiary of the Borrower is subject to any outstanding option, warrant, right of conversion or purchase of any similar right. Except as set forth on Schedule 5.03, as of the Closing Date all of the outstanding Stock of each Subsidiary of the Borrower owned (directly or indirectly) by the Borrower has been validly issued, is fully paid and non-assessable (to the extent applicable) and is owned by the Borrower or a Subsidiary of the Borrower, free and clear of all Liens (other than the Lien in favor of the Secured Parties created pursuant to the Security Instruments), options, warrants, rights of conversion or purchase or any similar rights. Except as set forth on Schedule 5.03, as of the Closing Date neither the Borrower nor any such Subsidiary is a party to, or has knowledge of, any agreement restricting the transfer or hypothecation of any Stock of any such Subsidiary, other than the Loan Documents and, with respect to any Subsidiary that is not a Wholly-Owned Subsidiary, the Constituent Documents of such Subsidiary. The Borrower does not own or hold, directly or indirectly, any Stock of any Person other than such Subsidiaries and Investments permitted by Section 7.03.
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Financial Statements.
(a) The interim unaudited financial statements for the Borrower and its Subsidiaries for the most-recently ended Fiscal Quarter, copies of which have been furnished to each Lender, fairly present in all material respects, subject to the absence of footnote disclosure and normal recurring year-end audit adjustments, the consolidated financial condition of the Borrower and its Subsidiaries as at such dates and the consolidated results of the operations of the Borrower and its Subsidiaries for the period ended on such dates, all in conformity with GAAP.
(b) The audited consolidated balance sheet of the Borrower and its Subsidiaries as of the end of the Fiscal Year ended December 31, 2014, and the related statements of income and cash flows of the Borrower and its Subsidiaries for such Fiscal Year, copies of which have been furnished to each Lender, (i) were prepared in conformity with GAAP and (ii) fairly present in all material respects, the consolidated financial condition of the Borrower and its Subsidiaries as at the date indicated and the consolidated results of their operations and cash flow for the period indicated in conformity with GAAP applied on a basis consistent with prior years (except for changes with which the Borrower’s Accountants shall concur and that shall have been disclosed in the notes to the financial statements).
(c) Except as set forth on Schedule 5.04, neither the Borrower nor any of its Subsidiaries has, as of the Closing Date, any material obligation, contingent liability or liability for taxes, long-term leases (other than operating leases) or unusual forward or long-term commitment that is not reflected in the financial statements referred to in clause (b) above and not otherwise permitted by this Agreement.
(d) The Projections have been prepared by the Borrower taking into consideration past operations of its business, and reflect projections for the period beginning approximately January 1, 2015 and ending approximately December 31, 2019 on a Fiscal Year by Fiscal Year basis. The Projections are based upon estimates and assumptions stated therein, all of which the Borrower believes, as of the Closing Date, to be reasonable in light of current conditions and current facts known to the Borrower (other than any necessary adjustments due to fees payable in accordance herewith) and, as of the Closing Date, reflect the Borrower’s good faith estimates of the future financial performance of the Borrower and its Subsidiaries and of the other information projected therein for the periods set forth therein.
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Material Adverse Change. Except as a result of the Vølund Projects which are the subject of the Vølund Projects Settlements and the Borrower or its Subsidiaries’ entry into and performance of its obligations under the Vølund Projects Settlements, since December 31, 2014, there has been no event or circumstance, either individually or in the aggregate, that has had or would reasonably be expected to result in a Material Adverse Effect.
Solvency. Both before and after giving effect to (a) the Credit Extensions to be made or extended on the Closing Date or such other date as Credit Extensions requested hereunder are made or extended, (b) the disbursement of the proceeds of such Loans pursuant to the instructions of the Borrower, (c) the consummation of the transactions contemplated hereby and (d) the payment and accrual of all transaction costs in connection with the foregoing, the Loan Parties, taken as a whole, are Solvent.
Litigation. Except as set forth on Schedule 5.07, there are no pending or, to the knowledge of the Borrower, threatened actions, investigations or proceedings against the Borrower or any of its Subsidiaries before any court, Governmental Authority or arbitrator other than those that, in the aggregate, would not reasonably be expected to have a Material Adverse Effect. Schedule 5.07 lists all litigation pending against any Loan Party as of the Closing Date that, if adversely determined, could be reasonably expected to have a Material Adverse Effect.
Taxes. All federal income and other material tax returns, reports and statements (collectively, the “Tax Returns”) required to be filed by the Borrower or any of its Subsidiaries have been filed with the appropriate Governmental Authorities in all jurisdictions in which such Tax Returns are required to be filed, all such Tax Returns are true and correct in all material respects, and all material taxes, charges and other impositions reflected therein or otherwise due and payable have been paid prior to the date on which any fine, penalty, interest, late charge or loss may be added thereto for non-payment thereof except where contested in good faith and by appropriate proceedings if adequate reserves therefor have been established on the books of the Borrower or such Subsidiary in conformity with GAAP. The Borrower and each of its Subsidiaries have withheld and timely paid to the respective Governmental Authorities all material amounts required to be withheld.
Full Disclosure. The Information Memorandum and any other information prepared or furnished by or on behalf of any Loan Party and delivered to the Lenders in writing in connection with this Agreement or the consummation of the transactions contemplated hereunder or thereunder (in each case, taken as a whole) does not, as of the time of delivery of such information (with respect to the Information Memorandum, as of the Closing Date only), contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained therein or herein not misleading; provided that to the extent any such information was based upon, or constituted, a forecast or projection, such Loan Party represents only, in respect of such projection or forecast, that it acted in good faith and utilized reasonable assumptions and due care in the preparation of such information.
Margin Regulations. The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U of the FRB), and no proceeds of any Credit Extension will be used to purchase or carry any such margin stock or to extend credit to others for the purpose of purchasing or carrying any such margin stock in contravention of Regulation T, U or X of the FRB.
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No Burdensome Restrictions; No Defaults.
(a) Neither the Borrower nor any of its Subsidiaries (i) is a party to any Contractual Obligation (x) the compliance with which could reasonably be expected to have a Material Adverse Effect or (y) the performance of which by any party thereof would result in the creation of a Lien (other than a Lien permitted under Section 7.02) on the property or assets of any party thereof or (ii) is subject to any charter restriction that could reasonably be expected to have a Material Adverse Effect.
(b) Neither the Borrower nor any of its Subsidiaries is in default under or with respect to any Contractual Obligation owed by it, other than, in either case, those defaults that would not reasonably be expected to have a Material Adverse Effect.
(c) No Default has occurred and is continuing.
Investment Company Act. None of the Borrower or any Subsidiary is or is required to be registered as an “investment company” under the Investment Company Act of 1940.
Use of Proceeds. Except as prohibited by Section 7.12:
(a) the proceeds of the Revolving Credit Loans are being used by the Borrower only (i) for working capital needs, capital expenditures, Permitted Acquisitions, general corporate purposes and other lawful corporate purposes of the Borrower and its Subsidiaries and (ii) to pay fees and expenses in connection with this Agreement and the related transactions;
(b) Letters of Credit are being solely used by the Borrower to support warranties, bid bonds, payment or performance obligations and for other general corporate purposes by Permitted L/C Parties and, in each case, in respect of any Letter of Credit issued after the Amendment No. 5 Effective Date, for no other purpose other than as permitted in Section 2.03(a)(vii);
(c) the proceeds of the Tranche A-1 Term Loans are being used by the Borrower only (i) for working capital needs, capital expenditures, general corporate purposes and other lawful corporate purposes of the Borrower and its Subsidiaries and (ii) to pay the Initial Funding Term Loan Lender Expenses;
(d) the proceeds of
the Tranche A-2 Term Loans are being used by the Borrower only for working capital needs, capital expenditures, general corporate
purposes and other lawful corporate purposes of the Borrower and its Subsidiaries; and
(e) the
proceeds of the Tranche A-3 Term Loans are being used by the Borrower only (i) to make payments required under the
Vølund Projects Settlements, (ii) for working capital needs and general corporate purposes of the Borrower and its
Subsidiaries, including any payments of Obligations with respect to the Revolving Credit Facility required or permitted
hereunder, and (iii) reimbursement of the expenses of Vintage Capital Management, LLC and B. Riley FBR, Inc. and their
respective Affiliates required to be reimbursed by the Borrower pursuant to Amendment No. 15 and Amendment No. 16, including
the 2019 Term Loan Lender Expenses, in an amount not to exceed $650,000.650,000;
and
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(f) the proceeds of the Tranche A-4 Term Loans are being used by the Borrower only (i) to repay Revolving Credit Loans, (ii) for working capital needs and general corporate purposes of the Borrower and its Subsidiaries, including any future payments of Obligations with respect to the Revolving Credit Facility required or permitted hereunder, and (iii) reimbursement of the expenses of the Tranche A-4 Term Loans Lenders and their respective Affiliates required to be reimbursed by the Borrower pursuant to Amendment No. 20, including the 2020 Term Loan Lender Expenses, in an amount not to exceed $20,000.
Insurance. All policies of insurance of any kind or nature currently maintained by the Borrower or any of its Subsidiaries, including policies of fire, theft, product liability, public liability, property damage, other casualty, employee fidelity, workers’ compensation and employee health and welfare insurance, are in full force and effect and are of a nature and provide such coverage as is sufficient and as is customarily carried by businesses of the size and character of such Person.
Labor Matters.
(a) There are no strikes, work stoppages, slowdowns or lockouts pending or, to the Borrower’s knowledge, threatened against or involving the Borrower, any of its Subsidiaries or any Guarantor, other than those that, in the aggregate, would not reasonably be expected to have a Material Adverse Effect.
(b) There are no unfair labor practices, grievances or complaints pending, or, to the Borrower’s knowledge, threatened, against or involving the Borrower, any of its Subsidiaries or any Guarantor, nor, to the Borrower’s knowledge, are there any unfair labor practices, arbitrations or grievances threatened involving the Borrower, any of its Subsidiaries or any Guarantor, other than those that if resolved adversely to the Borrower, such Subsidiary or such Guarantor, as applicable, would not reasonably be expected to have a Material Adverse Effect.
ERISA.
(a) Each Employee Benefit Plan that is intended to qualify under Section 401 of the Code (i) (x) has received a favorable determination letter, or is subject to a favorable opinion letter, from the IRS indicating that such Employee Benefit Plan is so qualified and any trust created under any Employee Benefit Plan is exempt from tax under the provisions of Section 501 of the Code, (y) is substantially similar to an “employee benefit plan” as defined in Section 3(3) of ERISA that is, or was, sponsored, maintained, or contributed to by a former ERISA Affiliate that received such a favorable determination letter or opinion letter prior to the Spinoff, or (z) is the subject of an application for such a favorable determination letter or opinion letter that is currently being processed by the IRS, and (ii) to the knowledge of the Borrower, nothing has occurred subsequent to the issuance of such determination or opinion letter, as applicable, which would cause such Employee Benefit Plan to lose its qualified status or that would cause such trust to become subject to tax, except where such failures could not reasonably be expected to have a Material Adverse Effect.
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(b) Except for the Deferred PBGC Payments, the Borrower, each of its Subsidiaries, each Guarantor and each of their respective ERISA Affiliates is in material compliance with all applicable provisions and requirements of ERISA, the Code and applicable Employee Benefit Plan provisions with respect to each Employee Benefit Plan except for non-compliances that would not reasonably be expected to have a Material Adverse Effect.
(c) There are no pending or, to the best knowledge of the Company, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Employee Benefit Plan that could reasonably be expected to have a Material Adverse Effect.
(d) There has been no, nor is there reasonably expected to occur, any ERISA Event other than those that, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect.
(e) Except (i) to the extent required under Section 4980B of the Code or similar state laws, and (ii) with respect to which the aggregate liability, calculated on a FAS 106 basis as of December 31, 2014, does not exceed $150,000,000, no Employee Benefit Plan provides health or welfare benefits (through the purchase of insurance or otherwise) to any retired or former employees, consultants or directors (or their dependents) of the Borrower, any of its Subsidiaries, any Guarantor or any of their respective ERISA Affiliates.
(f) With respect to each retirement savings scheme or arrangement mandated by a government other than the United States (a “Foreign Government Scheme or Arrangement”) and with respect to each employee benefit plan maintained or contributed to by the Borrower or any of its Subsidiaries, that is not subject to United States law (a “Foreign Plan”), except as could not, either individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect:
(i) Any employer contributions required by law or the terms of any Foreign Government Scheme or Arrangement or any Foreign Plan have been made, or if applicable, accrued, in accordance with normal accounting practices of the jurisdiction in which such plan is maintained;
(ii) The Fair Market Value of the assets of each funded Foreign Plan that is required to be funded, or the liability of each insurer for any Foreign Plan funded through insurance or the book reserve established for any Foreign Plan, together with any accrued contributions, is sufficient to procure or provide for the accrued benefit obligations, as of the date hereof, with respect to all current and former participants in such Foreign Plan according to the actuarial assumptions and valuations most recently used to account for such obligations in accordance with applicable generally accepted accounting principles of the jurisdiction in which such plan is maintained; and
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(iii) Each Foreign Plan required to be registered has been registered and has been maintained in good standing with applicable regulatory authorities.
Environmental Matters.
(a) The operations of the Borrower and each of its Subsidiaries have been and are in compliance with all Environmental Laws, including obtaining and complying with all required environmental, health and safety Permits, other than non-compliances that, in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.
(b) None of the Borrower or any of its Subsidiaries or any Real Property currently or, to the knowledge of the Borrower, previously owned, operated or leased by or for the Borrower or any of its Subsidiaries is subject to any pending or, to the knowledge of the Borrower, threatened, claim, order, agreement, notice of violation, notice of potential liability or is the subject of any pending or threatened proceeding or governmental investigation under or pursuant to Environmental Laws other than those orders, agreements, notices, proceedings or investigations that, in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.
(c) To the knowledge of the Borrower, there are no facts, circumstances or conditions arising out of or relating to the operations or ownership of the Borrower or of Real Property owned, operated or leased by the Borrower or any of its Subsidiaries that are not specifically included in the financial information furnished to the Lenders other than those that, in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.
Intellectual Property. Except where the failure to do so would not, taken as a whole, reasonably be expected to have a Material Adverse Effect, the Borrower and its Subsidiaries own or license or otherwise have the right to use all licenses, permits, patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, copyright applications, franchises, authorizations and other intellectual property rights (including all Intellectual Property as defined in the Collateral Agreement) that are necessary for the operations of their respective businesses, without infringement upon or conflict with the rights of any other Person with respect thereto. Except where the failure to do so would not, taken as a whole, reasonably be expected to have a Material Adverse Effect, no slogan or other advertising device, product, process, method, substance, part or component, or other material now employed, or now contemplated to be employed, by the Borrower or any of its Subsidiaries infringes upon or conflicts with any rights owned by any other Person, and no claim or litigation regarding any of the foregoing is pending or threatened.
Title; Real Property.
(a) Each of the Borrower and its Subsidiaries has valid and indefeasible title to, or valid leasehold interests in, all of its material properties and assets (including Real Property) and good title to, or valid leasehold interests in, all material personal property, in each case that is purported to be owned or leased by it, including those reflected on the most recent financial statements delivered by the Borrower hereunder, and none of such properties and assets is subject to any Lien, except Liens permitted under Section 7.02. The Borrower and its Subsidiaries have received all deeds, assignments, waivers, consents, non-disturbance and recognition or similar agreements, bills of sale and other documents, and have duly effected all recordings, filings and other actions necessary to establish, protect and perfect the Borrower’s and its Subsidiaries’ right, title and interest in and to all such property, other than those that would not reasonably be expected to result in a Material Adverse Effect.
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(b) Set forth on Schedule 5.19(b) is a complete and accurate list, as of the Closing Date, of all (i) owned Real Property located in the United States with a reasonably estimated Fair Market Value in excess of $3,000,000 showing, as of the Closing Date, the street address, county (or other relevant jurisdiction or state) and the record owner thereof and (ii) leased Real Property located in the United States with annual lease payments in excess of $1,000,000 showing, as of the Closing Date, the street address and county (or other relevant jurisdiction or state) thereof.
(c) No portion of any Real Property has suffered any material damage by fire or other casualty loss that has not heretofore been completely repaired and restored to its original condition other than those that would not reasonably be expected to have a Material Adverse Effect. As of the Closing Date, no portion of any Mortgaged Property is located in a special flood hazard area as designated by any federal Governmental Authority other than those for which flood insurance has been provided in accordance with Section 4.02(a)(iii).
(d) Except as would not reasonably be expected to have a Material Adverse Effect, (i) each Loan Party has obtained and holds all Permits required in respect of all Real Property and for any other property otherwise operated by or on behalf of, or for the benefit of, such person and for the operation of each of its businesses as presently conducted and as proposed to be conducted, (ii) all such Permits are in full force and effect, and each Loan Party has performed and observed all requirements of such Permits, (iii) no event has occurred that allows or results in, or after notice or lapse of time would allow or result in, revocation or termination by the issuer thereof or in any other impairment of the rights of the holder of any such Permit, (iv) no such Permits contain any restrictions, either individually or in the aggregate, that are materially burdensome to any Loan Party, or to the operation of any of its businesses or any property owned, leased or otherwise operated by such person, (v) each Loan Party reasonably believes that each of its Permits will be timely renewed and complied with, without material expense, and that any additional Permits that may be required of such Person will be timely obtained and complied with, without material expense and (vi) the Borrower has no knowledge or reason to believe that any Governmental Authority is considering limiting, suspending, revoking or renewing on materially burdensome terms any such Permit.
(e) None of the Borrower or any of its Subsidiaries has received any notice, or has any knowledge, of any pending, threatened or contemplated condemnation proceeding affecting any Real Property or any part thereof, except those that would not reasonably be expected to have a Material Adverse Effect.
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(f) Each of the Loan Parties, and, to the knowledge of the Borrower, each other party thereto, has complied with all obligations under all leases of Real Property to which it is a party other than those the failure with which to comply would not reasonably be expected to have a Material Adverse Effect and all such leases are legal, valid, binding and in full force and effect and are enforceable in accordance with their terms other than those the failure of which to so comply with the foregoing would not reasonably be expected to have a Material Adverse Effect. No landlord Lien has been filed, and, to the knowledge of the Borrower, no claim is being asserted, with respect to any lease payment under any lease of Real Property other than those that would not reasonably be expected to have a Material Adverse Effect.
(g) There are no pending or, to the knowledge of the Borrower, proposed special or other assessments for public improvements or otherwise affecting any material portion of the owned Real Property, nor are there any contemplated improvements to such owned Real Property that may result in such special or other assessments, other than those that would not reasonably be expected to have a Material Adverse Effect.
Security Instruments. The provisions of the Security Instruments, from and after the Closing Date, are effective to create in favor of the Administrative Agent for the benefit of the Secured Parties a legal, valid and enforceable first priority Lien (subject to Liens permitted by Section 7.02) on all right, title and interest of the respective Loan Parties in the Collateral described therein. Except for filings completed on or prior to the Closing Date and filings and other actions contemplated hereby and by the Security Instruments, no filing or other action in the United States will be necessary to perfect or protect such Liens.
OFAC. Neither the Borrower, nor any of its Subsidiaries, nor, to the knowledge of the Borrower, any director, officer, employee or agent thereof, is or is owned or controlled by an individual or entity that is (i) listed on the List of Specially Designated Nationals and Blocked Persons or Sectoral Sanctions Identifications List maintained by OFAC, (ii) otherwise the subject of any Sanctions or a Person who, under any Sanctions, the Administrative Agent, any Lender or any L/C Issuer is prohibited from transacting business with or (iii) in violation of any applicable Requirement of Law relating to Sanctions. No Loan, nor the proceeds from any Loan, has or have been used, directly by the Borrower or any of its Subsidiaries, or, to the knowledge of the Borrower, by any recipient of those funds from the Borrower or any Subsidiary, to lend, contribute, provide or make available by any Loan Party or any Subsidiary to fund any activity or business in any Designated Jurisdiction if that activity or business would violate any Sanctions, or to fund any activity or business of any Person located, organized or residing in any Designated Jurisdiction or who is the subject of any Sanctions, or in any other manner that, in each case, would result in any violation by any Lender, the Arranger, the Administrative Agent, any L/C Issuer or the Swing Line Lender of Sanctions.
Anti-Corruption Laws. The Borrower and its Subsidiaries have conducted their businesses in all material respects in compliance with applicable Anti-Corruption Laws and have instituted and maintained policies and procedures intended to promote and achieve compliance with such laws.
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EEA Financial Institutions. No Loan Party is an EEA Financial Institution.
Budget. The Budget has been prepared in good faith based upon assumptions of the Borrower reasonable at the time made.
ARTICLE VI
AFFIRMATIVE COVENANTS
The Borrower agrees to each of the following, (a) from and after the Closing Date and until the Revolving Credit Facility Termination Date, with the Revolving Credit Lenders, the L/C Issuer and the Administrative Agent (and the Term Loan Lenders hereby agree that no Term Loan Lender shall have any right to make requests under this Article VI, provided that the Borrower, the Administrative Agent and the Revolving Credit Lenders agree that the Term Loan Lenders may make requests pursuant to Section 6.10) and, (b) from and after the Revolving Credit Facility Termination Date and thereafter as long as any Obligation or any Commitment remains outstanding, with the Term Loan Lenders and the Administrative Agent and, in each case, unless the Required Lenders otherwise consent in writing (provided that those provisions under this Article VI with which Subsidiaries of the Borrower are required to comply shall exclude from such compliance any Captive Insurance Subsidiary):
Financial Statements. The Borrower shall furnish to the Administrative Agent each of the following:
(a) Quarterly Reports. Within 45 days after the end of each of the first three Fiscal Quarters of each Fiscal Year (unless such period is extended pursuant to SEC guidelines), consolidated unaudited balance sheets as of the close of such quarter and the related statements of income and cash flow for such quarter and that portion of the Fiscal Year ending as of the close of such quarter, setting forth in comparative form the figures for the corresponding period in the prior year, in each case certified by a Responsible Officer of the Borrower as fairly presenting in all material respects the consolidated financial condition of the Borrower and its Subsidiaries as at the dates indicated and the results of their operations and cash flow for the periods indicated in accordance with GAAP (subject to the absence of footnote disclosure and normal year-end audit adjustments).
(b) Annual Reports. Within 120 days after the end of the Fiscal Year ending December 31, 2018 and within 90 days after the end of each Fiscal Year thereafter (unless such period is extended pursuant to SEC guidelines), consolidated balance sheets of the Borrower and its Subsidiaries as of the end of such Fiscal Year and related statements of income and cash flows of the Borrower and its Subsidiaries for such Fiscal Year, all prepared in conformity with GAAP and certified, in the case of such consolidated financial statements, without qualification as to the scope of the audit or, except with respect to the Fiscal Years ending December 31, 2017 and December 31, 2018 only, as to the Borrower being a going concern by the Borrower’s Accountants, together with the report of such accounting firm stating that (i) such financial statements fairly present in all material respects the consolidated financial condition of the Borrower and its Subsidiaries as at the dates indicated and the results of their operations and cash flow for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except for changes with which the Borrower’s Accountants shall concur and that shall have been disclosed in the notes to the financial statements) and (ii) the examination by the Borrower’s Accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards.
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(c) Compliance Certificate. Together with each delivery of any financial statement pursuant to clause (a) or (b) above, a Compliance Certificate (i) showing in reasonable detail the calculations used in determining the Senior Leverage Ratio and demonstrating compliance with each of the other financial covenants contained in Section 7.16; provided that with respect to the Fiscal Quarter ending December 31, 2018 only, the Compliance Certificate may demonstrate non-compliance if it certifies as to the accuracy of the calculations therein (and such non-compliance shall not be deemed a Default or Event of Default), and (ii) stating that no Default has occurred and is continuing or, if a Default has occurred and is continuing, stating the nature thereof and the action which the Borrower has taken or proposes to take with respect thereto.
(d) Monthly Reports. Within 15 days after the end of each calendar month, commencing with the calendar month ending October 31, 2017, (i) a consolidated balance sheet and profit and loss statement and (ii) segment-level profit and loss statements, in each case, relating to the most recently ended calendar month and with commentary by management on financial and operational performance.
The Borrower hereby acknowledges that (i) the Administrative Agent and/or one or more of the Arrangers may, but shall not be obligated to, make available to the Lenders and the L/C Issuers materials and/or information provided by or on behalf of the Borrower hereunder (collectively, “Borrower Materials”) by posting the Borrower Materials on Debt Domain, IntraLinks, SyndTrak or another similar electronic system (the “Platform”) and (ii) certain of the Lenders (each, a “Public Lender”) may have personnel who do not wish to receive material non-public information with respect to the Borrower or its Affiliates, or the respective securities of any of the foregoing, and who may be engaged in investment and other market-related activities with respect to such Persons’ securities. The Borrower hereby agrees that (w) all Borrower Materials that the Borrower intends 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 deemed to have authorized the Administrative Agent, each Arranger, each L/C Issuer and the Lenders to treat the Borrower Materials as not containing any material non-public information with respect to the Borrower or its securities for purposes of United States Federal and state securities laws (provided, however, that to the extent such Borrower Materials constitute Information, they shall be treated as set forth in Section 10.07); (y) all Borrower Materials marked “PUBLIC” are permitted to be made available through a portion of the Platform designated “Public Side Information;” and (z) the Administrative Agent and the Arrangers shall be entitled to treat any Borrower Materials that are not marked “PUBLIC” as being suitable only for posting on a portion of the Platform not designated “Public Side Information.”
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Documents required to be delivered pursuant to Section 6.01(a) or (b) (to the extent any such documents are included in materials otherwise filed with the SEC) 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 Borrower’s website on the Internet at the website address listed on Schedule 10.02; or (ii) on which such documents are posted on the Borrower’s behalf on an Internet or intranet 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) the Borrower shall deliver paper copies of such documents to the Administrative Agent or any Lender upon its request to the Borrower to deliver such paper copies until a written request to cease delivering paper copies is given by the Administrative Agent or such Lender and (ii) the Borrower shall notify the Administrative Agent (by facsimile or electronic mail) of the posting of any such documents. The Administrative Agent shall have no obligation to request the delivery of or to maintain paper copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by the Borrower with any such request by a Lender for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents.
Collateral Reporting Requirements. The Borrower shall furnish to the Administrative Agent each of the following:
(a) Updated Corporate Chart. If requested by the Administrative Agent, together with each delivery of any financial statement pursuant to Section 6.01(b), a corporate organizational chart or other equivalent list, current as of the date of delivery, in form and substance reasonably acceptable to the Administrative Agent and certified as true, correct and complete by a Responsible Officer of the Borrower, setting forth, for each of the Loan Parties, all Persons subject to Section 6.22, all Subsidiaries of any of them and any joint venture (including Joint Ventures) entered into by any of the foregoing, (i) its full legal name, (ii) its jurisdiction of organization and organizational number (if any) and (iii) the number of shares of each class of its Stock authorized (if applicable), the number outstanding as of the date of delivery, and the number and percentage of the outstanding shares of each such class owned (directly or indirectly) by the Borrower.
(b) Additional Information. From time to time, statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral, all as the Administrative Agent may reasonably request, and in reasonable detail.
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(c) Additional Filings. At any time and from time to time, upon the reasonable written request of the Administrative Agent, and at the sole expense of the Loan Parties, duly executed, delivered and recorded instruments and documents for the purpose of obtaining or preserving the full benefits of this Agreement, each Security Instrument and each other Loan Document and of the rights and powers herein and therein granted (and each Loan Party shall take such further action as the Administrative Agent may reasonably request for such purpose, including the filing of any financing or continuation statement under the UCC or other similar Requirement of Law in effect in any domestic jurisdiction with respect to the security interest created by the Collateral Agreement but excluding (other than as set forth in Amendment No. 3) (i) any filings to perfect Liens on intellectual property, other than any such filings under the UCC or with the U.S. Patent and Trademark Office or U.S. Copyright Office and (ii) any filings or actions in any jurisdiction outside the United States.
The reporting requirements set forth in this Section 6.02 are in addition to, and shall not modify and are not in replacement of, any rights and other obligation set forth in any Loan Document (including notice and reporting requirements) and satisfaction of the reporting obligations in this Section 6.02 shall not, by itself, operate as an update of any Schedule or any schedule of any other Loan Document and shall not cure, or otherwise affect in any way, any Default, including any failure of any representation or warranty of any Loan Document to be correct in any respect when made.
Default and Certain Other Notices. Promptly and in any event within five Business Days after a Responsible Officer of the Borrower obtains actual knowledge thereof, the Borrower shall give the Administrative Agent notice:
(a) of the occurrence of any Default or Event of Default;
(b) of any amendments, additions or modifications to the Form 10 effectuated on or after the Closing Date, or of any material notices from the SEC with respect thereto, including, without limitation, notice of the effectiveness of the Spinoff;
(c) of the issuance of a notice of proposed debarment or notice of proposed suspension by a Governmental Authority or Governmental Authorities; and
(d) of (i) management changes, (ii) reorganization and consolidation changes with respect to Foreign Subsidiaries and (iii) changes to the Vølund Projects Schedule.
Each notice pursuant to this Section 6.03 (other than Section 6.03(b)) shall be accompanied by a statement of a Responsible Officer of the Borrower setting forth details of the occurrence referred to therein, the anticipated effect thereof, and stating what action the Borrower has taken and proposes to take with respect thereto. Each notice pursuant to Section 6.03(a) shall describe with particularity any and all provisions of this Agreement and any other Loan Document that have been breached. Any notice pursuant to this Section 6.03, if given by telephone, shall be promptly confirmed in writing on the next Business Day.
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Litigation. Promptly after a Responsible Officer of the Borrower obtains actual knowledge of the commencement thereof, the Borrower shall give the Administrative Agent written notice of the commencement of all actions, suits and proceedings before any domestic or foreign Governmental Authority or arbitrator, regarding the Borrower, any of its Subsidiaries or any Joint Venture that (i) seeks injunctive or similar relief that, in the reasonable judgment of the Borrower, if adversely determined, would reasonably be expected to result in a Material Adverse Effect or (ii) in the reasonable judgment of the Borrower would expose the Borrower, such Subsidiary or such Joint Venture to liability in an amount aggregating $20,000,000 (in excess of insurance as to which a solvent and unaffiliated insurance company has acknowledged coverage) or more or that, if adversely determined, would reasonably be expected to have a Material Adverse Effect.
Labor Relations. Promptly after a Responsible Officer of the Borrower has actual knowledge of the same, the Borrower shall give the Administrative Agent written notice of (a) any material labor dispute to which the Borrower, any of its Subsidiaries, any Guarantors or any Joint Venture is a party, including any strikes, lockouts or other material disputes relating to any of such Person’s plants and other facilities, provided that such dispute, strike or lockout involves a work stoppage exceeding 30 days, (b) any material Worker Adjustment and Retraining Notification Act or related liability incurred with respect to the closing of any plant or other facility of any such Person affecting 300 or more employees of the Borrower and its Subsidiaries and (c) any material union organization activity with respect to employees of the Borrower or any of its Subsidiaries not covered by a collective bargaining agreement as of the Closing Date.
Tax Returns. Upon the reasonable request of any Lender, through the Administrative Agent, the Borrower shall provide copies of all federal, state, local and foreign tax returns and reports filed by the Borrower, any of its Subsidiaries or any Joint Venture in respect of taxes measured by income (excluding sales, use and like taxes).
Insurance. As soon as is practicable and in any event within 90 days after the end of each Fiscal Year, the Borrower shall furnish the Administrative Agent with a report on the standard “Acord” form (or other form acceptable to the Administrative Agent) outlining all material insurance coverage maintained as of the date of such report by the Borrower and its Subsidiaries and the duration of such coverage.
ERISA Matters. The Borrower shall furnish the Administrative Agent each of the following:
(a) promptly and in any event within 30 days after a Responsible Officer of the Borrower knows, or has reason to know, that any ERISA Event has occurred that, alone or together with any other ERISA Event, would reasonably be expected to result in liability of the Borrower, any Subsidiary, any Guarantor and/or any ERISA Affiliate in an aggregate amount exceeding $20,000,000, written notice describing the nature thereof, what action the Borrower, any of its Subsidiaries, any Guarantor or any of their respective ERISA Affiliates has taken, is taking or proposes to take with respect thereto, including copies of any notices or correspondence with any Governmental Authority and, when known by such Responsible Officer, any action taken or threatened by the IRS, the Department of Labor or the PBGC with respect to such event;
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(b) simultaneously with the date that the Borrower, any of its Subsidiaries or any ERISA Affiliate files with the PBGC a notice of intent to terminate any Title IV Plan, if, at the time of such filing, such termination would reasonably be expected to require additional contributions of the Borrower, any Subsidiary, any Guarantor and/or any ERISA Affiliate in an aggregate amount exceeding $20,000,000 in order to be considered a standard termination within the meaning of Section 4041(b) of ERISA, a copy of each notice; and
(c) promptly, copies of (i) each Schedule SB (Actuarial Information) to the annual report (Form 5500 Series) filed by the Borrower, any of its Subsidiaries, any Guarantor or any of their respective ERISA Affiliates with the IRS with respect to each Title IV Plan, which is requested by the Administrative Agent; (ii) all notices received by the Borrower, any of its Subsidiaries, any Guarantor or any of their respective ERISA Affiliates from a Multiemployer Plan sponsor concerning an ERISA Event that would reasonably be expected to result in liability of the Borrower, any Subsidiary, any Guarantor and/or any ERISA Affiliate in an aggregate amount exceeding $20,000,000; and (iii) copies of such other documents or governmental reports or filings relating to any Employee Benefit Plan as the Administrative Agent shall reasonably request.
Notwithstanding the foregoing, promptly, and in any event within 60 days after a Multiemployer Plan is certified to be in “endangered” or “critical” status within the meaning of Code Section 432 or Section 305 of ERISA, notice of such Multiemployer Plan’s status and a copy of such Multiemployer Plan’s most recent funding improvement plan or rehabilitation plan, as required to be adopted under ERISA.
Environmental Matters. The Borrower shall provide the Administrative Agent promptly, and in any event within 10 Business Days after any Responsible Officer of the Borrower obtains actual knowledge of any of the following, written notice of each of the following:
(a) that any Loan Party is or may be liable to any Person as a result of a Release or threatened Release that would reasonably be expected to subject such Loan Party to Environmental Liabilities and Costs of $20,000,000 or more;
(b) the receipt by any Loan Party of notification that any material real or personal property of such Loan Party is or is reasonably likely to be subject to any Environmental Lien;
(c) the receipt by any Loan Party of any notice of violation of or potential liability under, or knowledge by a Responsible Officer of the Borrower that there exists a condition that would reasonably be expected to result in a violation of or liability under, any Environmental Law, except for violations and liabilities the consequence of which, in the aggregate, would not be reasonably likely to subject the Loan Parties collectively to Environmental Liabilities and Costs of $20,000,000 or more; and
(d) promptly following reasonable written request by any Lender, through the Administrative Agent, a report providing an update of the status of any environmental, health or safety compliance, hazard or liability issue identified in any notice or report delivered pursuant to this Section 6.09.
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Patriot Act Information. Each Lender that is subject to the Patriot Act (as hereinafter defined) 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 (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Patriot Act”), it is required to obtain, verify and record information that identifies the Borrower and each other Loan Party, which information includes the name and address of the Borrower and each other Loan Party and other information that will allow such Lender or the Administrative Agent, as applicable, to identify the Borrower and each other Loan Party in accordance with the 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 reasonably requests in order to comply with its ongoing obligations under applicable “know your customer” and anti-money laundering rules and regulations, including, without limitation, the Patriot Act.
Other Information. The Borrower shall provide the Administrative Agent or any Lender with such other information respecting the business, properties, condition, financial or otherwise, or operations of the Borrower, any of its Subsidiaries or any Joint Venture as the Administrative Agent or such Lender, through the Administrative Agent, may from time to time reasonably request.
Preservation of Corporate Existence, Etc. The Borrower shall, and shall cause each of its Subsidiaries to, preserve and maintain its legal existence, rights (charter and statutory) and franchises, except as permitted by Sections 7.03, 7.04 and 7.06 and except if, in the reasonable business judgment of the Borrower, it is in the business interest of the Borrower or such Subsidiary not to preserve and maintain such rights (charter and statutory) and franchises, and such failure to preserve the same would not reasonably be expected to have a Material Adverse Effect and would not reasonably be expected to materially affect the interests of the Secured Parties under the Loan Documents or the rights and interests of any of them in the Collateral.
Compliance with Laws, Etc. The Borrower shall, and shall cause each of its Subsidiaries to, comply with all applicable Requirements of Law, Contractual Obligations and Permits, except where the failure so to comply would not reasonably be expected to have a Material Adverse Effect.
Conduct of Business. The Borrower shall, and shall cause each of its Subsidiaries to, (a) conduct its business in the ordinary course (except for non-material changes in the nature or conduct of its business as carried on as of the Closing Date) and (b) use its reasonable efforts, in the ordinary course, to preserve its business and the goodwill and business of the customers, suppliers and others having business relations with the Borrower or any of its Subsidiaries, except where the failure to comply with the covenants in each of clauses (a) and (b) above would not reasonably be expected to have a Material Adverse Effect.
Payment of Taxes, Etc. The Borrower shall, and shall cause each of its Subsidiaries to, pay and discharge (or cause to be paid and discharged) before the same shall become delinquent, all lawful governmental claims, taxes, assessments, charges and levies made, assessed, filed or otherwise imposed on or against any of them, except where (a) contested in good faith, by proper proceedings and adequate reserves therefor have been established on the books of the Borrower or the appropriate Subsidiary in conformity with GAAP or (b) the failure to so pay and discharge would not, in the aggregate, reasonably be expected to have a Material Adverse Effect.
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Maintenance of Insurance. The Borrower shall, and shall cause each of its Subsidiaries to, (a) maintain insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as, in the reasonable determination of the Borrower, is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Borrower or such Subsidiary operates and (b) cause all property and general liability insurance to name the Administrative Agent on behalf of the Secured Parties as additional insured (with respect to liability policies), loss payee (with respect to property policies) or lender’s loss payee (with respect to property policies), as appropriate, and to provide that no cancellation, material addition in amount or material change in coverage shall be effective until after 30 days’ written notice thereof to the Administrative Agent.
Access. The Borrower shall from time to time during normal business hours permit the Administrative Agent, the L/C Issuers and the Lenders, or any agents or representatives thereof, within five Business Days after written notification of the same (except that during the continuance of an Event of Default, no such notice shall be required) to (a) examine and make copies of and abstracts from the records and books of account of the Borrower and each of its Subsidiaries, (b) visit the properties of the Borrower and each of its Subsidiaries, (c) discuss the affairs, finances and accounts of the Borrower and each of its Subsidiaries with any of their respective officers or directors; provided that the Borrower will not be required to permit any examination or visit as set forth in clauses (a) and (b) above with respect to each of the Administrative Agent, the L/C Issuers and the Lenders (or any agents or representatives thereof) (i) within the twelve-month period following the date of the most recent examination or visit by any L/C Issuer, any Lender or the Administrative Agent (or any agents or representatives thereof), as applicable, unless an Event of Default has occurred and is continuing and (ii) unless such visit is coordinated through the Administrative Agent.
Keeping of Books. The Borrower shall, and shall cause each of its Subsidiaries to keep, proper books of record and account, in which full and correct entries shall be made in conformity with GAAP of the financial transactions and assets and business of the Borrower and each such Subsidiary.
Maintenance of Properties, Etc. The Borrower shall, and shall cause each of its Subsidiaries to, maintain and preserve (a) in good working order and condition (ordinary wear and tear excepted) all of its properties necessary in the conduct of its business, (b) all rights, permits, licenses, approvals and privileges (including all Permits) necessary in the conduct of its business and (c) all Material Intellectual Property, except where failure to so maintain and preserve the items set forth in clauses (a), (b) and (c) above would not reasonably be expected to have a Material Adverse Effect.
Application of Proceeds. The Borrower shall use the entire amount of the proceeds of the Loans as provided in Section 5.13.
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Environmental.
(a) The Borrower shall, and shall cause each of its Subsidiaries to, exercise reasonable due diligence in order to comply in all material respects with all Environmental Laws.
(b) The Borrower agrees that the Administrative Agent may, from time to time, retain, at the expense of the Borrower, an independent professional consultant reasonably acceptable to the Borrower to review any report relating to Contaminants prepared by or for the Borrower and to conduct its own investigation (the scope of which investigation shall be reasonable based upon the circumstances) of any property currently owned, leased, operated or used by the Borrower or any of its Subsidiaries, if (x) a Default or an Event of Default shall have occurred and be continuing, or (y) the Administrative Agent reasonably believes (1) that an occurrence relating to such property is likely to give rise to any Environmental Liabilities and Costs or (2) that a violation of an Environmental Law on or around such property has occurred or is likely to occur, which could, in either such case, reasonably be expected to result in Environmental Liabilities and Costs in excess of $20,000,000, provided that, unless an Event of Default shall have occurred and be continuing, such consultant shall not drill on any property of the Borrower or any of its Subsidiaries without the Borrower’s prior written consent. Borrower shall use its reasonable efforts to obtain for the Administrative Agent and its agents, employees, consultants and contractors the right, upon reasonable notice to Borrower, to enter into or on to the facilities currently owned, leased, operated or used by Borrower or any of its Subsidiaries to perform such tests on such property as are reasonably necessary to conduct such a review and/or investigation. Any such investigation of any property shall be conducted, unless otherwise agreed to by Borrower and the Administrative Agent, during normal business hours and shall be conducted so as not to unreasonably interfere with the ongoing operations at any such property or to cause any damage or loss at such property. Borrower and the Administrative Agent hereby acknowledge and agree that any report of any investigation conducted at the request of the Administrative Agent pursuant to this subsection will be obtained and shall be used by the Administrative Agent and the Lenders for the purposes of the Lenders’ internal credit decisions, to monitor the Obligations and to protect the Liens created by the Loan Documents, and the Administrative Agent and the Lenders hereby acknowledge and agree any such report will be kept confidential by them to the extent permitted by law except as provided in the following sentence. The Administrative Agent agrees to deliver a copy of any such report to Borrower with the understanding that Borrower acknowledges and agrees that (i) it will indemnify and hold harmless the Administrative Agent and each Lender from any costs, losses or liabilities relating to Borrower’s use of or reliance on such report, (ii) neither Administrative Agent nor any Lender makes any representation or warranty with respect to such report, and (iii) by delivering such report to Borrower, neither the Administrative Agent nor any Lender is requiring or recommending the implementation of any suggestions or recommendations contained in such report.
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(c) Promptly after a Responsible Officer of the Borrower obtains actual knowledge thereof, the Borrower shall advise the Administrative Agent in writing and in reasonable detail of (i) any Release or threatened Release of any Contaminants required to be reported by Borrower or its Subsidiaries, to any Governmental Authorities under any applicable Environmental Laws and which would reasonably be expected to have Environmental Liabilities and Costs in excess of $20,000,000, (ii) any and all written communications with respect to any pending or threatened claims under Environmental Law in each such case which, individually or in the aggregate, have a reasonable possibility of giving rise to Environmental Liabilities and Costs in excess of $20,000,000, (iii) any Remedial Action performed by Borrower or any other Person in response to (x) any Contaminants on, under or about any property, the existence of which has a reasonable possibility of resulting in Environmental Liabilities and Costs in excess of $20,000,000, or (y) any other Environmental Liabilities and Costs in excess of $20,000,000 that could result in Environmental Liabilities and Costs in excess of $20,000,000, (iv) discovery by Borrower or its Subsidiaries of any occurrence or condition on any material property that could cause Borrower’s or its Subsidiaries’ interest in any such property to be subject to any material restrictions on the ownership, occupancy, transferability or use thereof under any applicable Environmental Laws or Environmental Liens, and (v) any written request for information from any Governmental Authority that fairly suggests such Governmental Authority is investigating whether Borrower or any of its Subsidiaries may be potentially responsible for a Release or threatened Release of Contaminants which has a reasonable possibility of giving rise to Environmental Liabilities and Costs in excess of $20,000,000.
(d) Borrower shall promptly notify the Administrative Agent of (i) any proposed acquisition of Stock, assets, or property by Borrower or any of its Subsidiaries that would reasonably be expected to expose Borrower or any of its Subsidiaries to, or result in Environmental Liabilities and Costs in excess of $20,000,000 and (ii) any proposed action to be taken by Borrower or any of its Subsidiaries to commence manufacturing, industrial or other similar operations that would reasonably be expected to subject Borrower or any of its Subsidiaries to additional Environmental Laws, that are materially different from the Environmental Laws applicable to the operations of Borrower or any of its Subsidiaries as of the Closing Date.
(e) Borrower shall, at its own expense, provide copies of such documents or information as the Administrative Agent may reasonably request in relation to any matters disclosed pursuant to this subsection.
(f) To the extent required by Environmental Laws or Governmental Authorities under applicable Environmental Laws, Borrower shall promptly take, and shall cause each of its Subsidiaries promptly to take, any and all necessary Remedial Action in connection with the presence, handling, storage, use, disposal, transportation or Release or threatened Release of any Contaminants on, under or affecting any property in order to comply in all material respects with all applicable Environmental Laws and Permits. In the event Borrower or any of its Subsidiaries undertakes any Remedial Action with respect to the presence, Release or threatened Release of any Contaminants on or affecting any property, Borrower or any of its Subsidiaries shall conduct and complete such Remedial Action in material compliance with all applicable Environmental Laws, and in material accordance with the applicable policies, orders and directives of all relevant Governmental Authorities except when, and only to the extent that, Borrower or any such Subsidiaries’ liability for such presence, handling, storage, use, disposal, transportation or Release or threatened Release of any Contaminants is being contested in good faith by Borrower or any of such Subsidiaries. In the event Borrower fails to take required actions to address such Release or threatened Release of Contaminants or to address a violation of or liability under Environmental Law, the Administrative Agent may, upon providing the Borrower with 5 Business Days’ prior written notice, enter the property and, at Borrower’s sole expense, perform whatever action the Administrative Agent reasonably deems prudent to rectify the situation.
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Additional Collateral and Guaranties. Notify the Administrative Agent promptly after any Person (i) becomes a Wholly-Owned Domestic Subsidiary that is not an Immaterial Subsidiary (including a Wholly-Owned Domestic Subsidiary that ceases for any reason to satisfy the definition of “Immaterial Subsidiary” at any time) or (ii) becomes a First-Tier Foreign Subsidiary, and promptly thereafter (and in any event within 30 days, or such longer period of time permitted by the Administrative Agent in its sole discretion):
(a) if such Person is a Wholly-Owned Domestic Subsidiary and is not a Captive Insurance Subsidiary or an Excluded Domestic Subsidiary:
(i) cause such Wholly-Owned Domestic Subsidiary to become a Guarantor by executing and delivering to the Administrative Agent a Joinder Agreement or such other document as the Administrative Agent shall deem reasonably appropriate for such purpose; and
(ii) cause such Person to deliver to the Administrative Agent documents of the types referred to in clauses (iv), (v) and (vii) of Section 4.02(a) and, at the request of the Administrative Agent, favorable opinions of counsel to such Person (which shall cover, among other things, the legality, validity, binding effect and enforceability of the documentation referred to in clause (a)(i)), all in form, content and scope reasonably satisfactory to the Administrative Agent;
(iii) cause such Person to deliver to the Administrative Agent for the benefit of the Secured Parties, Security Instruments (or supplements thereto), as specified by and in form and substance reasonably satisfactory to the Administrative Agent (including delivery of all certificated Pledged Interests in and of such Subsidiary, and other instruments of the type specified in Section 4.02(a)(ii) and (iii)), securing payment of all the Obligations and constituting Liens on all such real and personal properties,
(iv) take whatever action (including the filing of Uniform Commercial Code financing statements and the giving of notices) as may be necessary or advisable in the reasonable opinion of the Administrative Agent to vest in the Administrative Agent (or in any representative of the Administrative Agent designated by it) valid and subsisting Liens on the properties purported to be subject to the Security Instruments (or supplements thereto) delivered pursuant to this Section 6.22, enforceable against all third parties in accordance with their terms (subject to Liens permitted by the Loan Documents), provided that no such actions shall be required in any jurisdiction outside the United States; and
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(b) if such Person is a First-Tier Foreign Subsidiary any of whose Stock is owned by a Loan Party (or a Person becoming a Loan Party pursuant to this Section), cause such Loan Party to deliver to the Administrative Agent for the benefit of the Secured Parties all certificated Pledged Interests in and of such First-Tier Foreign Subsidiary, and any Security Instruments (or supplements thereto), as specified by and in form and substance reasonably satisfactory to the Administrative Agent, in each case securing payment of all the Obligations and constituting Liens on all such Pledged Interests.
Real Property. With respect to any fee interest in any Material Real Property that is acquired or any lease of domestic Real Property that is leased for more than $5,000,000 annually, in either case after the Closing Date by the Borrower or any other Loan Party, the Borrower or the applicable Loan Party shall promptly (and, in any event, within thirty days following the date of such acquisition, unless such date is extended by the Administrative Agent in its sole discretion) (i) in the case of any Material Real Property, execute and deliver a first priority Mortgage (subject only to Liens permitted by this Agreement and such Mortgage) in favor of the Administrative Agent, for the benefit of the Secured Parties, covering such Real Property and complying with the provisions herein and in the Security Instruments, (ii) in the case of any leased domestic Real Property that is leased for more than $5,000,000 annually, if requested by the Administrative Agent, execute and deliver a first priority Mortgage (subject only to Liens permitted by this Agreement and such Mortgage) in favor of the Administrative Agent, for the benefit of the Secured Parties, covering such Real Property and complying with the provisions herein and in the Security Instruments, (iii) provide the Secured Parties with title insurance in an amount at least equal to the purchase price of such Real Property (or such other amount as the Administrative Agent shall reasonably specify) described in clauses (i) or (ii) above, and if applicable, lease estoppel certificates, all in accordance with the standards for deliveries contemplated on or prior to the Closing Date, as described in Section 4.02(a)(iii) hereof, (iv) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent, (v) if requested by the Administrative Agent, use commercially reasonable efforts to obtain Landlord Lien Waivers for each domestic Real Property leasehold interest on which a manufacturing facility or warehouse or other facility where Collateral is stored or held (but excluding any office lease that does not include manufacturing or warehouse facilities), provided that no such Landlord Lien Waiver shall be required for any location at which Collateral is stored or located unless the aggregate value of Collateral stored or held at such location exceeds $5,000,000 and (vi) comply with the Flood Requirement Standards. Without limiting the foregoing, at any time there is Material Real Property that is subject to a Mortgage, no MIRE Event shall be consummated prior to the Administrative Agent confirming compliance with the Flood Requirement Standards. Notwithstanding the foregoing, for any Material Real Property that is not subject to a Mortgage as of the Amendment No. 3 Effective Date, such Material Real Property shall not be required to be subject to a Mortgage, and no Loan Party shall be required to deliver any of the documents or other agreements under this Section 6.23, until 60 days (or such longer period as permitted by the Administrative Agent in its sole discretion) after the Amendment No. 3 Effective Date.
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Further Assurances. Promptly upon request by the Administrative Agent, or any Lender through the Administrative Agent, the Borrower or the applicable Loan Party shall (a) correct any material defect or error that may be discovered in any Loan Document or in the execution, acknowledgment, filing or recordation thereof, and (b) do, execute, acknowledge, deliver, record, re-record, file, re-file, register and re-register any and all such further acts, deeds, certificates, assurances and other instruments as the Administrative Agent, or any Lender through the Administrative Agent, may reasonably require from time to time in order to (i) carry out more effectively the purposes of the Loan Documents, (ii) to the fullest extent permitted by applicable law, subject any Loan Party’s properties, assets, rights or interests to the Liens now or hereafter intended to be covered by any of the Security Instruments, (iii) perfect and maintain the validity, effectiveness and priority of any of the Security Instruments and any of the Liens intended to be created thereunder and (iv) assure, convey, grant, assign, transfer, preserve, protect and confirm more effectively unto the Secured Parties the rights granted or now or hereafter intended to be granted to the Secured Parties under any Loan Document or under any other instrument executed in connection with any Loan Document to which any Loan Party is or is to be a party, and cause each of its Subsidiaries that is required by this Agreement to be a Guarantor to do so. Notwithstanding anything to the contrary contained in this Section 6.24 or any Loan Document (other than as set forth in Amendment No. 3), no Loan Party shall be required to (i) make any filings to perfect Liens on intellectual property, other than any such filings under the UCC or with the U.S. Patent and Trademark Office or U.S. Copyright Office and (ii) make any filings or take any actions in any jurisdiction outside the United States to create or perfect any Liens created by the Security Instruments.
Anti-Corruption Laws; Sanctions. The Borrower will, and will cause its Subsidiaries to, maintain in effect and enforce policies and procedures intended to promote and achieve compliance by the Borrower, its Subsidiaries and their respective directors, officers, employees and agents (in their respective activities on behalf of the Borrower and its Subsidiaries) with applicable Anti-Corruption Laws and applicable Sanctions.
Cash
Collateralization of Extended Letters of Credit. The Borrower shall provide Cash Collateral (in an amount equal to 105%
of the maximum face amount of each Extended Letter of Credit, calculated in accordance with Section 1.08) to each
applicable L/C Issuer with respect to each Extended Letter of Credit issued by such L/C Issuer by a date that is no earlier
than 120 days prior to the Revolving Credit Facility Maturity Date, but no later than 9540 days
prior to the Revolving Credit Facility Maturity Date (or, if such Letter of Credit is issued on or after the date that
is 95 40 days prior to the
Revolving Credit Facility Maturity Date, on the date of issuance thereof); provided that if the Borrower
fails to provide Cash Collateral with respect to any such Extended Letter of Credit by such time, such event shall be treated
as a drawing under such Extended Letter of Credit (in an amount equal to 105% of the maximum face amount of each such Letter
of Credit, calculated in accordance with Section 1.08), which shall be reimbursed (or participations therein
funded) in accordance with Section 2.03(c), with the proceeds being utilized to provide Cash Collateral for such
Letter of Credit. The Cash Collateralization documentation with respect to each Extended Letter of Credit shall require that
the applicable L/C Issuer, and the applicable Loan Party or Subsidiary shall direct such L/C Issuer, to return any Cash
Collateral released on account of the undrawn termination or return of the applicable Extended Letter of Credit or reduction
of the face value thereof (“Released Cash Collateral”) to the Administrative Agent to be applied as a
prepayment in accordance with Section 2.05(b)(iv), unless the Administrative Agent shall have provided notice to
such L/C Issuer that the Revolving Credit Facility Termination Date has occurred.
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Post Closing Deliveries. To the extent not delivered on or prior to the Closing Date pursuant to a waiver by the Administrative Agent with respect to such Mortgaged Property as provided in Section 4.02(a)(iii), the Borrower shall deliver to the Administrative Agent on or prior to sixty (60) days after the Closing Date (or such later date as the Administrative Agent may agree in its sole discretion) each document, and satisfy each other condition, with respect to such Mortgaged Property as described in Section 4.02(a)(iii), including (to the extent applicable) a favorable opinion with respect thereto as described in Section 4.02(a)(vi).
Consultant. (a) Within 30 days after the Amendment No. 3 Effective Date, solely during the Relief Period, the Borrower shall (i) retain a Consultant, which Consultant shall assist the Borrower in further developing its financial planning & analysis function, standardization of segment reporting and weekly cash flow forecasting, and shall not terminate or modify such engagement without the consent of the Administrative Agent and the Required Lenders (except as set forth in the last sentence of this Section 6.28), (ii) cause the Consultant to be available to the Administrative Agent and the Administrative Agent’s advisors, including FTI, in each case as commercially reasonable and (iii) cause the Consultant to present a monthly written update to the Administrative Agent and the Lenders and answer any related questions of the Administrative Agent or the Lenders, (b) immediate effect from the Amendment No. 5 Effective Date, solely during the Relief Period, the Borrower shall cause the Consultant to, in addition to the Consultant’s existing responsibilities specified in the foregoing clause (a)(ii) and (iii), (i) assist with the business plan of the Borrower and its Subsidiaries to ensure that all assumptions are viable, (ii) assist management in identifying and implementing additional cost reduction opportunities and third party recoveries, and present related findings to the Borrower, the Administrative Agent, and the Lenders, (iii) assist management with evaluating and making recommendations on incremental project write-downs and/or losses, (iv) assist management with evaluating strategic business sale(s) and equity transactions and make recommendations to the board of directors, and, (v) with respect to all of the Consultant’s responsibilities, provide a detailed presentation of the results of such responsibilities to the Administrative Agent and Lenders as may be reasonably requested by the Administrative Agent, and (c) as soon as commercially reasonable and no later than 30 days after the Amendment No. 5 Effective Date, deliver to the Administrative Agent a copy of a duly executed amendment to the engagement letter with the Consultant, in form and substance reasonable satisfactory to the Administrative Agent, pertaining to the expanded responsibilities of the Consultant as described in clause (b). To the extent that, following the Amendment No. 16 Effective Date, the Borrower hires professional staff members as mutually agreed to between the CIO and the other members of senior management of the Borrower in respect of its financial planning and analysis functions, upon notice to the Administrative Agent, the Borrower may modify the engagement described under this Section 6.28 (on such terms as may be reasonably acceptable to the Administrative Agent) to permit the CIO to implement a transition process in respect of such financial planning and analysis functions from the Consultant to such professional staff members.
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Variance and Cash Flow Reporting. Solely during the Relief Period, the Borrower shall deliver, each in form and substance satisfactory to the Administrative Agent, (a) prior to 5:00 p.m. (New York City time) on the third Business Day of each calendar week, a variance report showing all variances by line-item from the amounts set forth in the Budget, as most recently updated, with an explanation for each material line-item variance, and (b) prior to 5:00 p.m. (New York City time) on the tenth (10th) Business Day of each calendar month, an update to the Budget covering the 13-week period after the week’s end of the week in which such day occurs.
Account Control Agreements. Except as set forth on Schedule 6.36, at all times after 30 days after the Amendment No. 3 Effective Date (or such longer period as permitted by the Administrative Agent in its sole discretion), the Borrower shall maintain and shall cause each other Loan Party to enter into and maintain, Control Agreements with respect to each of the Loan Parties’ deposit accounts, securities accounts, commodity accounts, except for Excluded Deposit Accounts.
Information Updates. Solely during the Relief Period, the Borrower shall (a) (i) hold bi-weekly conference calls with its advisors, including legal counsel, the Administrative Agent and the Administrative Agent’s advisors, including FTI and Freshfields Bruckhaus Deringer US LLP, and the Consultant, and, (ii) commencing once the relevant delivery requirement is in effect, a monthly conference call with the Administrative Agent, the Administrative Agent’s advisors, including FTI, the Lenders and the Consultant to discuss the financial statements furnished pursuant to Section 6.01(d), each segment’s performance and material contracts, including current margin expectations compared to original estimates, and (b) provide the Administrative Agent’s advisors, including FTI, upon request with commercially reasonable access to records, books of account and the properties of the Borrower and its Subsidiaries with no notice required and on an ongoing basis until the end of the Relief Period.
[Reserved].
Chief Implementation Officer. The Borrower shall continue to retain, on terms and having a scope of engagement satisfactory to the Administrative Agent and the Required Lenders (which appointment shall not be modified or terminated without the consent of the Administrative Agent and the Required Lenders), a chief implementation officer acceptable to the Administrative Agent and the Required Lenders (the “CIO”), which CIO shall (a) report to and be supervised by the board of directors of the Borrower, (b) be responsible, in consultation with the Chief Executive Officer, for directly managing and implementing the obligations and activities specified in Section 6.28 of this Agreement, (c) be vested with the power and authority to manage and direct, (i) all restructuring activities of the Borrower and its Subsidiaries, (ii) the Borrower’s and its Subsidiaries’ liquidity management, (iii) the Borrower and its Subsidiaries’ vendor relationships, (iv) strategic alternatives and refinancing initiatives for the Borrower and its Subsidiaries, and (v) such other activities and such additional duties as the board of directors may from time to time determine, and (d) be authorized by the Borrower to communicate directly with the Administrative Agent and the Lenders as to its duties described above. The CIO and the senior management of the Borrower shall undertake to work cooperatively with each other.
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[Reserved].
Net Cash Proceeds from Asset Sales. The Borrower and its Subsidiaries shall have achieved the Sale Milestone prior to October 31, 2018.
Foreign Collateral; Pledges of Stock and Stock Equivalents. Except as set forth on Schedule 6.36, as soon as commercially reasonable, the Borrower shall cause, (i) upon the request of the Administrative Agent, each Foreign Security Provider subject to such a request to execute a Joinder Agreement to the Guaranty or other guaranty or equivalent documentation satisfactory to the Administrative Agent and provide, pursuant to security documentation satisfactory to the Administrative Agent, a security interest in substantially all of its assets (subject to exceptions to be agreed between the Borrower and the Administrative Agent) and (ii) each Foreign Subsidiary identified by the Administrative Agent from time to time, in consultation with the Borrower, to grant a security interest to the Administrative Agent in proceeds with respect to insurance policies and deliver other related customary documentation in the applicable jurisdiction and (b) each Loan Party to provide a pledge of 100% of the Stock and Stock Equivalents in each Wholly-Owned Subsidiary to the Administrative Agent to the extent not previously pledged prior to the Amendment No. 6 Effective Date, together with, in each case, such customary legal opinions as may be reasonably requested by the Administrative Agent.
[Reserved] Recovery
Event Proceeds Account6.38 .. At
all times after 15 days after the Amendment No. 20 Effective Date (or such longer period as permitted by the
Administrative Agent in its sole discretion), the Borrower shall maintain the Recovery Event
Proceeds Account with the Administrative Agent.
6.38
[Reserved].
6.39
Corporate Action Milestones. The Borrower shall (a) on or prior to November 10, 2019, have distributed a confidential
information memorandum with respect to the contemplated Corporate Action, (b) on or prior to January 24, 2020, have received executed
letters of intent from potential counterparties in respect to the Corporate Action and have delivered such executed letters of
intent to the Administrative Agent and
(c) on or prior to March 15, 2020, have caused the occurrence of the Revolving Credit Facility Termination Date.
The Administrative Agent shall provide copies of any written information provided to it by the Borrower or any Loan Party pursuant to this Article VI to any Lender requesting the same to the extent that such Lender had the right to make such request herein. Prior to the Revolving Credit Facility Termination Date, the Administrative Agent shall have no obligation to distribute to any Term Loan Lender information received from any Loan Party pursuant to this Article VI.
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ARTICLE VII
NEGATIVE COVENANTS
The Borrower agrees to each of the following, (a) from and after the Closing Date and until the Revolving Credit Facility Termination Date, with the Revolving Credit Lenders, the L/C Issuer and the Administrative Agent and, (b) from and after the Revolving Credit Facility Termination Date and thereafter as long as any Obligation or any Commitment remains outstanding, with the Term Loan Lenders and the Administrative Agent and, in each case, unless the Required Lenders otherwise consent in writing (provided that references herein to “Subsidiaries” shall exclude any Captive Insurance Subsidiary for all Sections under this Article VII except Sections 7.01 and 7.02):
Indebtedness. The Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly create, incur, assume or otherwise become or remain directly or indirectly liable with respect to any Indebtedness except for the following:
(a) Indebtedness under the Loan Documents;
(b) Indebtedness outstanding on the Closing Date and listed on Schedule 7.01;
(c) Guaranty Obligations incurred by the Borrower or any Guarantor in respect of Indebtedness of the Borrower or any Guarantor that is permitted by this Section 7.01 (other than clause (g) below);
(d) (i) Indebtedness in respect of Capital Lease Obligations and purchase money obligations for tangible property, (ii) Indebtedness in respect of sale and leaseback transactions permitted by Section 7.13 (giving effect to the proviso contained therein) and (iii) other secured Indebtedness (including secured Indebtedness incurred or assumed by the Borrower and its Subsidiaries in connection with a Permitted Acquisition); provided, however, that (A) the Liens securing such Indebtedness shall be within the limitations set forth in Sections 7.02(d), 7.02(e) or 7.02(k), (B) other than during the Relief Period the aggregate principal amount of all such Indebtedness permitted by this subsection (d) at any one time outstanding shall not exceed $100,000,000 and (C) during the Relief Period, (x) no amount may be outstanding under clause (d)(ii), (y) the aggregate principal amount of all such Indebtedness at any one time outstanding under clause (d)(i) shall not exceed $50,000,000 less any usage pursuant to clause (d)(iii) and (z) the aggregate principal amount of all such Indebtedness at any one time outstanding under clause (d)(iii) shall not exceed $10,000,000 (it being understood that at no time during the Relief Period shall the aggregate principal amount of all Indebtedness outstanding under this clause (d) exceed $50,000,000);
(e) renewals, extensions, refinancings and refundings of Indebtedness permitted by clause (b) or (d) above or this clause (e); provided, however, that any such renewal, extension, refinancing or refunding is in an aggregate principal amount not greater than the principal amount of (plus reasonable fees, expenses and any premium incurred in connection with the renewal, extension, refinancing or refunding of such Indebtedness), and is on terms that in the aggregate are not materially less favorable to the Borrower or such Subsidiary than, including as to weighted average maturity, the Indebtedness being renewed, extended, refinanced or refunded;
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(f) Indebtedness arising from intercompany loans among the Borrower and its Subsidiaries; provided that (x) if any such Indebtedness owing to a Loan Party that is a party to the Collateral Agreement is evidenced by a promissory note, such note shall be subject to a first priority Lien pursuant to the Collateral Agreement, (y) all such Indebtedness owed by a Loan Party to a Subsidiary that is not a Loan Party shall be Subordinated Debt, and (z) any payment by any Guarantor under any guaranty of the Obligations shall result in a pro tanto reduction of the amount of any Indebtedness owed by such Subsidiary to the Borrower or to any of its Subsidiaries for whose benefit such payment is made; provided, further, that, in each case, the Investment in the intercompany loan by the lender thereof is permitted under Section 7.03;
(g) Non-Recourse Indebtedness;
(h) Indebtedness under or in respect of Swap Contracts that are not speculative in nature;
(i) unsecured Indebtedness of any Subsidiary (other than a Guarantor) in aggregate principal amount not to exceed $100,000,000 at any time outstanding;
(j) Indebtedness in respect of any insurance premium financing for insurance being acquired by the Borrower or any Subsidiary under customary terms and conditions and not in connection with the borrowing of money;
(k) Indebtedness under or in respect of Cash Management Agreements;
(l) Indebtedness in respect of matured or drawn Performance Guarantees in the nature of letters of credit, bankers acceptances, bank guarantees or other similar obligations, but only so long as such Indebtedness is reimbursed or extinguished within 5 Business Days of being matured or drawn;
(m) Indebtedness in respect of matured or drawn Performance Guarantees in the nature of surety bonds, performance bonds and other similar obligations, in each case that would appear as indebtedness on a consolidated balance sheet of the Borrower prepared in accordance with GAAP, in an aggregate amount not to exceed $150,000,000 at any time outstanding;
(n) Cash Collateralized Letters of Credit;
(o) unsecured Indebtedness of any Loan Party so long as at the time of incurrence of such Indebtedness (i) no Default has occurred and is continuing or would result therefrom and (ii) the Borrower and its Subsidiaries are in pro forma compliance with the financial covenants set forth in Section 7.16 immediately before and after giving effect to the incurrence of such Indebtedness;
(p) Indebtedness of
the Loan Parties under the Second Lien Credit Agreement in an aggregate outstanding principal amount not to exceed the applicable
Maximum Second Priority Principal Amount (as defined in the Intercreditor Agreement); and
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(q) Indebtedness arising from agreements of the Borrower or its Subsidiaries providing for the commitments or implementation of Customer Concessions; and
(r) Indebtedness with respect to (i) unmatured or undrawn obligations to reimburse B. Riley Financial, Inc. with respect to the [***] Letter of Credit and (ii) matured or drawn obligations to reimburse B. Riley Financial, Inc. with respect to the [***] Letter of Credit, provided that such Indebtedness is deemed a Tranche A-5 Term Loan Borrowing within 2 Business Days of being matured or drawn (or such longer period, not to exceed five (5) Business Days, in the Administrative Agent’s reasonable discretion).
provided that after the Amendment No. 5 Effective Date and during the Relief Period, the aggregate outstanding principal amount of all Indebtedness pursuant to Sections 7.01(i) and (o) (including any Indebtedness that is Subordinated Debt) shall not exceed $7,500,000 at any time.
Liens. The Borrower shall not, and shall not permit any of its Subsidiaries to, create or suffer to exist any Lien upon or with respect to any of their respective properties or assets, whether now owned or hereafter acquired, or assign, or permit any of its Subsidiaries to assign, any right to receive income, except for the following:
(a) Liens created pursuant to any Loan Document;
(b) Liens existing on the Closing Date and listed on Schedule 7.02;
(c) Customary Permitted Liens;
(d) Liens granted by the Borrower or any Subsidiary of the Borrower under a Capital Lease and Liens to which any property is subject at the time, on or after the Closing Date, of the Borrower’s or such Subsidiary’s acquisition thereof in accordance with this Agreement, in each case securing Indebtedness permitted under Section 7.01(d) and limited to the property purchased (and proceeds thereof) with the proceeds subject to such Capital Lease or Indebtedness;
(e) purchase money security interests in real property, improvements thereto or equipment (including any item of equipment purchased in connection with a particular construction project that the Borrower or a Subsidiary expects to sell to its customer with respect to such project and that, pending such sale, is classified as inventory) hereafter acquired (or, in the case of improvements, constructed) by the Borrower or any of its Subsidiaries; provided, however, that (i) such security interests secure purchase money Indebtedness permitted under Section 7.01(d) and are limited to the property purchased with the proceeds of such purchase money Indebtedness (and proceeds thereof), (ii) such security interests are incurred, and the Indebtedness secured thereby is created, within ninety days of such acquisition or construction, and (iii) the Indebtedness secured thereby does not exceed the lesser of the cost or Fair Market Value of such real property, improvements or equipment at the time of such acquisition or construction;
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(f) any Lien securing the renewal, extension, refinancing or refunding of any Indebtedness secured by any Lien permitted by clause (b), (d) or (e) above, this clause (f) or clause (k) below, without any material change in the assets subject to such Lien;
(g) Liens in favor of lessors securing operating leases permitted hereunder;
(h) Liens securing Non-Recourse Indebtedness permitted under Section 7.01(g) on (i) the assets of the Subsidiary or Joint Venture financed by such Non-Recourse Indebtedness and (ii) the Stock of the Joint Venture or Subsidiary financed by such Non-Recourse Indebtedness;
(i) Liens arising out of judgments or awards and not constituting an Event of Default under Section 8.01(g);
(j) Liens encumbering inventory, work-in-process and related property in favor of customers or suppliers securing obligations and other liabilities to such customers or suppliers (other than Indebtedness) to the extent such Liens are granted in the ordinary course of business and are consistent with past business practices;
(k) Liens not otherwise permitted hereunder securing Indebtedness permitted by Section 7.01(d)(ii) or (iii) and encumbering assets of (i) Foreign Subsidiaries or (ii) Domestic Subsidiaries that are not (and are not required to be) Guarantors, in each case that do not constitute Collateral;
(l) Liens with respect to foreign exchange netting arrangements to the extent incurred in the ordinary course of business and consistent with past business practices; provided that the aggregate outstanding amount of all such obligations and liabilities secured by such Liens shall not exceed $10,000,000 at any time;
(m) Liens securing insurance premium financing permitted under Section 7.01(j) under customary terms and conditions; provided that no such Lien may extend to or cover any property other than the insurance being acquired with such financing, the proceeds thereof and any unearned or refunded insurance premiums related thereto;
(n) Liens not otherwise permitted by this Section securing obligations or other liabilities (other than Indebtedness for borrowed money) of the Borrower or its Subsidiaries; provided that the aggregate outstanding amount of all such obligations and liabilities secured by such Liens shall not exceed (i) after the Amendment No. 16 Effective Date and during the Relief Period, $4,000,000 and (ii) other than during the Relief Period, $15,000,000 at any time;
(o) Liens on Cash Collateral securing only Cash Collateralized Letters of Credit;
(p) Liens securing reimbursement obligations of any Foreign Subsidiary in respect of Performance Guarantees (including any obligation to make payments in connection with such performance, but excluding obligations for the payment of borrowed money) issued by a Person that is not the Borrower or an Affiliate of the Borrower; provided such Liens shall be limited to (i) any contract as to which such Performance Guarantee provides credit support, (ii) any accounts receivable arising out of such contract and (iii) the deposit account into which such accounts receivable are deposited (the property described in clauses (i) through (iii), collectively, the “Performance Guarantee Collateral”);
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(q) Liens on cash or Cash Equivalents securing (i) reimbursement obligations in respect of Performance Guarantees and other similar obligations (including any obligation to make payments in connection with such performance, but excluding obligations for the payment of borrowed money) and (ii) Swap Contracts that are not speculative in nature; provided that, in each case, the aggregate outstanding amount of all such obligations and liabilities secured by such Liens shall not exceed (x) at any time during the Relief Period, $25,000,000 or (y) at any time other than during the Relief Period, $200,000,000;
(r) Liens securing Indebtedness or other obligations of the Loan Parties permitted to be incurred in accordance with Section 7.01(p), so long as such Liens are subject to the provisions of the Intercreditor Agreement; and
(s) Liens not otherwise permitted by this Section securing obligations or other liabilities of the Borrower or its Subsidiaries; provided that such Liens and the aggregate outstanding amount of all such obligations and liabilities secured by such Liens permitted under this clause (s) shall be on terms and conditions satisfactory to the Administrative Agent and the Required Lenders.
Notwithstanding the foregoing or anything to the contrary contained in any Loan Document, with effect from the Amendment No. 5 Effective Date, no Loan Party or Subsidiary shall pledge, cause to be pledged, or permit the pledge of, any asset owned by a Domestic Subsidiary as credit support in favor of, or for the benefit of, any Non-Loan Party.
Investments. The Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly make or maintain any Investment except for the following:
(a) Investments existing on the Closing Date and disclosed on Schedule 7.03, and any refinancings of such Investments to the extent constituting Indebtedness otherwise permitted under Section 7.01(b), provided such refinancing complies with the provisions of Section 7.01(e);
(b) Investments held by the Borrower or such Subsidiary in the form of cash or Cash Equivalents;
(c) Investments in accounts, contract rights and chattel paper (each as defined in the UCC), notes receivable and similar items arising or acquired from the sale of Inventory in the ordinary course of business consistent with the past practice of the Borrower and its Subsidiaries;
(d) Investments received in settlement of amounts due to the Borrower or any Subsidiary of the Borrower effected in the ordinary course of business;
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(e) Investments by the Borrower in any Wholly-Owned Subsidiary and Investments of any Wholly-Owned Subsidiary in the Borrower or in another Wholly-Owned Subsidiary;
(f) loans or advances to employees of the Borrower or any of its Subsidiaries (or guaranties of loans and advances made by a third party to employees of the Borrower or any of its Subsidiaries) in the ordinary course of business; provided, that the aggregate principal amount of all such loans and advances and guaranties of loans and advances shall not exceed $1,000,000 at any time;
(g) Investments constituting Guaranty Obligations permitted by Section 7.01;
(h) Investments in connection with a Permitted Acquisition; provided, that at any time after the Amendment No. 3 Effective Date and during the Relief Period, no Investments in connection with a Permitted Acquisition shall be permitted;
(i) Investments in Rabbi Trusts in an aggregate amount not to exceed $15,000,000 (plus income and capital growth with respect thereto);
(j) Investments in the nature of, and arising directly as a result of, consideration received in connection with an Asset Sale made in compliance with Section 7.04;
(k) Investments made in connection with the Foreign Subsidiary Reorganization;
(l) other Investments not constituting Acquisitions by the Borrower or any Subsidiary made after the Closing Date; provided that the aggregate outstanding amount of all Investments made pursuant to this clause (l) (i) at a time (other than during the Relief Period) when the Senior Leverage Ratio (after giving pro forma effect to such Investments and any Indebtedness incurred in connection therewith) was greater than or equal to 2.00 to 1.00 shall not exceed 10% of the consolidated total assets of the Borrower and its Subsidiaries, as determined in accordance with GAAP as of the last day of the immediately preceding Fiscal Year and (ii) at any time after the Amendment No. 3 Effective Date and during the Relief Period shall not exceed $0.00; provided further that upon request by the Administrative Agent at any time the Senior Leverage Ratio is greater than or equal to 2.00 to 1.00, the Borrower shall deliver to the Administrative Agent a schedule of all then-outstanding Investments made pursuant to this clause (l) at a time when the Senior Leverage Ratio was less than 2.00 to 1.00.
For purposes of covenant compliance, the amount of any Investment shall be the original cost of such Investment, minus the amount of any portion of such Investment repaid to the investor as a dividend, repayment of loan or advance, release or discharge of a guarantee or other obligation or other transfer of property or return of capital, as the case may be, but without any other adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment or interest earned on such Investment.
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Asset Sales. The Borrower shall not, and shall not permit any of its Subsidiaries to, sell, convey, transfer, lease or otherwise dispose of any of their respective assets or any interest therein (including the sale or factoring at maturity of any accounts) to any Person, or permit or suffer any other Person to acquire any interest in any of their respective assets or, in the case of any Subsidiary, issue or sell any shares of such Subsidiary’s Stock or Stock Equivalent (any such disposition being an “Asset Sale”) except for the following:
(a) the sale or disposition of inventory in the ordinary course of business;
(b) transfers resulting from any taking or condemnation of any property of the Borrower or any of its Subsidiaries (or, as long as no Default exists or would result therefrom, deed in lieu thereof);
(c) as long as no Default exists or would result therefrom, the sale or disposition of equipment that the Borrower reasonably determines is no longer useful in its or its Subsidiaries’ business, has become obsolete, damaged or surplus or is replaced in the ordinary course of business;
(d) as long as no Default exists or would result therefrom, the sale or disposition of assets (including the issuance or sale of Stock or Stock Equivalents) of any Subsidiary that either (i) is not a Wholly-Owned Subsidiary or (ii) is an Immaterial Subsidiary that, in each case, both at the time of such sale and as of the Closing Date (or if later, the time of formation or acquisition of such Subsidiary), do not constitute, in the aggregate, all or substantially all of the assets (or the Stock or Stock Equivalents) of such Subsidiary;
(e) as long as no Default exists or would result therefrom, the lease or sublease of Real Property not constituting a sale and leaseback, to the extent not otherwise prohibited by this Agreement or the Mortgages;
(f) as long as no Default exists or would result therefrom, non-exclusive assignments and licenses of intellectual property of the Borrower and its Subsidiaries in the ordinary course of business;
(g) as long as no Default exists or would result therefrom, discounts, adjustments, settlements and compromises of Accounts and contract claims in the ordinary course of business;
(h) any Asset Sale (i) to the Borrower or any Guarantor or (ii) by any Subsidiary that is not a Loan Party to another Subsidiary that is not a Loan Party;
(i) as long as no Default exists or would result therefrom, any other Asset Sale for Fair Market Value and where (A) at least 75% of the consideration received therefor is cash or Cash Equivalents and (B) the Non-Cash Consideration from such Asset Sale and all other Asset Sales made in reliance upon this subclause (B) during (x) the Relief Period does not exceed $0.00 and (y) any Fiscal Year not entirely within the Relief Period does not exceed $10,000,000; provided, however, that with respect to any such Asset Sale in accordance with this clause (i), the aggregate consideration received for the sale of all assets sold in accordance with this clause (i) during any Fiscal Year, including such Asset Sale, shall not exceed the lesser of (I) $10,000,000 and (II) 5% of Consolidated Tangible Assets as of the last day of the immediately preceding Fiscal Year;
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(j) any single transaction or series of related transactions so long as neither such single transaction nor such series of related transactions involves assets having a Fair Market Value of more than $2,000,000;
(k) Asset Sales permitted by Section 7.13, Investments permitted by Section 7.03 and Restricted Payments permitted by Section 7.05;
(l) the Foreign Subsidiary Reorganization;
(m) the Form 10 Transactions by and among the Borrower and its Subsidiaries and BWC and its Subsidiaries reasonably necessary to effectuate the Spinoff;
(n) any Asset Sale of (i) Project Top Hat and (ii) the China JV;
(o) the sale of Selected Assets at Fair Market Value and in accordance with the Plan and the Orion Plan on terms and conditions and pursuant to documentation satisfactory to the Administrative Agent and the Required Lenders; provided that (1) the terms and conditions of the documentation relating to such Asset Sales shall be satisfactory to the Required Lenders and the Administrative Agent and (2) to the extent that such documentation is satisfactory, the parties hereto agree to revisit (x) the Relief Period Sublimit and (y) the covenants set forth in Sections 7.16(a) and (b), taking into account the EBITDA and working capital needs associated with the Selected Assets being sold and the application of the sale proceeds thereof; and
(p) any Asset Sale of Project Burn; provided that the Initial Tranche A Term Loan Funding shall have been made available to the Administrative Agent in Same Day Funds at the Administrative Agent’s Office not later than 1:00 p.m. on the Business Day prior to the consummation thereof.
Restricted Payments. The Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, declare, order, pay or make any sum for any Restricted Payment except for:
(a) Restricted Payments by the Borrower to any Guarantor;
(b) Restricted Payments by (i) any Subsidiary of the Borrower to the Borrower or any Guarantor or (ii) any Subsidiary that is not a Loan Party to another Subsidiary that is not a Loan Party;
(c) Restricted Payments by any Subsidiary that is not a Wholly-Owned Subsidiary to the Borrower or any Guarantor and to any other direct or indirect holders of equity interests in such Subsidiary to the extent (i) such Restricted Payments are made pro rata (or on a basis more favorable to the Borrower or such Guarantor) among the holders of the equity interests in such Subsidiary or (ii) pursuant to the terms of the joint venture or other distribution agreement for such Subsidiary in form and substance approved by the Administrative Agent (such approval not to be unreasonably withheld or delayed);
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(d) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any Stock or Stock Equivalents of the Borrower or any of its Subsidiaries (i) made solely with the proceeds received from the exercise of any warrant or option or (ii) that is deemed to occur upon the cashless exercise of stock options or warrants;
(e) the repurchase, redemption or other acquisition or retirement for value of any Stock or Stock Equivalents of the Borrower or any Subsidiary held by any current or former officer, director or employee pursuant to any equity-based compensation plan, equity subscription agreement, stock option agreement, shareholders’ agreement or similar agreement in an aggregate amount not to exceed $20,000,000 in any Fiscal Year;
(f) so long as no Default exists or would result therefrom and the Relief Period is not then in effect (it being understood that no Restricted Payment under this clause (f) may be declared, made or paid during the Relief Period), the Borrower may make Restricted Payments of the type described in clauses (a) and (b) of the definition thereof (including Restricted Payments of the type described in clause (e) of this Section that are in excess of the aggregate amount permitted in clause (e) of this Section); provided that the aggregate amount of all Restricted Payments made under this clause (f) at a time when the Senior Leverage Ratio (after giving pro forma effect to such proposed Restricted Payment and any Indebtedness incurred in connection therewith) was greater than or equal to 2.00 to 1.00 shall not exceed $150,000,000 in any Fiscal Year;
(g) the dividend or other distribution to BWC and its Subsidiaries of intercompany receivables owed by BWC and its Subsidiaries to the Borrower and its Subsidiaries in connection with the Spinoff to the extent constituting a Form 10 Transaction; and
(h) any purchase or other acquisition on the Amendment No. 3 Effective Date of any Stock or Stock Equivalents of the Borrower from Lightship Capital LLC or any of its Affiliates made solely with the proceeds of the Initial A Loans (as defined in the Second Lien Credit Agreement as in effect on the Amendment No. 3 Effective Date) incurred under the Second Lien Credit Agreement to the extent disclosed in writing to and approved by the Administrative Agent and the Required Lenders; and
(i) the payment and/or prepayment of principal, premium, interest, fees and other charges under the Second Lien Credit Agreement, provided that both before and immediately after such payment and/or prepayment no Default or Event of Default shall exist and be continuing.
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Fundamental Changes. Merge, amalgamate, 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, except that, so long as no Default exists or would result therefrom:
(a) any Subsidiary may merge or consolidate with or into (i) the Borrower, provided that the Borrower shall be the continuing or surviving Person, or (ii) any one or more other Subsidiaries, provided that when any Guarantor is merging or consolidating with another Subsidiary, the continuing or surviving Person shall be a Guarantor (whether as the survivor or by becoming a Guarantor in a manner reasonably satisfactory to the Administrative Agent, including by joining the Guaranty);
(b) any Subsidiary may dispose of all or substantially all of its assets (upon voluntary liquidation or otherwise) to the Borrower or to another Subsidiary; provided that if the transferor in such a transaction is a Guarantor, then the transferee must either be the Borrower or a Guarantor;
(c) any Person may be merged or amalgamated with or into the Borrower or any Subsidiary of the Borrower in connection with a transaction that constitutes a Permitted Acquisition, provided that (i) if the Borrower is a party to such transaction, the Borrower shall be the continuing or surviving Person, or (ii) if a Guarantor is a party to such transaction, the continuing or surviving Person shall be a Guarantor (whether as the survivor or by becoming a Guarantor in a manner reasonably satisfactory to the Administrative Agent, including by joining the Guaranty);
(d) any Subsidiary may dissolve or liquidate so long as (i) such dissolution or liquidation could not reasonably be expected to result in a Material Adverse Effect or have a material adverse effect on the value of the Guaranty or the Collateral (if any) and (ii) if such dissolving Subsidiary is a Guarantor, it transfers all or substantially all of its assets and operations to another Guarantor; and
(e) an Asset Sale permitted under Section 7.04 may be consummated.
Change in Nature of Business. The Borrower shall not, and shall not permit any of its Subsidiaries to, engage in any business other than the Eligible Line of Business.
Transactions with Affiliates. The Borrower shall not, and shall not permit any of its Subsidiaries to, enter into any transaction of any kind involving aggregate payments or consideration in excess of $1,000,000 with any Affiliate of the Borrower, whether or not in the ordinary course of business, other than on fair and reasonable terms substantially as favorable to the Borrower or such Subsidiary as could reasonably be expected to be obtainable by the Borrower or such Subsidiary at the time in a comparable arm’s length transaction with a Person other than an Affiliate except:
(a) transactions among the Borrower and its Subsidiaries not otherwise prohibited under the Loan Documents;
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(b) Restricted Payments and Investments otherwise permitted by this Agreement;
(c) transactions in accordance with the Affiliate Agreements or as thereafter amended or replaced in any manner that, taken as a whole, is not more disadvantageous to the Lenders or the Borrower in any material respect than such agreement as it was in effect on the Closing Date;
(d) reasonable director, officer and employee compensation (including bonuses) and other benefits (including pursuant to any employment agreement or any retirement, health, stock option or other benefit plan) and indemnification and insurance arrangements, in each case, as determined in good faith by the Borrower’s board of directors or senior management;
(e) the entering into of a tax sharing agreement, or payments pursuant thereto, between the Borrower and/or one or more Subsidiaries, on the one hand, and any Tax Affiliate, on the other hand, which payments by the Borrower and its Subsidiaries are not in excess of the tax liabilities that would have been payable by them on a stand-alone basis;
(f) so long as the Borrower is subject to the filing requirements of the SEC, any transaction not otherwise prohibited under the Loan Documents with a Person that would constitute an Affiliate of the Borrower solely because the Borrower or a Subsidiary owns Stock in or otherwise Controls such Person;
(g) pledges by the Borrower or any Subsidiary of Stock of any Joint Venture in a transaction permitted by Section 7.02(h)(ii);
(h) any transaction entered into by a Person prior to the time such Person becomes a Subsidiary or is merged or consolidated into the Borrower or a Subsidiary (provided that such transaction is not entered into in contemplation of such event);
(i) the Form 10 Transactions by and among the Borrower and its Subsidiaries and BWC and its Subsidiaries reasonably necessary to effectuate the Spinoff;
(j) transactions pursuant to the Tranche A Last Out Facility Commitment Letter or with Vintage Capital Management, LLC contemplated hereunder;
(k) any Additional Cashless Term Loan Prepayment;
(l) transactions pursuant to the Qualified Rights Offering; and
(m) immediately following the Qualified Rights Offering, the Borrower’s issuance to B. Riley FBR, Inc. or to any other Person at the direction of B. Riley FBR, Inc. of up to 16,666,667 in warrants with respect to the Stock of the Borrower (other than Disqualified Stock).
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Burdensome Agreements. The Borrower shall not, and shall not permit any of its Subsidiaries to, (a) other than for any Subsidiary that is not a Wholly-Owned Subsidiary, agree to enter into or suffer to exist or become effective any consensual encumbrance or consensual restriction of any kind on the ability of such Subsidiary to pay dividends or make any other distribution or transfer of funds or assets or make loans or advances to or other Investments in, or enter into any Guaranty Obligation or pay any Indebtedness owed to, the Borrower or any other Subsidiary of the Borrower or (b) other than customary non-assignment provisions in contracts entered into in the ordinary course of business, enter into or permit to exist or become effective any enforceable agreement prohibiting or limiting the ability of the Borrower or any Subsidiary to create, incur, assume or permit to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, to secure the Obligations, including any agreement requiring any other Indebtedness or Contractual Obligation to be equally and ratably secured with the Obligations; provided that the limitations of this Section 7.09 shall not apply to such limitations contained in (i) the Loan Documents or the Second Lien Credit Agreement, (ii) any agreement governing any Non-Recourse Indebtedness or any Indebtedness permitted by Section 7.01(b), (d), (e), (g) (in the case of any such Indebtedness, so long as any prohibition or limitation is only effective against the assets financed thereby) or (i) or (iii) any agreement of a Subsidiary that is not (and is not required to become) a Loan Party that is in existence at the time of, and is not entered into in anticipation of, the acquisition of such Person as a Subsidiary of the Borrower (and, with respect to this clause (iii), including any amendment, extension, amendment and restatement, replacement, refinancing or other modification of such agreement so long as the relevant limitations are not altered in any manner that is materially adverse to the interests of the Lenders).
Form 10. Amend, make additions to or otherwise modify the Form 10 on or after the Closing Date in a manner that could reasonably be expected to be adverse to any material interest of the Administrative Agent or the Lenders (unless approved by the Required Lenders, notwithstanding the provisions of Section 10.01 to the contrary, such approval not to be unreasonably conditioned, withheld or delayed); provided that the termination or withdrawal of the Form 10 without the consummation of the Spinoff shall not, without more, be adverse to any material interests of the Lenders.
Fiscal Year. The Borrower shall not change its Fiscal Year.
Use of Proceeds. (a) The Borrower shall not, and shall not permit any of its Subsidiaries to, use all or any portion of the proceeds of any credit extended hereunder to purchase or carry margin stock (within the meaning of Regulation U of the FRB) in contravention of Regulation U of the FRB and (b) the proceeds of Loans made after the Amendment No. 5 Effective Date shall not be used to cash collateralize any letters of credit, sureties, support for warranties or performance obligations, or any similar obligations other than the Letters of Credit.
Sale Leasebacks. The Borrower shall not, and shall not permit any of its Subsidiaries to, enter into any sale and leaseback transaction unless the proceeds of such transaction received by the Loan Parties equal the Fair Market Value of the properties subject to such transaction and, after giving effect to such sale and leaseback transaction, the aggregate Fair Market Value of all properties covered at any one time by all sale and leaseback transactions permitted hereunder (other than any sale and leaseback transaction of property entered into within 90 days of the acquisition of such property) does not exceed $20,000,000; provided that notwithstanding the foregoing, in no event shall the Borrower enter into or consummate, or permit any of its Subsidiaries to enter into or consummate, any sale and leaseback transaction at any time during the Relief Period.
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No Speculative Transactions. The Borrower shall not, and shall not permit any of its Subsidiaries to, engage in any material speculative transaction or in any material transaction involving the entry into of Swap Contracts by such Person except for the sole purpose of hedging in the normal course of business.
Anti-Corruption Laws. The Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, use the proceeds of any Credit Extension in violation of applicable Anti-Corruption Laws.
Financial Covenants.
(a) Interest Coverage Ratio. The Borrower shall not permit the Interest Coverage Ratio as of the last day of any Fiscal Quarter of the Borrower set forth below to be less than the ratio set forth below opposite such period (provided that, notwithstanding any Fiscal Quarter not being included in the below, the Borrower shall include a reasonably detailed calculation of the Interest Coverage Ratio in the Compliance Certificate delivered pursuant to Section 6.01(c) with respect to such Fiscal Quarter):
Fiscal Quarters Ending | Minimum Interest Coverage Ratio |
December 31, 2018 | N/A |
March 31, 2019 | 0.75:1:00 |
June 30, 2019 | 0.90:1:00 |
September 30, 2019 | 1.10:1:00 |
December 31, 2019 | 1.10:1:00 |
March 31, 2020 | |
June 30, 2020 | 1.75:1:00 |
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(b) Senior Leverage Ratio. The Borrower shall not permit the Senior Leverage Ratio as of the last day of any Fiscal Quarter of the Borrower set forth below to be greater than the ratio set forth below opposite such period (provided that, notwithstanding any Fiscal Quarter not being included in the below, the Borrower shall include a reasonably detailed calculation of the Senior Leverage Ratio in the Compliance Certificate delivered pursuant to Section 6.01(c) with respect to such Fiscal Quarter):
Fiscal Quarters Ending | Maximum Senior Leverage Ratio |
December 31, 2018 | N/A |
March 31, 2019 | 9.75:1:00 |
June 30, 2019 | 9.25:1:00 |
September 30, 2019 | 6.75:1:00 |
December 31, 2019 | 6.00:1:00 |
March 31, 2020 | |
June 30, 2020 | 3.25:1:00 |
; provided that, for purposes of compliance with this clause (b) as of the last day of the Fiscal Quarter ended March 31, 2019 only, the Senior Leverage Ratio shall be calculated by giving effect to the prepayment of Revolving Credit Loans on April 8, 2019 as if such prepayment was made on March 31, 2019.
Sanctions. The Borrower shall not, and shall not permit any of its Subsidiaries to use the proceeds of any Credit Extension, or make available such proceeds to any Subsidiary, Joint Venture partner or other individual or entity, to fund, finance or facilitate any activities of or business with any individual or entity, or in any Designated Jurisdiction, that, in each case at the time of such funding, is the subject of Sanctions, or in any other manner that, to the Borrower’s knowledge, would result in a violation by any Lender, Arranger, Administrative Agent, L/C Issuer or Swing Line Lender of Sanctions.
Minimum Liquidity. The Borrower shall not permit Liquidity as of the last Business Day of any calendar month, as demonstrated by a certificate of a Responsible Officer delivered within 15 days of the end of the relevant calendar month certifying as to the foregoing and containing reasonably detailed calculations in support thereof, in form and substance reasonably satisfactory to the Administrative Agent, commencing on the calendar month ending April 30, 2019, to be less than $30,000,000.
Additional Charges. Commencing with the quarter ending March 31, 2019, the Borrower shall not permit the recognized and accounted for costs, expenses, losses and/or reductions in Consolidated Net Income (exclusive of any recognized foreign exchange losses resulting from the impact of foreign currency changes on the valuation of liabilities in connection with the Vølund Projects disclosed in writing and acceptable to the Administrative Agent) experienced in connection with the Vølund Projects contracts with the counterparties listed on Exhibit A to Amendment No. 16 under the heading “Charge Basket Projects,” net of the net cash proceeds actually received on or after April 1, 2019 by the Borrower or its Subsidiaries from any customer or vendor recoveries, insurance or other loss, damage or delay claims, and other similar items in each case in connection with the “Charge Basket Projects,” to exceed $15,000,000.
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Capital Expenditures. Permit the aggregate amount of Capital Expenditures made by the Borrower and its Subsidiaries in each fiscal year to exceed $27,500,000 for such fiscal year other than any expenditures for replacements and substitutions for fixed assets, capital assets or equipment to the extent made with the proceeds of insurance to repair replace any such assets or equipment that were lost, damaged or destroyed from a casualty or condemnation event.
Use of Vølund Projects Letters of Credit. The Borrower shall not, and shall not permit any of its Subsidiaries to, use any Letter of Credit issued on account of any Vølund Project for any purpose other than for credit support for the underlying insurance guaranties supported by such Letter of Credit and in existence on the Amendment No. 13 Effective Date without the consent of the Required Lenders.
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES
Events of Default. Any of the following shall, at any time on or after the Closing Date (other than with respect to Section 8.01(c)), and at any time with respect to Section 8.01(c), constitute an “Event of Default”:
(a) Non-Payment of Principal. the Borrower shall fail to pay any principal of any Loan or any L/C Obligation when the same becomes due and payable; or
(b) Non-Payment of Interest and Other Amounts. the Borrower shall fail to pay any interest on any Loan, any fee under any of the Loan Documents or any other Obligation (other than one referred to in clause (a) above and other than Obligations under any Secured Cash Management Agreement or Secured Hedge Agreement) and such non-payment continues for a period of three Business Days after the due date therefor; or
(c) Representations and Warranties. any representation or warranty made or deemed made by any Loan Party in any Loan Document shall prove to have been incorrect in any material respect (or, with respect to representations and warranties modified by a materiality or Material Adverse Effect standard, in all respects) when made or deemed made; or
(d) Failure to Perform Covenants. any Loan Party shall fail to perform or observe (i) any term, covenant or agreement contained in Sections 6.03(a), 6.08, 6.12 (with respect to the existence of the Borrower), 6.17, 6.25, 6.26, 6.34, 6.35, 6.37, 6.38, 6.39 or Article VII or (ii) any other term, covenant or agreement contained in this Agreement or in any other Loan Document if such failure under this clause (ii) shall remain unremedied for 30 days after the earlier of (A) the date on which a Responsible Officer of the Borrower obtains actual knowledge of such failure and (B) the date on which written notice thereof shall have been given to the Borrower by the Administrative Agent, any Lender or any L/C Issuer; or
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(e) Cross-Default. (i) the Borrower or any of its Subsidiaries shall fail to make any payment on any recourse Indebtedness of the Borrower or any such Subsidiary (other than the Obligations (except Obligations under Secured Cash Management Agreements and Secured Hedge Agreements, which are expressly covered by this clause (e))) or any Guaranty Obligation in respect of Indebtedness of any other Person, and, in each case, such failure relates to Indebtedness (x) having a principal amount in excess of $25,000,000 when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand, early termination event or otherwise), (y) incurred under the Second Lien Credit Agreement or (z) under any foreign revolving credit facility, whether committed or uncommitted, (ii) any other event shall occur or condition shall exist under any agreement or instrument relating to any such Indebtedness, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Indebtedness or (iii) any such Indebtedness shall become or be declared to be due and payable, or required to be prepaid or repurchased (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; provided that clauses (ii) and (iii) above 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; or
(f) Insolvency Proceedings, Etc. (i) the Borrower or any of its Material Subsidiaries shall generally not pay its debts as such debts become due, shall admit in writing its inability to pay its debts generally or shall make a general assignment for the benefit of creditors, (ii) any proceeding shall be instituted by or against the Borrower or any of its Material Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts, under any Requirement of Law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a custodian, receiver, trustee or other similar official for it or for any substantial part of its property; provided, however, that, in the case of any such proceedings instituted against the Borrower or any of its Material Subsidiaries (but not instituted by the Borrower or any of its Subsidiaries), either such proceedings shall remain undismissed or unstayed for a period of 60 days or more or an order or decree approving or ordering any of the foregoing shall be entered, or (iii) the Borrower or any of its Material Subsidiaries shall take any corporate action to authorize any action set forth in clauses (i) or (ii) above; or
(g) Judgments. one or more judgments, orders or decrees (or other similar process) for the payment of money in an amount in excess of $35,000,000 in the aggregate (to the extent not covered by insurance as to which a solvent and unaffiliated insurance company has acknowledged coverage), shall be rendered against one or more of the Borrower and its Material Subsidiaries and shall remain unpaid and either (x) enforcement proceedings shall have been commenced by any creditor upon such judgment, injunction or order or (y) there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment, injunction or order, by reason of a pending appeal or otherwise, shall not be in effect; or
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(h) ERISA. one or more ERISA Events shall occur and the amount of all liabilities and deficiencies resulting therefrom imposed on or which could reasonably be expected to be imposed directly on the Borrower, any of its Subsidiaries or any Guarantor, whether or not assessed, when taken together with amounts of all such liabilities and deficiencies for all other such ERISA Events exceeds $35,000,000 in the aggregate; or
(i) Invalidity of Loan Documents. Either:
(i) any provision of any Security Instrument or the Guaranty after delivery thereof pursuant to this Agreement or any other Loan Document shall for any reason, except as permitted by the Loan Documents, cease to be valid and binding on, or enforceable against, any Loan Party which is a party thereto, or any Loan Party shall so state in writing; or
(ii) any Security Instrument shall for any reason fail or cease to create a valid Lien on any Collateral with an aggregate value of $10,000,000 or more purported to be covered thereby or, except as permitted by the Loan Documents, such Lien shall fail or cease to be a perfected and first priority Lien or any Loan Party shall so state in writing; or
(j) Change of Control. there occurs any Change of Control; or
(k) Project-Related Defaults. (x) With respect to any Vølund Project other than the Vølund Projects located at [***], the exercise of any rejection or termination right under any contract with respect to the Vølund Projects in accordance with the terms thereof pursuant to any written communication or notice or pursuant to any judicial, regulatory or administrative procedure and such rejection or termination is not cured or waived within 10 Business Days, (y) [reserved] or (z) with respect to any Vølund Project other than the Vølund Projects located at [***], (A) any Vølund Project counterparty or other Vølund Project stakeholder takes any material step to enforce any rights or remedies it may have with respect to Performance Guarantees it may have against any Loan Party as determined by the Administrative Agent based upon advice of counsel or the Engineering Consultant (as defined in Amendment No. 6), (B) the aggregate potential liability thereof exceeds $10,000,000 and (C) the relevant counterparties and/or stakeholders have not agreed to waive or postpone the exercise of such rights or remedies within 10 Business Days; or
(l) Tranche A Term Loan Fundings. (x) A failure to fund the Initial Tranche A Term Loan Funding or the Incremental Tranche A Term Loan Funding in accordance with the terms hereunder or under the Tranche A Last Out Facility Commitment Letter, (y) the Borrower amends, supplements, waives or otherwise modifies (or permits the amendment, supplement or other modification of) the Tranche A Last Out Facility Commitment Letter or consents to the assignment of any obligations of Vintage Capital Management, LLC or B. Riley FBR, Inc. set forth therein without the prior written consent of the Administrative Agent, or (z) Vintage Capital Management, LLC or B. Riley FBR, Inc. (as applicable) amends, supplements, modifies, terminates, breaches, defaults under, or fails to perform the Tranche A Last Out Facility Commitment Letter or seeks to assign to any other party any obligations set forth therein without the prior written consent of the Administrative Agent; provided further that time is of the essence with respect to Vintage Capital Management, LLC’s and B. Riley FBR, Inc.’s obligations under the Tranche A Facility Commitment Letter.
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(m) Refinancing Backstop. (x) the Borrower amends, supplements, waives or otherwise modifies (or permits the amendment, supplement or other modification of) the 2020 Refinancing Backstop Commitment Letter or consents to the assignment of any obligations of B. Riley FBR, Inc. set forth therein without the prior written consent of the Administrative Agent, or (y) B. Riley FBR, Inc. amends, supplements, modifies, terminates, breaches, defaults under, or fails to perform the 2020 Refinancing Backstop Commitment Letter or seeks to assign to any other party any obligations set forth therein without the prior written consent of the Administrative Agent; provided that time is of the essence with respect to B. Riley FBR, Inc.’s obligations under the 2020 Refinancing Backstop Commitment Letter; provided, further that no syndication by B. Riley FBR, Inc. of obligations to fund all or a portion of the Refinancing (as defined in Annex A to Amendment No. 20) shall trigger any Event of Default under this clause (m), so long as B. Riley FBR, Inc. remains fully obligated under the 2020 Refinancing Backstop Commitment Letter.
Remedies Upon Event of Default. If any Event of Default occurs and is continuing, the Administrative Agent shall, at the request of, or may, with the consent of, the Required Lenders, take any or all of the following actions:
(a) declare the Commitment of each Lender to make Loans and any obligation of the L/C Issuers to make L/C Credit Extensions to be terminated, whereupon such Commitments and obligation shall be terminated;
(b) 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;
(c) require that the Borrower Cash Collateralize the L/C Obligations (in an amount equal to the then Outstanding Amount thereof); and
(d) exercise on behalf of itself, the Lenders and the L/C Issuers all rights and remedies available to it, the Lenders and the L/C Issuers under the Loan Documents;
provided, however, that upon the occurrence of an actual or deemed entry of an order for relief with respect to the Borrower under the Bankruptcy Code of the United States, the obligation of each Lender to make Loans and any obligation of the L/C Issuers to make L/C Credit Extensions shall automatically terminate, the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable, and the obligation of the Borrower to Cash Collateralize the L/C Obligations as aforesaid shall automatically become effective, in each case without further act of the Administrative Agent or any Lender.
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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 and the L/C Obligations have automatically been required to be Cash Collateralized as set forth in the proviso to Section 8.02), any amounts received on account of the Obligations shall, subject to the provisions of Sections 2.15 and 2.16, 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 (including fees, charges and disbursements of counsel to the Administrative Agent 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, interest and Letter of Credit Fees) payable to the Revolving Credit Lenders and the L/C Issuers (including fees, charges and disbursements of counsel to the respective Lenders and the L/C Issuers arising under the Loan Documents and amounts payable under Article III), ratably among them in proportion to the respective amounts described in this clause Second payable to them;
Third, to payment of that portion of the Obligations constituting accrued and unpaid Letter of Credit Fees and interest on the Revolving Credit Loans, L/C Borrowings and other Obligations arising under the Loan Documents owing to the Revolving Credit Lenders, ratably among the Revolving Credit Lenders and the L/C Issuers 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 Revolving Credit Loans, L/C Borrowings and Obligations then owing under Secured Hedge Agreements and Secured Cash Management Agreements, ratably among the Revolving Credit Lenders, the L/C Issuers, the Hedge Banks and the Cash Management Banks in proportion to the respective amounts described in this clause Fourth held by them;
Fifth, to the Administrative Agent for the account of the L/C Issuers, to cash collateralize that portion of L/C Obligations composed of the aggregate undrawn amount of Letters of Credit to the extent not otherwise cash collateralized by the Borrower pursuant to Sections 2.03 and 2.15, ratably among the L/C Issuers in proportion to the respective amounts described in this clause Fifth held by them;
Sixth, to payment of that portion of the Obligations constituting interest on the Term Loans and other Obligations arising under the Loan Documents owing to the Term Loan Lenders, ratably among the Term Loan Lenders in proportion to the respective amounts described in this clause Sixth payable to them;
Seventh, to payment of that portion of the Obligations constituting unpaid principal of the Term Loans, ratably among the Term Loan Lenders in proportion to the respective amounts described in this clause Seventh held by them; and
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Last, the balance, if any, after all of the Obligations have been indefeasibly paid in full, to the Borrower or as otherwise required by the Intercreditor Agreement or any applicable Requirement of Law.
Subject to Sections 2.03(c) and 2.15, amounts used to Cash Collateralize the aggregate undrawn amount of Letters of Credit pursuant to clause Fifth above shall be applied to satisfy drawings under such Letters of Credit as they occur. If any amount remains on deposit as Cash Collateral after all Letters of Credit have either been fully drawn or expired, such remaining amount shall be applied to the other Obligations, if any, in the order set forth above.
Notwithstanding the foregoing, Obligations arising under Secured Cash Management Agreements and Secured Hedge Agreements shall be excluded from the application described above if the Administrative Agent has not received written notice thereof, together with such supporting documentation as the Administrative Agent may reasonably request, from the applicable Cash Management Bank or Hedge Bank, as the case may be. Each Cash Management Bank or Hedge Bank not a party to the Agreement that has given the notice contemplated by the preceding sentence shall, by such notice, be deemed to have acknowledged and accepted the appointment of the Administrative Agent pursuant to the terms of Article IX hereof for itself and its Affiliates as if a “Lender” party hereto.
ARTICLE IX
ADMINISTRATIVE AGENT
Appointment and Authority.
(a) Each of the Lenders and each L/C Issuer hereby irrevocably appoints Bank of America 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 are solely for the benefit of the Administrative Agent, the Lenders and the L/C Issuers, and the Borrower shall not have any rights as a third party beneficiary of any of such provisions. It is understood and agreed that the use of the term “agent” herein or in any other Loan Documents (or any other similar term) with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable Requirement of Law; provided that the meaning of such term in Section 10.06(c) is intended to be consistent with the meaning of such term as used in Section 5f.103-1(c) of the United States Treasury Regulations. Instead such term is used as a matter of market custom, and is intended to create or reflect only an administrative relationship between contracting parties.
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(b) The Administrative Agent shall also act as the “collateral agent” under the Loan Documents, and each of the Lenders (including in its capacities as a potential Hedge Bank and a potential Cash Management Bank) and the L/C Issuer hereby irrevocably appoints and authorizes the Administrative Agent to act as the agent of such Lender and the L/C Issuer for purposes of acquiring, holding and enforcing any and all Liens on Collateral granted by any of the Loan Parties to secure any of the Obligations, together with such powers and discretion as are reasonably incidental thereto. In this connection, the Administrative Agent, as “collateral agent” and any co-agents, sub-agents and attorneys-in-fact appointed by the Administrative Agent pursuant to Section 9.05 for purposes of holding or enforcing any Lien on the Collateral (or any portion thereof) granted under the Security Instruments, or for exercising any rights and remedies thereunder at the direction of the Administrative Agent), shall be entitled to the benefits of all provisions of this Article IX and Article X (including Section 10.04(c), as though such co-agents, sub-agents and attorneys-in-fact were the “collateral agent” under the Loan Documents) as if set forth in full herein with respect thereto. Without limiting the generality of the foregoing, the Administrative Agent is further authorized on behalf of all the Lenders, without the necessity of any notice to or further consent from the Lenders, from time to time to take any action, or permit the any co-agents, sub-agents and attorneys-in-fact appointed by the Administrative Agent to take any action, with respect to any Collateral or the Loan Documents which may be necessary to perfect and maintain perfected the Liens upon any Collateral granted pursuant to any Loan Document.
Rights as a Lender. The Person serving as the 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 the Administrative Agent and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Administrative Agent hereunder in its individual capacity. Such Person and its Affiliates may accept deposits from, lend money to, own securities of, 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 the Administrative Agent hereunder and without any duty to account therefor to the Lenders.
Exculpatory Provisions. The Administrative Agent shall not have any duties or obligations except those expressly set forth herein and in the other Loan Documents, and its duties hereunder shall be administrative in nature. Without limiting the generality of the foregoing, the Administrative Agent:
(a) shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing;
(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 the Administrative Agent is required to exercise as directed in writing by the Required 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 the Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent 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 or that may effect a forfeiture, modification or termination of property of a Defaulting Lender in violation of any Debtor Relief Law; and
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(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 its Affiliates that is communicated to or obtained by the Person serving as the Administrative Agent or any of its Affiliates in any capacity.
The Administrative Agent shall not 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 a court of competent jurisdiction by final and nonappealable judgment. 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, a Lender or the L/C Issuer.
The Administrative 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 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 Security Instruments, (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.
Reliance by 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. In determining compliance with any condition hereunder to the making of a Loan, or the issuance, extension, renewal or increase of a Letter of Credit, that by its terms must be fulfilled to the satisfaction of a Lender or the L/C Issuer, the Administrative Agent may presume that such condition is satisfactory to such Lender or the L/C Issuer unless the Administrative Agent shall have received notice to the contrary from such Lender or the L/C Issuer prior to the making of such Loan or the issuance of such Letter of Credit. 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.
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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 Document 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 Related Parties. The exculpatory provisions of this Article shall apply to any such sub agent and to the Related Parties 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. The Administrative Agent shall not be responsible for the negligence or misconduct of any sub-agents except to the extent that a court of competent jurisdiction determines in a final and non appealable judgment that the Administrative Agent acted with gross negligence or willful misconduct in the selection of such sub-agents.
Resignation of Administrative Agent.
(a) The Administrative Agent may at any time give notice of its resignation to the Lenders, the L/C Issuers and the Borrower. Upon receipt of any such notice of resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor, which shall be a bank with an office in the United States, or an Affiliate of any such bank with an office in the United States. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation (or such earlier day as shall be agreed by the Required Lenders) (the “Resignation Effective Date”), then the retiring Administrative Agent may (but shall not be obligated to) on behalf of the Lenders and the L/C Issuers, appoint a successor Administrative Agent meeting the qualifications set forth above, provided that in no event shall any such successor Administrative Agent be a Defaulting Lender at the time of such appointment and succession. Whether or not a successor has been appointed, such resignation shall become effective in accordance with such notice on the Resignation Effective Date.
(b) If the Person serving as Administrative Agent is a Defaulting Lender pursuant to clause (d) of the definition thereof, the Required Lenders may, to the extent permitted by applicable law, by notice in writing to the Borrower and such Person remove such Person as Administrative Agent and, in consultation with the Borrower, appoint a successor. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days (or such earlier day as shall be agreed by the Required Lenders) (the “Removal Effective Date”), then such removal shall nonetheless become effective in accordance with such notice on the Removal Effective Date.
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(c) With effect from the Resignation Effective Date or the Removal Effective Date (as applicable) (1) the retiring or removed 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 or the L/C Issuers under any of the Loan Documents, the retiring or removed Administrative Agent shall continue to hold such collateral security until such time as a successor Administrative Agent is appointed) and (2) except for any indemnity payments or other amounts then owed to the retiring or removed Administrative Agent, 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 and each L/C Issuer directly, until such time, if any, as the Required Lenders appoint a successor Administrative Agent as provided for above. Upon the acceptance of a successor’s appointment as Administrative Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring (or removed) Administrative Agent (other than as provided in Section 3.01(h) and other than any rights to indemnity payments or other amounts owed to the retiring or removed Administrative Agent as of the Resignation Effective Date or the Removal Effective Date, as applicable), and the retiring or removed 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) . 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 or removed Administrative Agent’s resignation or removal hereunder and under the other Loan Documents, the provisions of this Article and Section 10.04 shall continue in effect for the benefit of such retiring or removed Administrative Agent, its sub agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring or removed Administrative Agent was acting as Administrative Agent.
(d) Any resignation by Bank of America as Administrative Agent pursuant to this Section shall also constitute its resignation as L/C Issuer and Swing Line Lender. If Bank of America resigns as an L/C Issuer, it shall retain all the rights, powers, privileges and duties of an L/C Issuer hereunder with respect to all Letters of Credit issued by it and outstanding as of the effective date of its resignation as L/C Issuer and all L/C Obligations with respect thereto, including the right to require the Lenders to make Base Rate Loans or fund risk participations in Unreimbursed Amounts pursuant to Section 2.03(c). If Bank of America resigns as Swing Line Lender, it shall retain all the rights of the Swing Line Lender provided for hereunder with respect to Swing Line Loans made by it and outstanding as of the effective date of such resignation, including the right to require the Lenders to make Base Rate Loans or fund risk participations in outstanding Swing Line Loans pursuant to Section 2.04(c). Upon the appointment by the Borrower of a successor L/C Issuer with respect to the Letters of Credit issued by Bank of America and the related L/C Obligations (which may be another existing L/C Issuer) or Swing Line Lender hereunder (which successor shall in all cases be a Lender other than a Defaulting Lender), (a) such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring L/C Issuer or Swing Line Lender, as applicable, (b) the retiring L/C Issuer and Swing Line Lender shall be discharged from all of their respective duties and obligations hereunder or under the other Loan Documents, and (c) the successor L/C Issuer shall issue letters of credit in substitution for the Letters of Credit, if any, outstanding at the time of such succession or make other arrangements satisfactory to Bank of America to effectively assume the obligations of Bank of America with respect to such Letters of Credit.
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Non-Reliance on Administrative Agent and Other Lenders. Each Lender and each L/C Issuer acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties 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 and each L/C Issuer also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties 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 any related agreement or any document furnished hereunder or thereunder.
No Other Duties, Etc. Anything herein to the contrary notwithstanding, none of the Book Managers, Arrangers, Co-Syndication Agents, Co-Documentation Agents or Managing Agents listed on the cover page hereof shall have any powers, duties or responsibilities under this Agreement or any of the other Loan Documents, except in its capacity, as applicable, as the Administrative Agent, a Lender or an L/C Issuer hereunder.
Administrative Agent May File Proofs of Claim.
(a) 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 or L/C Obligation 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:
(i) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans, L/C Obligations and all other Obligations (other than Obligations arising under Secured Cash Management Agreements and Secured Hedge Agreements) 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, the L/C Issuers and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders, the L/C Issuers and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders, the L/C Issuers and the Administrative Agent under Sections 2.03(h) and (i), 2.09 and 10.04) allowed in such judicial proceeding; and
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(ii) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender and each L/C Issuer to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent, in its sole discretion, to the making of such payments directly to the Lenders and the L/C Issuers, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Sections 2.09 and 10.04.
(b) 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 or any L/C Issuer any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender or any L/C Issuer to authorize the Administrative Agent to vote in respect of the claim of any Lender or any L/C Issuer in any such proceeding.
(c) 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 Secured 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 Stock, Stock Equivalents 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 all such documents will reflect the agreements set forth in Section 8.03 and any other subordination terms set forth herein; provided further that any actions by the Administrative Agent with respect to such acquisition vehicle or vehicles, including any disposition of the assets, Stock or Stock Equivalents 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 (i) 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 Stock, Stock Equivalents 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 Stock, Stock Equivalents 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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Collateral and Guaranty Matters.
(a) Each of the Lenders (including in its capacities as a potential Cash Management Bank and a potential Hedge Bank, and on behalf of their Affiliates in such capacities) and each L/C Issuer irrevocably authorize the Administrative Agent, at its option and in its discretion,
(i) to release any Lien on any property granted to or held by the Administrative Agent under any Loan Document (i) upon termination of the Aggregate Commitments and payment in full of all Obligations (other than (A) contingent indemnification obligations and (B) obligations and liabilities under Secured Cash Management Agreements and Secured Hedge Agreements either (x) as to which arrangements satisfactory to the applicable Cash Management Bank or Hedge Bank shall have been made or (y) notice has not been received by the Administrative Agent from the applicable Cash Management Bank or Hedge Bank that such amounts are then due and payable) and the expiration or termination of all Letters of Credit (other than Letters of Credit as to which other arrangements satisfactory to the Administrative Agent and the applicable L/C Issuer shall have been made), (ii) that is sold or otherwise disposed of or to be sold or otherwise disposed of as part of or in connection with any sale or other disposition permitted hereunder or under any other Loan Document (including, without limitation, in connection with the Foreign Subsidiary Reorganization) or (iii) subject to Section 10.01 (including Section 10.01(h)), if approved, authorized or ratified in writing by the Required Lenders;
(ii) to subordinate or release any Lien on any property granted to or held by the Administrative Agent under any Loan Document to the holder of any Lien on such property that is permitted by Section 7.02(b), (d), (e), (f) or (h), and to enter into any intercreditor agreement, subordination agreement or similar agreement with respect to any such property; and
(iii) to release any Guarantor from its obligations under the Guaranty if such Person ceases to be a Subsidiary as a result of a transaction permitted under the Loan Documents.
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Upon request by the Administrative Agent at any time, the Required Lenders will confirm in writing the Administrative Agent’s authority to release or subordinate its interest in particular types or items of property, or to release any Guarantor from its obligations under the Guaranty pursuant to this Section 9.10. In each case as specified in this Section 9.10, the Administrative Agent will, at the Borrower’s expense, execute and deliver to the applicable Loan Party such documents as such Loan Party may reasonably request to evidence the release of such item of Collateral from the assignment and security interest granted under the Security Instruments or to subordinate its interest in such item, or to release such Guarantor from its obligations under the Guaranty, in each case in accordance with the terms of the Loan Documents and this Section 9.10.
The Administrative Agent shall not be responsible for or have a duty to ascertain or inquire into any representation or warranty regarding the existence, value or collectability of the Collateral, the existence, priority or perfection of the Administrative Agent’s Lien thereon, or any certificate prepared by any Loan Party in connection therewith, nor shall the Administrative Agent be responsible or liable to the Lenders for any failure to monitor or maintain any portion of the Collateral.
Secured Cash Management Agreements and Secured Hedge Agreements. Except as otherwise expressly set forth herein, no Cash Management Bank or Hedge Bank that obtains the benefits of the provisions of Section 8.03, the Guaranty or any Collateral by virtue of the provisions hereof or of any Guaranty or any Security Instrument shall have any right to notice of any action or to consent to, direct or object to any action hereunder or under any other Loan Document or otherwise in respect of the Collateral (including the release or impairment of any Collateral) (or to notice of or to consent to any amendment, waiver or modification of the provisions hereof or of the Guaranty or any Security Instrument) other than in its capacity as a Lender and, in such case, only to the extent expressly provided in the Loan Documents. Notwithstanding any other provision of this Article IX to the contrary, the Administrative Agent shall not be required to verify the payment of, or that other satisfactory arrangements have been made with respect to, Obligations arising under Secured Cash Management Agreements and Secured Hedge Agreements unless the Administrative Agent has received written notice of such Obligations, together with such supporting documentation as the Administrative Agent may request, from the applicable Cash Management Bank or Hedge Bank, as the case may be.
ARTICLE X
MISCELLANEOUS
Amendments, Etc. Subject to Section 3.03(c), 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 and the Borrower or the applicable Loan Party, as the case may be, and acknowledged by 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, however, that no such amendment, waiver or consent shall:
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(a) (x) waive any condition set forth in Section 4.01 or Section 4.02 (other than Section 4.02(e)(i) or (f)) without the written consent of each Revolving Credit Lender or (y) waive any condition set forth in Section 4.04 or Section 4.05 without the written consent of each Term Loan Lender holding a Term Loan Commitment;
(b) extend or increase the Commitment of any Lender (or reinstate any Commitment (i) terminated pursuant to Section 8.02 or (ii) mandatorily reduced pursuant to Section 2.06(a)(ii), but excluding any waiver or modification with respect to any mandatory Commitment reduction pursuant to Section 2.06(a)(ii)) without the written consent of such Lender;
(c) postpone any date fixed by this Agreement or any other Loan Document for any payment (excluding mandatory prepayments, if any) of principal, interest, fees or other amounts due to the Lenders (or any of them) hereunder or under any other Loan Document without the written consent of each Lender entitled to such payment, provided that a postponement of any payment with respect to the Term Loan Facility that results from a modification of the definition of “Revolving Credit Facility Maturity Date” shall not be deemed to be a postponement of any payment;
(d) reduce the principal of, or the rate of interest specified herein on, any Loan or L/C Borrowing, or (subject to clause (iv) of the second proviso to this Section 10.01) any fees or other amounts payable hereunder or under any other Loan Document (including any rights to indemnification or expense reimbursement under clauses (a) and (b) of Section 10.04) without the written consent of each Lender entitled to such amount; provided, however, that only the consent of the Required Lenders shall be necessary (i) to amend the definition of “Default Rate” or to waive any obligation of the Borrower to pay interest, commitment fees or Letter of Credit Fees at the Default Rate, (ii) to amend any financial covenant hereunder (or any defined term used therein) even if the effect of such amendment would be to reduce the rate of interest on any Loan or L/C Borrowing or to reduce any fee payable hereunder or (iii) to amend the terms and conditions of the Relief Period even if the effect of such amendment would be to reduce the rate of interest on any Loan or L/C Borrowing or to reduce any fee payable hereunder, provided that, after giving effect to such amendment, the rate of interest on Loans and L/C Borrowings and fees payable hereunder are no less than such amounts immediately prior to the Relief Period;
(e) change Section 8.03 in a manner that would alter the pro rata sharing of payments required thereby without the written consent of each Lender directly and adversely affected thereby;
(f) amend Section 1.06 or the definition of “Alternative Currency” without the written consent of the Administrative Agent and each affected L/C Issuer;
(g) change any provision of this Section 10.01 or the definition of “Required Lenders” or any other provision hereof specifying the number or percentage of Lenders required to amend, waive or otherwise modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender; or
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(h) release all or substantially all of the Collateral in any transaction or series of related transactions, or release all or substantially all of the value of the Guaranty, in each case without the written consent of each Lender, except to the extent the release of any Collateral or any Guarantor is permitted pursuant to Section 9.10 (other than Section 9.10(a)(iii)) (in which case such release may be made by the Administrative Agent acting alone);
and, provided further, that (i) no amendment, waiver or consent shall, unless in writing and signed by the applicable L/C Issuer in addition to the Lenders required above, affect the rights or duties of such L/C Issuer under this Agreement or any Issuer Document relating to any Letter of Credit issued or to be issued by it; (ii) no amendment, waiver or consent shall, unless in writing and signed by the Swing Line Lender in addition to the Lenders required above, affect the rights or duties of the Swing Line Lender under this Agreement; (iii) 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 the Administrative Agent under this Agreement or any other Loan Document; and (iv) each Fee Letter may be amended, or rights or privileges thereunder waived, in a writing executed only by the parties thereto. Notwithstanding anything to the contrary herein, (x) no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder (and any amendment, waiver or consent which by its terms requires the consent of all Lenders or each affected Lender may be effected with the consent of the applicable Lenders other than Defaulting Lenders), except that (1) the Commitment of any Defaulting Lender may not be increased or extended without the consent of such Lender and (2) any waiver, amendment or modification requiring the consent of all Lenders or each affected Lender that by its terms affects any Defaulting Lender disproportionately adversely relative to other affected Lenders shall require the consent of such Defaulting Lender and (y) the Administrative Agent, the Borrower and the applicable L/C Issuer may, without the consent of any other Lender or L/C Issuer, make such changes as may be necessary to incorporate provisions with respect to the issuance of Letters of Credit in any Alternative Currency approved by such L/C Issuer. Notwithstanding anything to the contrary contained in this Section, if the Administrative Agent and the Borrower shall have jointly identified (each in its sole discretion) an obvious error or omission of a technical or immaterial nature, in each case, in any provision of the Loan Documents, then the Administrative Agent and the applicable Loan Parties 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 if the same is not objected to in writing by the Required Lenders within five Business Days following the posting of such amendment to the Lenders.
If any Lender does not consent to a proposed amendment, waiver, consent or release with respect to any Loan Document that requires the consent of such Lender and that has been approved by the Required Lenders, the Borrower may replace such non-consenting Lender in accordance with Section 10.13; provided that such amendment, waiver, consent or release can be effected as a result of the assignment contemplated by such Section (together with all other such assignments required by the Borrower to be made pursuant to this paragraph).
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Notwithstanding any provision herein to the contrary:
(x) this Agreement may be amended with the written consent of the Required Lenders, the Administrative Agent and the Borrower (i) to add one or more additional revolving credit or term loan facilities to this Agreement and to permit the extensions of credit and all related obligations and liabilities arising in connection therewith from time to time outstanding to share ratably (or on a basis subordinated to the existing facilities hereunder) in the benefits of this Agreement and the other Loan Documents with the obligations and liabilities from time to time outstanding in respect of the existing facilities hereunder, and (ii) in connection with the foregoing, to permit, as deemed appropriate by the Administrative Agent and approved by the Required Lenders, the Lenders providing such additional credit facilities to participate in any required vote or action required to be approved by the Required Lenders or by any other number, percentage or class of Lenders hereunder so long as such amendment does not adversely impact any other Lender’s ability to participate in such vote or action;
(y) until the occurrence of the Revolving Credit Facility Termination Date, for purposes of determining whether the “Required Lenders” or any other amount of requisite Lenders (other than express references to the “Required Term Lenders”) have (i) consented to any amendment, modification, waiver, consent or other action with respect to any terms of the Loan Documents or (ii) directed or required the Administrative Agent or any other Secured Party to undertake any action with respect to the Loan Documents, the Term Loan Lenders shall be deemed to have voted in the same proportion as the allocation of voting with respect to such matter by the Revolving Credit Lenders; provided that, to the extent such clause is applicable to any Term Loan Lender, such Term Loan Lender shall have consent rights under clauses (a)(y), (b), (c), (d), (e), and (g) of this Section 10.01 prior to the occurrence of the Revolving Credit Facility Termination Date; and
(z) for purposes of determining whether the “Required Lenders” or any other amount of requisite Lenders have (i) consented to any amendment, modification, waiver, consent or other action with respect to any terms of the Loan Documents or (ii) directed or required the Administrative Agent or any other Secured Party to undertake any action with respect to the Loan Documents, any Lender who holds (I) either Term Loans or Term Loan Commitments and (II) Revolving Credit Commitments shall, in its capacity as Revolving Credit Lender, be deemed to have voted in the same proportion as the allocation of voting with respect to such matter by the Revolving Credit Lenders which do not hold Term Loans or Term Loan Commitments; provided that, to the extent such clause is applicable to any Revolving Credit Lender, such Revolving Credit Lender shall have consent rights under clauses (b), (c), (d), (e), and (g) of this Section 10.01.
Notices; Effectiveness; Electronic Communication.
(a) Notices Generally. 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 or electronic mail 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 the Borrower, the Administrative Agent, Bank of America as an L/C Issuer or the Swing Line Lender, to the address, facsimile number, electronic mail address or telephone number specified for such Person on Schedule 10.02; and
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(ii) if to any other Lender or any other L/C Issuer, to the address, telecopier number, electronic mail address or telephone number specified in its Administrative Questionnaire (including, as appropriate, notices delivered solely to the Person designated by a Lender on its Administrative Questionnaire then in effect for the delivery of notices that may contain material non-public information relating to the Borrower).
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 Communications. Notices and other communications to the Lenders and the L/C Issuer hereunder may be delivered or furnished by electronic communication (including e-mail, FpML messaging, 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 or any L/C Issuer pursuant to Article II if such Lender or such L/C Issuer, as applicable, has notified the Administrative Agent that it is incapable of receiving notices under such Article by electronic communication. The Administrative Agent, the Swing Line Lender, any L/C Issuer or the Borrower may each, 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.
Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), 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; provided that, for both clauses (i) and (ii), if such notice, email or other communication is not sent during the normal business hours of the recipient, such notice, email or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient.
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(c) 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 Related Parties (collectively, the “Agent Parties”) have any liability to the Borrower, any Lender, any L/C Issuer 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’s, any Loan Party’s or the Administrative Agent’s transmission of Borrower Materials or notices through the Platform, any other electronic messaging service, or 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 nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Agent Party; provided, however, that in no event shall any Agent Party have any liability to the Borrower, any Lender, the L/C Issuer or any other Person for indirect, special, incidental, consequential or punitive damages (as opposed to direct or actual damages).
(d) Change of Address, Etc. Each of the Borrower, the Administrative Agent, the L/C Issuers and the Swing Line Lender may change its address, facsimile or telephone number for notices and other communications hereunder by notice to the other parties hereto. Each other Lender may change its address, facsimile or telephone number for notices and other communications hereunder by notice to the Borrower, the Administrative Agent, each L/C Issuer and the Swing Line Lender. In addition, each Lender and each L/C Issuer 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 or L/C Issuer. 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 Lender’s compliance procedures and applicable Requirements of 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.
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(e) Reliance by Administrative Agent, L/C Issuer and Lenders. The Administrative Agent, the L/C Issuer and the Lenders shall be entitled to rely and act upon any notices (including telephonic or electronic Committed Loan Notices, Letter of Credit Applications and Swing Line Loan Notices) purportedly given by or on behalf of the Borrower (or with respect to a Letter of Credit Application, any Permitted L/C Party) 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 L/C Issuer, each Lender and the Related Parties 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 (or with respect to a Letter of Credit Application, any Permitted L/C Party). 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.
No Waiver; Cumulative Remedies; Enforcement. No failure by any Lender, any L/C Issuer 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 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 (including the acceleration of any Obligations) or exercise any right under the applicable law or to credit bid at any foreclosure sale, UCC sale, any sale under Section 363 of the Bankruptcy Code (and for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any such sale) or other similar Disposition of Collateral 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 and the L/C Issuer; 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 L/C Issuer or the Swing Line Lender from exercising the rights and remedies that inure to its benefit (solely in its capacity as an L/C Issuer or Swing Line Lender, as the case may be) hereunder and under the other Loan Documents, (c) any Lender from exercising setoff rights in accordance with Section 10.08 (subject to the terms of Section 2.13), or (d) any Lender from filing proofs of claim or any appearing and filing pleadings on its own behalf during the pendency of a proceeding relative to any Loan Party under any Debtor Relief Law (subject to any limitations set forth in Section 11.06); 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), (c) and (d) of the preceding proviso and subject to Section 2.13, 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.
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Expenses; Indemnity; Damage Waiver.
(a) Costs and Expenses.
The Borrower shall pay (i) all reasonable out of pocket expenses incurred by the Administrative Agent and its Affiliates (including
MLPFS and including the reasonable fees, charges and disbursements of counsel for the Administrative Agent, and of special and
local counsel retained by the Administrative Agent, but not any other separate counsel to the Arrangers or the Lenders), in connection
with the syndication of the credit facilities provided for herein, the preparation, negotiation, execution, delivery and administration
of this Agreement (including, without limitation, the administration of any assignment under Section 10.06 that
is determined to be void ab initio) and the other Loan Documents or any amendments, modifications or waivers of the
provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated); (ii) all reasonable
out of pocket expenses incurred by each L/C Issuer in connection with the issuance, amendment, renewal or extension of any Letter
of Credit or any demand for payment thereunder; (iii) all out of pocket expenses incurred by the Administrative Agent, any Lender
or any L/C Issuer (including the fees, charges and disbursements of any counsel for the Administrative Agent, any Lender or the
L/C Issuer) in connection with the enforcement or protection of its rights (A) in connection with this Agreement and the other
Loan Documents, including its rights under this Section, or (B) in connection with the Loans made or Letters of Credit issued hereunder,
including all such out of pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or
Letters of Credit, provided that the Borrower’s obligations to pay or reimburse for legal fees and expenses
pursuant to this clause (iii) shall be limited to the reasonable and documented legal fees and expenses of a single
law firm as counsel for the Administrative Agent and one additional law firm as counsel for all other such parties, taken together,
in each appropriate jurisdiction (which may include a single law firm as special, local or foreign counsel acting in multiple jurisdictions),
except that in the case where any such Person determines in good faith that a conflict of interest does or may exist in connection
with such legal representation and such Person advises the Borrower of such actual or potential conflict of interest and engages
its own separate counsel, the reasonable and documented legal fees and expenses of such separate counsel shall also be paid or
reimbursed; and (iv) all out of pocket expenses incurred by any Term
Loan Lender in connection with review, administration or negotiation of Amendment No. 15 or Amendment No. 16 or the negotiation
and documentation of any intercreditor arrangements among the Term Loan Lenders, in an aggregate amount not to exceed $650,000
(the “2019 Term Loan Lender Expenses”) and (v) all out of pocket expenses incurred
by any Tranche A-4 Term Loan Lender and their respective Affiliates in connection with review, administration or negotiation of
Amendment No. 20 or the negotiation and documentation of the 2020 Refinancing Backstop Commitment Letter, in an aggregate amount
not to exceed $20,000 (the “2020 Term Loan Lender Expenses”).
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(b) Indemnification by the Borrower. The Borrower shall indemnify the Administrative Agent (and any sub-agent thereof), each Arranger, each Lender and each L/C Issuer, 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, liabilities and related expenses (subject to proviso (y) to this sentence below, including the reasonable fees, charges and disbursements of any counsel for any Indemnitee), incurred by any Indemnitee or asserted against any Indemnitee by any Person (including the Borrower or any other Loan Party) other than such Indemnitee and its Related Parties arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder, the consummation of the transactions contemplated hereby or thereby, or, in the case of the Administrative Agent (and any sub-agent thereof) and its Related Parties only, the administration of this Agreement and the other Loan Documents, (ii) any Loan or Letter of Credit or the use or proposed use of the proceeds therefrom (including any refusal by any L/C Issuer 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 actual or alleged presence or release of Contaminants on or from any property owned or operated by the Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to the Borrower 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, whether brought by a third party or by the Borrower or any other Loan Party, and regardless of whether any Indemnitee is a party thereto; provided that (x) such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (A) 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, (B) arises solely from disputes solely between or among Indemnitees (except that in the event of a dispute involving the Administrative Agent, an Arranger, any L/C Issuer or the Swing Line Lender (in each case, acting in its capacity as such), the Administrative Agent, such Arranger, such L/C Issuer or the Swing Line Lender, as applicable, shall be entitled (subject to the other limitations and exceptions set forth in this clause (b)) to the benefit of such indemnification) not relating to or in connection with acts or omissions by the Borrower, any of its Subsidiaries, any of their respective Affiliates or any other Person or entity or (C) result from a claim brought by the Borrower or any other Loan Party against an Indemnitee for breach in bad faith of such Indemnitee’s obligations hereunder or under any other Loan Document, if the Borrower or such Loan Party has obtained a final and nonappealable judgment in its favor on such claim as determined by a court of competent jurisdiction and (y) the Borrower’s obligation to pay or reimburse an Indemnitee for the reasonable fees, charges and disbursements of counsel under this subsection (b) shall be limited to the reasonable and documented fees, charges and disbursements of a single law firm chosen by the Administrative Agent as counsel for all such Indemnitees, taken together, in each appropriate jurisdiction (which may include a single law firm as special or local counsel acting in multiple jurisdictions), except that in the case where an Indemnitee determines in good faith that a conflict of interest does or may exist in connection with such legal representation and such Indemnitee advises the Borrower of such actual or potential conflict of interest and engages its own separate counsel, the reasonable and documented fees, charges and disbursements of each such separate counsel shall also be paid or reimbursed. This Section 10.04(b) shall not apply with respect to Taxes other than any Taxes that represent losses, claims, damages, etc. arising from any non-Tax claim.
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(c) Reimbursement by Lenders. To the extent that the Borrower for any reason fails to indefeasibly pay (and without limiting any obligation of the Borrower so to pay) any amount required under subsection (a) or (b) of this Section to be paid by it to the Administrative Agent (or any sub-agent thereof), any L/C Issuer, the Swing Line Lender or any Related Party of any of the foregoing, each Lender severally agrees to pay to the Administrative Agent (or any such sub-agent), the applicable L/C Issuer, the Swing Line Lender or such Related Party, as the case may be, such Lender’s pro rata share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought based on each Lender’s unused Revolving Credit Commitments and Revolving Credit Exposure and, other than respect to payments to any L/C Issuer or Swing Line Lender, unused Term Loan Commitments and Term Loans at such time) of such unpaid amount (including any such unpaid amount in respect of a claim asserted by such Lender), such payment to be made severally among them based on such Lender’s Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought), provided, further that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent (or any such sub-agent), the applicable L/C Issuer or the Swing Line Lender in its capacity as such, or against any Related Party of any of the foregoing acting for the Administrative Agent (or any such sub-agent), such L/C Issuer or the Swing Line Lender in connection with such capacity. The obligations of the Lenders under this subsection (c) are subject to the provisions of Section 2.12(d).
(d) Waiver of Consequential Damages, Etc. To the fullest extent permitted by applicable law, the Borrower shall not assert, and the Borrower hereby waives, any claim against any Indemnitee, 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, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Loan or Letter of Credit or the use of the proceeds thereof. No Indemnitee referred to in subsection (b) above shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed to such unintended recipients by such Indemnitee through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby other than for the Borrower’s direct or actual damages resulting from the gross negligence or willful misconduct of such Indemnitee as determined by a final and nonappealable judgment of a court of competent jurisdiction.
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(e) Payments.
Except as otherwise agreed herein, all amounts due under this Section shall be payable not later than ten Business Days after demand
therefor. Notwithstanding the foregoing, until the occurrence of the Revolving Credit Facility Termination Date, no amounts owing
by any Loan Party pursuant to this Section 10.04 may be paid to any Term Loan Lender or Affiliate thereof other
than the Initial Funding Term Loan Lender Expenses netted against the initial Term Loan Borrowing in accordance with Section
2.02(b) and ,the 2019 Term
Loan Lender Expenses and the 2020 Term Loan Lender Expenses (and no Default or
Event of Default shall occur as a result of such non-payment), provided that such amounts may accrue. For the avoidance of doubt,
nothing in this Agreement shall prohibit the reimbursement of expenses of any party hereto or their respective affiliates, which
are incurred in connection with a Qualified Rights Offering and required to be reimbursed pursuant to documentation other than
the Loan Documents.
(f) Survival. The agreements in this Section and the indemnity provisions of Section 10.02(e) shall survive the resignation of the Administrative Agent, any L/C Issuer and/or the Swing Line Lender, the replacement of any Lender, the termination of the Aggregate Commitments and the repayment, satisfaction or discharge of all the other Obligations.
Payments Set Aside. To the extent that any payment by or on behalf of the Borrower is made to the Administrative Agent, any L/C Issuer or any Lender, or the Administrative Agent, any L/C Issuer 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 the Administrative Agent, such L/C Issuer 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 and each L/C Issuer severally agrees to pay to the Administrative Agent upon demand its applicable share (without duplication) of any amount so recovered from or repaid by the Administrative 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, in the applicable currency of such recovery or payment. The obligations of the Lenders and the L/C Issuers under clause (b) of the preceding sentence shall survive the payment in full of the Obligations and the termination of this Agreement.
Successors and Assigns.
(a) Successors and Assigns Generally. 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, except that the Borrower may not 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 except (i) to an assignee in accordance with the provisions of subsection (b) of this Section, (ii) by way of participation in accordance with the provisions of subsection (d) of this Section, or (iii) by way of pledge or assignment of a security interest subject to the restrictions of subsection (f) of this Section (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 subsection (d) of this Section and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, the L/C Issuers and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.
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(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 (including for purposes of this subsection (b), participations in L/C Obligations and in Swing Line Loans) at the time owing to it); provided that in each case 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 Lender’s Commitment and/or the Loans at the time owing to it or contemporaneous assignments to related Approved Funds that equal at least the amount specified in paragraph (b)(i)(B) of this Section in the aggregate 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, the aggregate amount of the Commitment (which for this purpose includes Loans outstanding thereunder) 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 $5,000,000 unless each of the Administrative Agent and, so long as no Event of Default has occurred and is continuing, the Borrower otherwise consents (each such consent not to be unreasonably withheld or delayed).
(ii) Proportionate Amounts. Each partial assignment shall be made as an assignment of a proportionate part of all the assigning Revolving Credit Lender’s rights and obligations under this Agreement with respect to the Revolving Credit Loans or the Revolving Credit Commitment assigned, except that this clause (ii) shall not (A) apply to the Swing Line Lender’s rights and obligations in respect of Swing Line Loans or (B) prohibit any Lender from assigning all or a portion of its rights and obligations under any separate revolving credit or term loan facilities provided pursuant to the last paragraph of Section 10.01 in each case on a non-pro rata basis;
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(iii) Required Consents. No consent shall be required for any assignment except to the extent required by subsection (b)(i)(B) of this Section 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 has occurred and is continuing at the time of such assignment or (2) such assignment is to a Lender, an Affiliate of a Lender or an Approved Fund, provided that the Borrower shall be deemed to have consented to any such assignment unless it shall object thereto by written notice to the Administrative Agent within five Business Days after having received notice thereof;
(B) the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed) shall be required for assignments in respect of (x) any unfunded Revolving Credit Commitment if such assignment is to a Person that is not a Lender with a Revolving Credit Commitment, an Affiliate of such Lender or an Approved Fund with respect to such Lender, (y) any unfunded Term Loan Commitment, or (z) any Term Loan if such assignment is to a Person that is not a Term Loan Lender, an Affiliate of such Term Loan Lender, or B. Riley FBR, Inc.; and
(C) the consent of each L/C Issuer and of the Swing Line Lender (each such consent not to be unreasonably withheld or delayed) shall be required for any assignment in respect of the Revolving Credit Facility.
(iv) Assignment and Assumption. The parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee in the amount of $3,500; provided, however, that the Administrative Agent may, in its sole discretion, elect to waive such processing and recordation fee in the case of any assignment. The assignee, if it is not a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire.
(v) No Assignment to Certain Persons. No such assignment shall be made (A) to the Borrower or any of the Borrower’s Affiliates or Subsidiaries, or (B) to any Defaulting Lender or any of its Subsidiaries, or any Person who, upon becoming a Lender hereunder, would constitute any of the foregoing Persons described in this clause (B), or (C) to a natural person, or (D) to any competitor of the Borrower or any of its Subsidiaries that is primarily engaged in an Eligible Line of Business and that has been previously identified as such, by legal entity name, by the Borrower to the Administrative Agent and provided by the Administrative Agent to the Lenders on the Platform, it being understood that the Administrative Agent shall have no responsibility for maintaining or otherwise managing any such list of competitors. No assignment of any unfunded Term Loan Commitment shall be made, except to B. Riley FBR, Inc. to the extent necessary for B. Riley FBR, Inc. to satisfy any of its obligations under the Tranche A Last Out Facility Commitment Letter. No assignment of any Revolving Credit Commitment or Revolving Credit Loan shall be made to any Term Loan Lender or any of the Term Loan Lender’s Affiliates or Subsidiaries.
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(vi) Certain Additional Payments. In connection with any assignment of rights and obligations of any Defaulting Lender hereunder, no such assignment shall be effective unless and until, in addition to the other conditions thereto set forth herein, the parties to the assignment shall make such additional payments to the Administrative Agent in an aggregate amount sufficient, upon distribution thereof as appropriate (which may be outright payment, purchases by the assignee of participations or subparticipations, or other compensating actions, including funding, with the consent of the Borrower and the Administrative Agent, the applicable pro rata share of Loans previously requested but not funded by the Defaulting Lender, to each of which the applicable assignee and assignor hereby irrevocably consent), to (x) pay and satisfy in full all payment liabilities then owed by such Defaulting Lender to the Administrative Agent, any L/C Issuer or any Lender hereunder (and interest accrued thereon) and (y) acquire (and fund as appropriate) its full pro rata share of all Loans and participations in Letters of Credit and Swing Line Loans in accordance with its Applicable Percentage. Notwithstanding the foregoing, in the event that any assignment of rights and obligations of any Defaulting Lender hereunder shall become effective under applicable Requirements of Law without compliance with the provisions of this paragraph, then the assignee of such interest shall be deemed to be a Defaulting Lender for all purposes of this Agreement until such compliance occurs.
Subject to acceptance and recording thereof by the Administrative Agent pursuant to subsection (c) of this Section, from and after the effective date specified in each Assignment and Assumption, 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 the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 3.01, 3.04, 3.05, and 10.04 with respect to facts and circumstances occurring prior to the effective date of such assignment; provided that, except to the extent otherwise expressly agreed by the affected parties, no assignment by a Defaulting Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender’s having been a Defaulting Lender. Upon request, the Borrower (at its expense) shall execute and deliver a 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 subsection (d) of this Section.
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(c) Register. The Administrative Agent, acting solely for this purpose as a non-fiduciary agent of the Borrower (and such agency being solely for tax purposes), shall maintain at the Administrative Agent’s Office a copy of each Assignment and Assumption delivered to it (or the equivalent thereof in electronic form) and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts (and stated interest) of the Loans and L/C Obligations 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 Administrative Agent 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. In addition, the Administrative Agent shall maintain on the Register information regarding the designation, and revocation of designation, of any Lender as a Defaulting Lender. The Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice.
(d) Participations. 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 Person described in Section 10.06(b)(v) that is not permitted to be an assignee with respect to Loans or Commitments) (each, a “Participant”) in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans (including such Lender’s participations in L/C Obligations and/or Swing Line Loans) owing to it); provided that (i) such Lender’s 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 Administrative Agent, the Lenders and the L/C Issuer shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. For the avoidance of doubt, each Lender shall be responsible for the indemnity under Section 10.04(c) without regard to the existence of any participation.
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, waiver or other modification described in the first proviso to Section 10.01 that affects such Participant to the extent that such Lender has such right to agree hereunder. The Borrower agrees that each Participant shall be entitled to the benefits of Sections 3.01, 3.04 and 3.05 (subject to the requirements and limitations therein, including the requirements under Section 3.01(f) (it being understood that the documentation required under Section 3.01(f) shall be delivered to the participating 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; provided that such Participant (A) agrees to be subject to the provisions of Section 3.06 and 10.13 as if it were an assignee under paragraph (b) of this Section; and (B) shall not be entitled to receive any greater payment under Sections 3.01 or 3.04, with respect to any participation, than the Lender from whom it acquired the applicable participation would have been entitled to receive, except to the extent such entitlement to receive a greater payment results from a Change in Law that occurs after the Participant acquired the applicable participation. Each Lender that sells a participation agrees, at the Borrower’s request and expense, to use reasonable efforts to cooperate with the Borrower to effectuate the provisions of Section 10.13 with respect to any Participant. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 10.08 as though it were a Lender, provided that such Participant agrees to be subject to Section 2.13 as though it were a Lender. Each Lender that sells a participation shall, acting solely for this purpose as a non-fiduciary agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant’s interest in the Loans or other obligations under the Loan Documents (the “Participant Register”); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participant’s interest in any commitments, loans, letters of credit or its other obligations under any Loan Document) to any Person except to the extent that such disclosure is necessary to establish that such commitment, loan, letter of credit or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Lender 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. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.
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(e) Reserved.
(f) Certain Pledges. 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 Note(s), if any) to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve 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) Resignation as L/C Issuer or Swing Line Lender after Assignment.
(i) Notwithstanding anything to the contrary contained herein, if at any time Bank of America or any other L/C Issuer assigns all of its Commitment and Loans pursuant to subsection (b) above, then (i) Bank of America or such other L/C Issuer may, upon 30 days’ notice to the Borrower and the Lenders, resign as an L/C Issuer and/or (ii) Bank of America may, upon 30 days’ notice to the Borrower, resign as the Swing Line Lender. In the event of any such resignation of an L/C Issuer or the Swing Line Lender, the Borrower shall be entitled to appoint from among the Lenders a successor L/C Issuer (which may be an existing L/C Issuer) or Swing Line Lender hereunder; provided, however, that no failure by the Borrower to appoint any such successor shall affect the resignation of Bank of America or the applicable L/C Issuer as an L/C Issuer or of Bank of America as the Swing Line Lender, as the case may be.
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(ii) If Bank of America or any other L/C Issuer resigns as an L/C Issuer, it shall retain all the rights, powers, privileges and duties of an L/C Issuer hereunder with respect to all Letters of Credit issued by it and outstanding as of the effective date of its resignation as an L/C Issuer and all L/C Obligations with respect thereto (including the right to require the Lenders to make Base Rate Loans or fund risk participations in Unreimbursed Amounts pursuant to Section 2.03(c)). Upon the appointment of a successor L/C Issuer with respect to such resigning L/C Issuer (x) such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring L/C Issuer and (y) such successor L/C Issuer (or another of the L/C Issuers, as may be arranged by the Borrower) shall issue letters of credit in substitution for the Letters of Credit, if any, issued by the resigning L/C Issuer and outstanding at the time of such succession, or make other arrangements satisfactory to Bank of America or such other resigning L/C Issuer to effectively assume the obligations of Bank of America or such other resigning L/C Issuer with respect to such Letters of Credit. The provisions of subparts (g)(i) and (g)(ii) of this Section shall not limit the ability of the Borrower to appoint and remove L/C Issuers pursuant to Sections 2.03(l) and (m).
(iii) If Bank of America resigns as Swing Line Lender, it shall retain all the rights of the Swing Line Lender provided for hereunder with respect to Swing Line Loans made by it and outstanding as of the effective date of such resignation, including the right to require the Lenders to make Base Rate Loans or fund risk participations in outstanding Swing Line Loans pursuant to Section 2.04(c). Upon the appointment of a successor Swing Line Lender, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring Swing Line Lender.
Treatment of Certain Information; Confidentiality. Each of the Administrative Agent, the Lenders and each L/C Issuer agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Affiliates and to its Related Parties (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), (b) to the extent required or requested by any regulatory authority purporting to have jurisdiction over such Person or its Related Parties (including any self-regulatory authority, such as the National Association of Insurance Commissioners), (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party hereto, (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, 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 invited to be a Lender pursuant to Section 2.14(c) or (ii) any actual or prospective party (or its Related Parties) to any swap, derivative or other transaction under which payments are to be made by reference to the Borrower and its obligations, this Agreement or payments hereunder, (g) on a confidential basis to (i) any rating agency in connection with rating the Borrower or its Subsidiaries or the credit facilities provided hereunder or (ii) the CUSIP Service Bureau or any similar agency in connection with the issuance and monitoring of CUSIP numbers or other market identifiers with respect to the credit facilities provided hereunder, (h) with the consent of the Borrower or (i) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section or (y) becomes available to the Administrative Agent, any Lender, any L/C Issuer or any of their respective Affiliates on a nonconfidential basis from a source other than the Borrower. In addition, the Administrative Agent and the Lenders may disclose the existence of this Agreement and information about this Agreement to market data collectors, similar service providers to the lending industry and service providers to the Administrative Agent and the Lenders in connection with the administration of this Agreement, the other Loan Documents, and the Commitments. For purposes of this Section, “Information” means all information received from the Borrower, any Subsidiary or any Affiliate of the Borrower relating to the Borrower, any Subsidiary or any Affiliate of the Borrower or any of their respective businesses, other than any such information that is (i) available to the Administrative Agent, any Lender or any L/C Issuer on a nonconfidential basis prior to disclosure by the Borrower, any Subsidiary or any Affiliate of the Borrower, or (ii) is clearly and conspicuously marked “PUBLIC” by the Borrower, which, at a minimum, shall mean that the word “PUBLIC” shall appear prominently on the page thereof. 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.
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Each of the Administrative Agent, the Lenders and the L/C Issuers acknowledges that (a) the Information may include 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 material non-public information and (c) it will handle such material non-public information in accordance with applicable Requirements of Law, including United States Federal and state securities laws.
Notwithstanding anything herein, (i) no Term Loan Lender or its Affiliate shall have any right to (x) attend any meeting or discussions (whether in person, via telephone or otherwise) among the Administrative Agent, any advisors retained by the Administrative Agent (including, without limitation, legal counsel and financial advisors) or any Revolving Credit Lender to which representatives of the Loan Parties are not invited or (y) receive any information or material prepared by the Administrative Agent, any advisors retained by the Administrative Agent (including, without limitation, legal counsel and financial advisors) or any Revolving Credit Lender or any communication by or among the Administrative Agent and/or one or more Revolving Credit Lenders and (ii) the Term Loan Lenders shall receive from the Borrower all information that the Borrower has provided to the Administrative Agent for distribution to the Revolving Credit Lenders.
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Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender, each L/C Issuer and each of their respective Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable Requirements of 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, such L/C Issuer or any such Affiliate to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement or any other Loan Document to such Lender or such L/C Issuer or their respective Affiliates, irrespective of whether or not such Lender, such L/C Issuer or such Affiliate shall have made any demand under this Agreement or any other Loan Document and although such obligations of the Borrower may be contingent or unmatured or are owed to a branch, office or Affiliate of such Lender or such L/C Issuer different from the branch, office or Affiliate holding such deposit or obligated on such indebtedness; provided that (i) in the event that any Defaulting Lender shall exercise any such right of setoff, (x) all amounts so set off shall be paid over immediately to the Administrative Agent for further application in accordance with the provisions of Section 2.16 and, pending such payment, shall be segregated by such Defaulting Lender from its other funds and deemed held in trust for the benefit of the Administrative Agent, the L/C Issuers and the Lenders, and (y) the Defaulting Lender shall provide promptly to the Administrative Agent a statement describing in reasonable detail the Obligations owing to such Defaulting Lender as to which it exercised such right of setoff and (ii) in the event that any Term Loan Lender shall exercise any such right of setoff, (x) all amounts so set off shall be paid over immediately to the Administrative Agent to, as applicable, prepay Revolving Credit Loans and, if the Revolving Credit Loans are paid in full, Cash Collateralize Letters of Credit or application in accordance with the provisions of 8.03 and, pending such payment, shall be segregated by such Term Loan Lender from its other funds and deemed held in trust for the benefit of the Administrative Agent, the L/C Issuers and the Revolving Credit Lenders, and (y) the Term Loan Lender shall provide promptly to the Administrative Agent a statement describing in reasonable detail the Obligations owing to such Term Loan Lender as to which it exercised such right of setoff. The rights of each Lender, each L/C Issuer and their respective Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) that such Lender, such L/C Issuer or their respective Affiliates may have. Each Lender and each L/C Issuer 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.
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 Requirements of Law (the “Maximum Rate”). If the Administrative 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 the Administrative Agent or a Lender exceeds the Maximum Rate, such Person may, to the extent permitted by applicable Requirements of 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.
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, the other Loan Documents and any separate letter agreements with respect to fees payable to the Administrative Agent or any L/C Issuer 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 means (e.g., “pdf” or “tif”) shall be effective as delivery of a manually executed counterpart of this Agreement.
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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 Credit Extension, and shall continue in full force and effect as long as any Loan or any other Obligation hereunder shall remain unpaid or unsatisfied or any Letter of Credit shall remain outstanding.
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. Without limiting the foregoing provisions of this Section 10.12, if and to the extent that the enforceability of any provisions in this Agreement relating to Defaulting Lenders shall be limited by Debtor Relief Laws, as determined in good faith by the Administrative Agent, any L/C Issuer or the Swing Line Lender, as applicable, then such provisions shall be deemed to be in effect only to the extent not so limited.
Replacement of Lenders. If any Lender requests compensation under Section 3.04, or if the Borrower is required to pay any Indemnified Taxes or 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 is a Defaulting Lender, or if any Lender is subject to replacement pursuant to the last paragraph of Section 10.01, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 10.06), all of its interests, rights (other than its existing rights to payments pursuant to Sections 3.01 and 3.04) and obligations under this Agreement and the related Loan Documents to an Eligible Assignee that shall assume such obligations (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 10.06(b);
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(b) such Lender shall have received payment of an amount equal to 100% of the outstanding principal of its Loans and L/C Advances, 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) 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) 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;
(d) such assignment does not conflict with applicable Requirements of Law; and
(e) in the case of an assignment resulting from a Lender becoming a non-consenting Lender pursuant to the last paragraph of Section 10.01, the applicable assignee shall have consented to the applicable amendment, waiver or consent.
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.
10.14 Governing Law; Jurisdiction; Etc.
(a) GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND ANY CLAIMS, CONTROVERSY, DISPUTE OR CAUSE OF ACTION (WHETHER IN CONTRACT OR TORT OR OTHERWISE) BASED UPON, ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT (EXCEPT, AS TO ANY OTHER LOAN DOCUMENT, AS EXPRESSLY SET FORTH THEREIN) AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
(b) SUBMISSION TO JURISDICTION. THE BORROWER IRREVOCABLY AND UNCONDITIONALLY AGREES THAT IT WILL NOT COMMENCE ANY ACTION, LITIGATION OR PROCEEDING OF ANY KIND OR DESCRIPTION, WHETHER IN LAW OR EQUITY, WHETHER IN CONTRACT OR IN TORT OR OTHERWISE, AGAINST THE ADMINISTRATIVE AGENT, ANY LENDER, ANY L/C ISSUER, OR ANY RELATED PARTY OF THE FOREGOING IN ANY WAY RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS RELATING HERETO OR THERETO, IN ANY FORUM OTHER THAN THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE JURISDICTION OF SUCH COURTS AND AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION, LITIGATION 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, LITIGATION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT, ANY LENDER OR ANY L/C ISSUER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST THE BORROWER OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.
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(c) WAIVER OF VENUE. THE BORROWER 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. 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.
(d) 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.
Waiver of Jury Trial. 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.
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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), the Borrower acknowledges and agrees that: (i) (A) the arranging and other services regarding this Agreement provided by the Administrative Agent, the Arrangers and the Lenders are arm’s-length commercial transactions between the Borrower and its Affiliates, on the one hand, and the Administrative Agent, the Arrangers and the Lenders, on the other hand, (B) the Borrower has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate, and (C) the Borrower 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) the Administrative Agent, each Arranger and each 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, any other Loan Party or any of their respective Affiliates, or any other Person and (B) neither the Administrative Agent, any Arranger nor any Lender has any obligation to the Borrower or any other Loan Party 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 Administrative Agent, the Arrangers, 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, the other Loan Parties and their respective Affiliates, and neither the Administrative Agent, any Arranger nor any Lender has any obligation to disclose any of such interests to the Borrower, any other Loan Party or any of their respective Affiliates. To the fullest extent permitted by law, the Borrower hereby waives and releases any claims that it may have against the Administrative Agent, any 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.
Electronic Execution of Assignments and Certain Other Documents. The words “execute,” “execution,” “signed,” “signature,” and words of like import in or related to any document to be signed in connection with this Agreement and the transactions contemplated hereby (including without limitation Assignment and Assumptions, amendments or other Committed Loan Notices, Swing Line Loan Notices, waivers and consents) shall be deemed to include electronic signatures, the electronic matching of assignment terms and contract formations on electronic platforms approved by the Administrative Agent, 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; provided that, notwithstanding anything contained herein to the contrary, the Administrative Agent is under no obligation to agree to accept electronic signatures in any form or in any format unless expressly agreed to by the Administrative Agent pursuant to procedures approved by it.
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Judgment Currency. If, for the purposes of obtaining judgment in any court, it is necessary to convert a sum due hereunder or any other Loan Document in one currency into another currency, the rate of exchange used shall be that at which in accordance with normal banking procedures the Administrative Agent could purchase the first currency with such other currency on the Business Day preceding that on which final judgment is given. The obligation of the Borrower in respect of any such sum due from it to the Administrative Agent or any Lender hereunder or under the other Loan Documents shall, notwithstanding any judgment in a currency (the “Judgment Currency”) other than that in which such sum is denominated in accordance with the applicable provisions of this Agreement (the “Agreement Currency”), be discharged only to the extent that on the Business Day following receipt by the Administrative Agent or such Lender, as the case may be, of any sum adjudged to be so due in the Judgment Currency, the Administrative Agent or such Lender, as the case may be, may in accordance with normal banking procedures purchase the Agreement Currency with the Judgment Currency. If the amount of the Agreement Currency so purchased is less than the sum originally due to the Administrative Agent or any Lender from the Borrower in the Agreement Currency, the Borrower agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the Administrative Agent or such Lender, as the case may be, against such loss. If the amount of the Agreement Currency so purchased is greater than the sum originally due to the Administrative Agent or any Lender in such currency, the Administrative Agent or such Lender, as the case may be, agrees to return the amount of any excess to the Borrower (or to any other Person who may be entitled thereto under applicable law).
Acknowledgement and Consent to Bail-In of EEA Financial Institutions. Solely to the extent any Lender or L/C Issuer that is an EEA Financial Institution is a party to this Agreement and notwithstanding anything to the contrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any Lender or L/C Issuer that is an EEA Financial Institution arising under any Loan Document, to the extent such liability is unsecured, may be subject to the write-down and conversion powers of an EEA Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:
(a) the application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such liabilities arising hereunder which may be payable to it by any Lender or L/C Issuer that is an EEA Financial Institution; and
(b) the effects of any Bail-In Action on any such liability, including, if applicable:
(i) a reduction in full or in part or cancellation of any such liability;
(ii) a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial Institution, its parent undertaking, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan Document; or
(iii) the variation of the terms of such liability in connection with the exercise of the write-down and conversion powers of any EEA Resolution Authority.
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Parallel Debt.
(a) For the purpose of this Section 10.20, “Corresponding Obligations” means each Loan Party’s Obligations other than the Parallel Debt.
(b) Each Loan Party hereby irrevocably and unconditionally undertakes to pay to the Administrative Agent, acting on its own behalf and not as agent for any person, an amount equal to the Corresponding Obligations (such payment undertakings by each Loan Party to the Administrative Agent, hereinafter referred to as the “Parallel Debt”).
(c) The Parallel Debt will become due and payable in the currency or currencies of the Corresponding Obligations as and when one or more of the Corresponding Obligations become due and payable.
(d) Each of the parties to this Agreement hereby acknowledges that: (i) the Parallel Debt constitutes an undertaking, obligation and liability of each Loan Party to the Administrative Agent which is transferable and separate and independent from, and without prejudice to, the Corresponding Obligations; (ii) the Parallel Debt represents the Administrative Agent’s own separate and independent claim to receive payment of the Parallel Debt from each Loan Party and (iii) the Liens granted under the Loan Documents to the Administrative Agent to secure the Parallel Debt is granted to the Administrative Agent in its capacity as creditor of the Parallel Debt and shall not be held in trust, it being understood, that the amount which may become payable by each Loan Party under or pursuant to the Parallel Debt from time to time shall never exceed the aggregate amount which is payable under the relevant Corresponding Obligations from time to time.
(e) For the purpose of this Section 10.20 the Administrative Agent acts in its own name and on behalf of itself (for the benefit of the Secured Parties and each subsequent maker of any Loan by its making thereof) and not as agent or representative of any of the Secured Parties and each subsequent maker of any Loan by its making thereof.
(f) To the extent the Administrative Agent irrevocably receives any amount in payment of the Parallel Debt (the “Received Amount”), the Corresponding Obligations shall be reduced by an aggregate amount (the “Deductible Amount”) equal to the Received Amount in the manner as if the Deductible Amount were received as a payment of the Corresponding Obligations. For the avoidance of doubt, to the extent the Administrative Agent irrevocably receives any amount in payment of the Corresponding Obligations, the Parallel Debt shall be reduced accordingly as if such payment was received as a payment of the Parallel Debt. All amounts received or recovered by the Administrative Agent from or by the enforcement of any security interest granted to secure the Parallel Debt, shall be applied in accordance with this Agreement. Without limiting or affecting the Administrative Agent’s rights against the Loan Parties (whether under this Section 10.20 or under any other provisions of the Loan Documents or any Secured Cash Management Agreement or Secured Hedge Agreement) each Loan Party acknowledges that (i) nothing in this Section 10.20 shall impose any obligation on the Administrative Agent to advance any sum to any Loan Party or otherwise under any Loan Document or any Secured Cash Management Agreement or Secured Hedge Agreement, except in its capacity as Lender, Cash Management Bank or Hedge Bank and (ii) for the purpose of any vote taken under any Loan Document or any Secured Cash Management Agreement or Secured Hedge Agreement, the Administrative Agent shall not be regarded as having any participation or commitment other than those which it has in its capacity as a Lender, Cash Management Bank or Hedge Bank.
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Acknowledgement Regarding Any Supported QFCs. To the extent that the Loan Documents provide support, through a guarantee or otherwise, for any Swap Contract or any other agreement or instrument that is a QFC (such support, “QFC Credit Support”, and each such QFC, a “Supported QFC”), the parties acknowledge and agree as follows with respect to the resolution power of the Federal Deposit Insurance Corporation under the Federal Deposit Insurance Act and Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act (together with the regulations promulgated thereunder, the “U.S. Special Resolution Regimes”) in respect of such Supported QFC and QFC Credit Support (with the provisions below applicable notwithstanding that the Loan Documents and any Supported QFC may in fact be stated to be governed by the laws of the State of New York and/or of the United States or any other state of the United States):
In the event a Covered Entity that is party to a Supported QFC (each, a “Covered Party”) becomes subject to a proceeding under a U.S. Special Resolution Regime, the transfer of such Supported QFC and the benefit of such QFC Credit Support (and any interest and obligation in or under such Supported QFC and such QFC Credit Support, and any rights in property securing such Supported QFC or such QFC Credit Support) from such Covered Party will be effective to the same extent as the transfer would be effective under the U.S. Special Resolution Regime if the Supported QFC and such QFC Credit Support (and any such interest, obligation and rights in property) were governed by the laws of the United States or a state of the United States. In the event a Covered Party or a BHC Act Affiliate of a Covered Party becomes subject to a proceeding under a U.S. Special Resolution Regime, Default Rights under the Loan Documents that might otherwise apply to such Supported QFC or any QFC Credit Support that may be exercised against such Covered Party are permitted to be exercised to no greater extent than such Default Rights could be exercised under the U.S. Special Resolution Regime if the Supported QFC and the Loan Documents were governed by the laws of the United States or a state of the United States. Without limitation of the foregoing, it is understood and agreed that rights and remedies of the parties with respect to a Defaulting Lender shall in no event affect the rights of any Covered Party with respect to a Supported QFC or any QFC Credit Support.
As used in this Section 10.21, the following terms have the following meanings:
“BHC Act Affiliate” of a party means an “affiliate” (as such term is defined under, and interpreted in accordance with, 12 U.S.C. 1841(k)) of such party.
“Covered Entity” means any of the following: (i) a “covered entity” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 252.82(b); (ii) a “covered bank” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 47.3(b); or (iii) a “covered FSI” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 382.2(b).
“Default Right” has the meaning assigned to that term in, and shall be interpreted in accordance with, 12 C.F.R. §§ 252.81, 47.2 or 382.1, as applicable.
“QFC” has the meaning assigned to the term “qualified financial contract” in, and shall be interpreted in accordance with, 12 U.S.C. 5390(c)(8)(D).
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ARTICLE XI
ADDITIONAL SUBORDINATION TERMS
Payment Subordination(a) .. The Term Loan Lenders agree that the Obligations with respect to the Term Loan Facility are expressly subordinate and junior in right of payment to all Obligations with respect to the Revolving Credit Facility (including any interest or entitlement to fees or expenses or other charges with respect to the Revolving Credit Facility accruing after the commencement of any proceeding under any Debtor Relief Law, whether or not such amounts are allowed in any proceeding), except for any payment of (a) the Amendment No. 9 Closing Fee, (b) the Initial Funding Term Loan Lender Expenses, (c) OID, (d) Additional Term Loan Prepayments, (e) the structuring fees to be paid to B. Riley FBR, Inc. on the Amendment No. 16 Effective Date and as disclosed in writing to the Administrative Agent, (f) the 2019 Term Loan Lender Expenses and the 2020 Term Loan Lender Expenses and (g) other than upon and during the continuance of an Event of Default, any interest on the Term Loans due on the applicable Interest Payment Date or on any Additional Term Loan Prepayment on the date that such prepayment is made.
Turnover.
(a) Any payment or
distribution (whether in cash, property or securities) that may be received by any Term Loan Lender or its Affiliate on
account of any Obligations with respect to the Term Loan Facility or, the
Tranche A Last Out Facility Commitment Letter or the 2020 Refinancing
Backstop Commitment Letter in violation of this Agreement shall be segregated and held in trust and promptly
paid over to the Administrate Agent, for the benefit of the Secured Parties, in each case, in the same form as received, with
any necessary endorsements, and each of the Term Loan Lenders hereby authorizes the Administrative Agent to make any such
endorsements as agent for such Term Loan Lender or its respective Affiliate (in each case, which authorization, being coupled
with an interest, is irrevocable). All such payments paid over to the Administrative Agent shall be, as applicable, used to
prepay Revolving Credit Loans and, if the Revolving Credit Loans are paid in full, Cash Collateralize Letters of Credit or
applied in accordance with the provisions of Section 8.03. For purposes of this Agreement, each Term Loan Lender
agrees that in an any proceeding under any Debtor Relief Law or any other judicial proceeding relative to any Loan Party of
the Borrower, any debt or equity securities issued or to be issued by the reorganized or liquidating Borrower or any
reorganized or liquidating Loan Party that is allocated to any Term Loan Lender or Affiliate thereof on account of the Term
Loan Facility or, the
Tranche A Last Out Facility Commitment Letter or the 2020 Refinancing Backstop Commitment
Letter in a plan of reorganization or liquidation shall be deemed to be payments that are subject to the
turnover provisions hereunder.
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(b) If the Administrative Agent or any Revolving Credit Lender is required in any proceeding under any Debtor Relief Law or otherwise to disgorge, turn over or otherwise pay to the estate of any Loan Party any amount (a “Recovery”), whether received as proceeds of security, enforcement of any right of set-off or otherwise, because such amount was avoided or ordered to be paid or disgorged for any reason, including because it was found to be a fraudulent or preferential transfer, then the Obligations with respect to the Revolving Credit Facility shall be reinstated to the extent of such Recovery and deemed to be outstanding as if such payment had not occurred and the Revolving Credit Facility Termination Date, as applicable, shall be deemed not to have occurred. If this Agreement shall have been terminated prior to such Recovery, this Agreement shall be reinstated in full force and effect, and such prior termination shall not diminish, release, discharge, impair or otherwise affect the obligations of the parties hereto. Each of the Term Loan Lenders agrees that none of them shall be entitled to benefit from any avoidance action affecting or otherwise relating to any distribution or allocation made in accordance with this Agreement, whether by preference or otherwise, it being understood and agreed that any benefit of such avoidance action otherwise allocable to them shall instead be allocated and turned over for application in accordance with the priorities set forth in this Agreement.
Financing Matters(a) .. Prior to the Revolving Credit Facility Termination Date, if any Loan Party becomes subject to any proceeding under any Debtor Relief Law:
(a) If the Administrative Agent or the Revolving Credit Lenders consent (or do not object) to the use of cash collateral under the Bankruptcy Code or provide debtor-in-possession financing to any Loan Party under the Bankruptcy Code or consent (or do not object) to the provision of such financing to any Loan Party by any third party, then each Term Loan Lender agrees that it (i) will be deemed to have consented to, will raise no objection to, nor support any other Person objecting to, the use of such cash collateral or to such debtor-in-possession financing and (ii) will not request or accept adequate protection or any other relief in connection with the use of such cash collateral or such DIP Financing except as set forth in Section 11.04 below.
(b) No Term Loan Lender or Affiliate thereof may (i) propose to provide any debtor-in-possession financing or (ii) support any other Person in providing any debtor-in-possession financing to any Loan Party that competes with any debtor-in-possession financing offered by one or more of the Administrative Agent or the Revolving Credit Lenders.
207
Adequate Protection(a) . Prior to the occurrence of the Revolving Credit Facility Termination Date, no Term Loan Lender shall be granted any adequate protection in any proceeding under any Debtor Relief Law, provided that, if the Administrative Agent, for the benefit of itself and the Revolving Credit Lenders, or the Revolving Credit Lenders are granted adequate protection consisting of replacement Liens on existing Collateral or new Liens on property that is unencumbered or does not constitute Collateral and/or superpriority claims in connection with any debtor-in-possession financing or use of cash collateral, then in connection with any such debtor-in-possession financing or use of cash collateral each of the Term Loan Lenders may, as adequate protection, seek or accept (and the Administrative Agent and the Revolving Credit Lenders shall not object to) adequate protection consisting solely of (x) replacement Liens on existing Collateral or new Liens on such property that is unencumbered or does not constitute Collateral, which replacement Liens shall be subordinated in all respects to the Liens granted to the Administrative Agent, for the benefit of itself and the Revolving Credit Lenders, or the Revolving Credit Lenders and such debtor-in-possession financing and/or (y) superpriority claims junior in all respects to the superpriority claims granted the Administrative Agent, for the benefit of itself and the Revolving Credit Lenders, or the Revolving Credit Lenders; provided, however, that each Term Loan Lender shall have irrevocably agreed, pursuant to Section 1129(a)(9) of the Bankruptcy Code, that prior to the occurrence of the Revolving Credit Facility Termination Date any plan of reorganization under the Bankruptcy Code may provide, and any stipulation and/or order granting such adequate protection may similarly provide, that the Term Loan Lenders may receive on account of such junior superpriority claims any combination of cash, debt, equity or other property having a value on the effective date of such plan equal to the allowed amount of such superpriority claims; provided further that recovery on account of the superpriority claim received by any Term Loan Lender is subject to, inter alia, Section 11.02.
Voting Matters(a) .. Prior to the occurrence of the Revolving Credit Facility Termination Date, in no event shall any Term Loan Lender or any Affiliate thereof vote to accept or take any other action to support the confirmation or approval of any plan of reorganization in any proceeding under any Debtor Relief Law if the Administrative Agent has provided notice to the Term Loan Lenders at least one Business Day prior to the applicable voting deadline that the Required Lenders do not approve of such plan of reorganization.
Right to Appear(a) .. Prior to the occurrence of the Revolving Credit Facility Termination Date, each of the Term Loan Lenders may appear in any proceeding under any Debtor Relief Law; provided, however, that no Term Loan Lender may oppose any action or position taken or relief sought by the Administrative Agent.
Indemnification; Release.
(a) The Term Loan Lenders, jointly and severally, agree to indemnify, defend and hold harmless the Administrative Agent and/or the Revolving Credit Lenders from and against any and all reasonable and documented expenses, losses, claims, damages, suits, proceedings and liabilities that are incurred by or threatened against the Administrative Agent and/or the Revolving Credit Lenders, including, but not limited to reasonable attorneys’ fees and expenses caused by or resulting from the breach of any representation, warranty, agreement, covenant or other obligation of the Term Loan Lenders contained herein; provided that no Term Loan Lender shall be liable under this clause (a) for the payment of any portion of the foregoing that are found by a final and non-appealable decision of a court of competent jurisdiction to have resulted from the Administrative Agent’s and/or any Revolving Credit Lender’s own gross negligence, willful misconduct or breach in bad faith of the Loan Documents. The indemnification rights set forth in this clause (a) are in addition to any rights of indemnification or reimbursement that the Administrative Agent or the Revolving Credit Lenders may have under this Agreement or any other Loan Document.
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(b) No Term Loan Lender shall have any right to 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 Administrative Agent or any other Lender with respect to any duties or obligations or alleged duties or obligations of the Administrative Agent or any other such Lender under the Loan Documents (except to the extent the basis of such claim is found by a final and non-appealable decision of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the Administrative Agent or the Revolving Credit Lenders).
Enforceability(a) .. The parties hereto expressly acknowledge that the provisions of this Article XI, any other subordination terms set forth herein and any other provision governing the rights among any and all Secured Parties are a “subordination agreement” under Section 510(a) of the Bankruptcy Code and that such provisions shall be effective before, during and after the commencement of any proceeding under any Debtor Relief Law and shall survive the termination of this Agreement.
Article XI; Generally(a) .. The provisions of this Article XI are solely for the benefit of the Administrative Agent, the Revolving Credit Lenders, the L/C Issuers and the Term Loan Lenders, and the Borrower shall not have any rights as a third party beneficiary of any of such provisions.
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[Signature pages omitted.]
210
ANNEX C
Commitments and Applicable Percentages
[On file with the Administrative Agent]
[Babcock & Wilcox Enterprises, Inc.
Amendment No. 20 to Credit Agreement- Annex C]
ANNEX D
Committed Loan Notice
[Please see attached]
[Babcock & Wilcox Enterprises, Inc.
Amendment No. 20 to Credit Agreement- Annex D]
ANNEX D
EXHIBIT A
FORM OF COMMITTED LOAN NOTICE
Date: , _____
To: Bank of America, N.A., as Administrative Agent
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement, dated as of May 11, 2015 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the “Credit Agreement”; the terms defined therein being used herein as therein defined), among BABCOCK & WILCOX ENTERPRISES, INC., a Delaware corporation, as the borrower thereunder, the Lenders, the Administrative Agent, the Swing Line Lender and each L/C Issuer.
The undersigned hereby requests (select one):1
☐ A Revolving Credit Borrowing
☐ A Tranche A-1 Term Loan Borrowing
☐ A Tranche A-2 Term Loan Borrowing
☐ A Tranche A-3 Term Loan Borrowing
☐ A Tranche A-4 Term Loan Borrowing
☐ A Tranche A-5 Term Loan Borrowing
☐ A conversion [Term Loan/Revolving Credit Loans] of [Type] to [Type]
☐ A continuation [Term Loan/Revolving Credit Loans] of Eurocurrency Rate Loans
1. On ___________, _____ (a Business Day).
2.In the amount of $________.
[principal amount to be borrowed, converted or continued]
3.Comprised of ______________.
[Type of Borrowing requested or to which an existing Borrowing is to be converted]
4.For Eurocurrency Rate Loans: with an Interest Period of _________ months.
5. For conversions or continuations of Eurocurrency Rate Loans: Loan Number ____________.
1 | At any time after the Initial Tranche A Term Loan Funding and prior to the termination of the Availability Period with respect to the Term Loan Facility, each Committed Loan Notice shall be accompanied by a Committed Loan Notice with respect to a Tranche A-1 Term Loan Borrowing or Revolving Credit Borrowing, as applicable, with principal to be borrowed in amounts that will satisfy the Funding Ratio Condition. |
[The Borrowing requested herein complies with [Section 2.01]2 [Section 2.01A]3 [Section 2.01B]4 [Section 2.01C]5 [Section 2.01D]6 [Section 2.01E]7 of the Credit Agreement.]8 The Borrower hereby represents and warrants that the conditions specified in [Sections 4.03(a), (b) and (e)]9 [Section 4.05]10 [Section 4.06]11 [Section 4.07]12 [Section 4.08]13 [Section 4.09]14 shall be satisfied on and as of the date of the applicable Credit Extension.
2 | Applicable if requesting a Revolving Credit Borrowing. |
3 | Applicable if requesting a Tranche A-1 Term Loan Borrowing. |
4 | Applicable if requesting a Tranche A-2 Term Loan Borrowing. |
5 | Applicable if requesting a Tranche A-3 Term Loan Borrowing. |
6 | Applicable if requesting a Tranche A-4 Term Loan Borrowing. |
7 | Applicable if requesting a Tranche A-5 Term Loan Borrowing. |
8 | Applicable if requesting a Borrowing. |
9 | Applicable if requesting a Revolving Credit Borrowing |
10 | Applicable if requesting a Tranche A-1 Term Loan Borrowing. |
11 | Applicable if requesting a Tranche A-2 Term Loan Borrowing. |
12 | Applicable if requesting a Tranche A-3 Term Loan Borrowing. |
13 | Applicable if requesting a Tranche A-4 Term Loan Borrowing. |
14 | Applicable if requesting a Tranche A-5 Term Loan Borrowing. |
[Remainder of this Page is Intentionally Left Blank]
BABCOCK & WILCOX ENTERPRISES, INC. | ||
By: | ||
Name: | ||
Title: |
ANNEX E
Assignment and Assumption
[Please see attached]
[Babcock & Wilcox Enterprises, Inc.
Amendment No. 20 to Credit Agreement- Annex E]
ANNEX E
EXHIBIT E-1
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 Assignor identified in item 1 below (the “Assignor”) and the Assignee identified in item 2 below (the “Assignee”). 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 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 Administrative Agent as contemplated below (a) all of the Assignor’s 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, without limitation, the Letters of Credit and the Swing Line Loans included in such facilities) and (b) 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, 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 (a) above (the rights and obligations sold and assigned by the Assignor to the Assignee pursuant to clauses (a) and (b) above being referred to herein collectively as the “Assigned Interest”). Each 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. | Assignors: |
2. | Assignee: |
[for each Assignee, indicate [Affiliate][Approved Fund] of [identify Lender]]
3. | Borrower: Babcock & Wilcox Enterprises, Inc. |
4. | Administrative Agent: Bank of America, N.A., as the administrative agent under the Credit Agreement |
5. | Credit Agreement: Credit Agreement, dated as of May 11, 2015 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the “Credit Agreement”; the terms defined therein being used herein as therein defined), among the Borrower, the Lenders, the Administrative Agent, the Swing Line Lender and each L/C Issuer |
6. | Assigned Interests: |
Facility Assigned | Aggregate Amount of Commitment/ Loans1 for all Lenders for applicable Facility2 |
Amount of Commitment/Loans Assigned |
Percentage Assigned of Commitment/ Loans3 |
CUSIP |
[7. | Trade Date: ___________________]4 |
Effective Date: ___________, 20__ [TO BE INSERTED BY ADMINISTRATIVE 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: |
1 | With respect to the Term Loan Facility, after the Tranche A-1 Term Loan Commitment, Tranche A-2 Term Loan Commitment, Tranche A-3 Term Loan Commitment, Tranche A-4 Term Loan Commitment or Tranche A-5 Term Loan Commitment had been terminated or reduced to zero, only the assignment of such Loans will be applicable. With respect to the Term Loan Facility, specify whether the loan is a Tranche A-1 Term Loan, a Tranche A-2 Term Loan, a Tranche A-3 Term Loan, a Tranche A-4 Term Loan or a Tranche A-5 Term Loan. |
2 | 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. |
3 | Set forth, to at least 9 decimals, as a percentage of the Revolving Credit Commitment / Revolving Credit Loans of all Lenders thereunder. |
4 | To be completed if the Assignor and the Assignee intend that the minimum assignment amount is to be determined as of the Trade Date. |
ASSIGNEE | ||
[NAME OF ASSIGNEE] | ||
By: | ||
Name: | ||
Title: | ||
[Consented to and]5 Accepted: | ||
BANK OF AMERICA, N.A., as Administrative Agent | ||
By: | ||
Name: | ||
Title: | ||
Consented to: | ||
BANK OF AMERICA, N.A., | ||
as an L/C Issuer and Swing Line Lender | ||
By: | ||
Name: | ||
Title: | ||
[Consented to: | ||
BABCOCK & WILCOX ENTERPRISES, INC. | ||
By: | ||
Name: | ||
Title: |
5 | To be added only if the consent of the Administrative Agent is required by the terms of the Credit Agreement |
ANNEX 1 TO ASSIGNMENT AND ASSUMPTION
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) 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 has reviewed the list of restricted Persons posted on the Platform pursuant to Section 10.06(b)(v)(D) of the Credit Agreement and the Assignee is not a Person to whom assignment is not permitted pursuant to Section 10.06(b)(v)(D) thereof; 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 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 Section 10.06(b) of the Credit Agreement (subject to such consents, if any, as may be required under Section 10.06(b) of the Credit Agreement) and, after review of the list of restricted Persons posted on the Platform pursuant to Section 10.06(b)(v)(D) thereof, is not a Person to whom assignment is not permitted pursuant to Section 10.06(b)(v) thereof, (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 is sophisticated with respect to decisions to acquire assets of the type represented by the Assigned Interest and either it, or the Person exercising discretion in making its decision to acquire the 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 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 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 Assigned Interest, and (vii) attached hereto 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 upon the Administrative 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, 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 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 telecopy 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. If the Assignee is a Person to whom assignment is not permitted pursuant to Section 10.06(b)(v)(D) of the Credit Agreement, the Assignor and Assignee agree that the assignment provided herein shall be void ab initio, and that each of them shall, jointly and severally, indemnify the Administrative Agent for any loss, cost or expense arising from the voiding of such assignment.
ANNEX F
Conditions Precedent to the Refinancing Transaction
[Please see attached]
[Babcock & Wilcox Enterprises, Inc.
Amendment No. 20 to Credit Agreement- Annex F]
ANNEX F
Conditions Precedent to the A&R Credit Agreement
Generally limited to the following:
1. | The occurrence of the Refinancing occurring simultaneously with the effectiveness of the A&R Credit Agreement, which shall result in (a) a full paydown of Revolving Credit Loans with no Revolving Credit Loans drawn on the effective date of the A&R Credit Agreement (the “Restatement Effective Date”) and (b) $45,000,000 (less the Amendment and Restatement Fees) in unrestricted Cash and Cash Equivalents to be held by the Borrower and its Subsidiaries (with at least $15,000,000 of such amount to be held by Loan Parties that are Domestic Subsidiaries) after pro forma application of proceeds of Refinancing on the Restatement Effective Date; |
2. | No Default or Event of Default exists or would result from the effectiveness of the A&R Credit Agreement; |
3. | Representations and warranties made by (i) the Borrower in Article V (Representations and Warranties) of the A&R Credit Agreement and (ii) each Loan Party in each other Loan Document to be true and correct in all material respects, as of the Refinancing Date (or if such representation and warranty speaks solely to another date, as of such date); |
4. | The Administrative Agent shall have received payment of the Amendment and Restatement Fee; |
5. | Evidence satisfactory to each Lender of flood insurance as may be required to comply with the National Flood Insurance Act of 1968, the Flood Disaster Protection Act of 1973, the National Flood Insurance Reform Act of 1994 and the Biggert-Waters Flood Insurance Act of 2012; |
6. | Satisfactory environmental assessment as may be required by each Revolving Credit Lender; |
7. | The Administrative Agent shall be satisfied with compliance under any applicable “know your customer” and anti-money laundering rules and regulations, including the Patriot Act; |
8. | A Note executed by the Borrower in favor of each Lender requesting a Note; |
9. | Without prejudice to, or limiting the Borrower’s obligations under, Section 10.04 (Expenses; Indemnity; Damage Waiver) of the Credit Agreement, all outstanding fees, costs and expenses due to the Administrative Agent and the Revolving Credit Lenders, including on account of the Agent’s Legal Advisor and FTI, shall have been paid in full to the extent that the Borrower has received an invoice therefor (with reasonable and customary supporting documentation) at least two Business Days prior to the Restatement Effective Date (without prejudice to any post-closing settlement of such fees, costs and expenses to the extent not so invoiced); |
10. | Delivery of a satisfactory opinion of each of the Loan Parties’ counsel (including the Loan Parties’ in-house counsel) regarding due execution, enforceability and non-contravention of agreements and law, in form and substance reasonably satisfactory to the Administrative Agent (and consistent in scope to prior opinions delivered to the Administrative Agent); |
11. | A officer’s certificate of a Responsible Officer of the Borrower in form and substance reasonably satisfactory to the Administrative Agent and substantially consistent with such officer’s certificate delivered in connection with Amendment No. 20; |
12. | A certificate of the secretary or assistant secretary of each of the Loan Parties that are Domestic Subsidiaries in form and substance reasonably satisfactory to the Administrative Agent and substantially consistent with such certificate delivered in connection with Amendment No. 20; |
13. | A funds flow memorandum, in form and substance reasonably acceptable to the Administrative Agent, detailing the flow of funds in respect to the Refinancing; |
14. | Such documents and certifications as the Administrative Agent may reasonably require to evidence that each Loan Party that are Domestic Subsidiaries that each such Loan Party is validly existing and in good standing in its jurisdiction of organization; |
15. | A certificate of a Responsible Officer of the Borrower either (A) attaching copies of all consents, licenses and approvals required in connection with the execution, delivery and performance by the Borrower and the validity against the Borrower of the A&R Credit Agreement, and such consents, licenses and approvals shall be in full force and effect, or (B) stating that no such consents, licenses or approvals are so required; |
16. | The Loan Parties’ affirmation of Security Instruments and each other similar document required under Canadian or Mexican law with respect to each Foreign Security Provider1; |
17. | A solvency certificate, executed by a Responsible Officer of the Borrower in form and substance reasonably acceptable to the Administrative Agent, which, among other things, shall certify that the Borrower will be Solvent immediately before and after the occurrence of the Restatement Effective Date; and |
18. | Each Letter of Credit issued by Credit Agricole Corporate and Investment Bank or its affiliates shall have been terminated, returned or replaced with a Letter of Credit issued by an L/C Issuer other than Credit Agricole Corporate and Investment Bank or its affiliates, in each case, undrawn. |
1 | If commercially reasonable efforts are made by the Borrower, any actions required under foreign law may be moved to a post-closing obligation. |
Exhibit 10.5
Execution Version
January 31, 2020
CONFIDENTIAL
TO: | Babcock & Wilcox Enterprises, Inc. |
Re: | Amendment No. 20 and Refinancing Term Sheet |
Ladies and Gentlemen:
Reference is made to (i) that certain Amendment No. 20, dated as of the date hereof (the “Amendment”) to that certain Credit Agreement, dated as of May 11, 2015 (as amended by Amendment No. 1 to Credit Agreement, dated as of June 10, 2016, Amendment No. 2 to Credit Agreement, dated as of February 24, 2017, Amendment No. 3 to Credit Agreement, dated as of August 9, 2017, Amendment No. 4 to Credit Agreement, dated as of September 20, 2017, Amendment No. 5 to Credit Agreement, dated as of March 1, 2018, Amendment No. 6 to Credit Agreement, dated as of April 10, 2018, Consent and Amendment No. 7 to Credit Agreement, dated as of June 1, 2018, Amendment No. 8 to Credit Agreement, dated as of August 9, 2018, Amendment No. 9 and Consent to Credit Agreement, dated as of September 14, 2018, Amendment No. 10 to the Credit Agreement, dated as of September 28, 2018, Amendment No. 11 to the Credit Agreement, dated as of October 4, 2018, Amendment No. 12 to the Credit Agreement, dated as of October 31, 2018, Amendment No. 13 to the Credit Agreement, dated as of December 19, 2018, Amendment No. 14 to the Credit Agreement, dated as of January 15, 2019, Amendment No. 15 and Limited Waiver to the Credit Agreement, dated as of March 19, 2019, Amendment No. 16 to the Credit Agreement, dated as of April 5, 2019, Amendment No. 17 to the Credit Agreement, dated as of August 7, 2019, Amendment No. 18 to the Credit Agreement, dated as of December 31, 2019, Amendment No. 19 to the Credit Agreement, dated as of January 17, 2020, and from time to time further amended, supplemented, restated, amended and restated or otherwise modified, the “Credit Agreement”) among Babcock & Wilcox Enterprises, Inc., a Delaware corporation (the “Company”), Bank of America, N.A., in its capacity as administrative agent for the Lenders (as defined in the Credit Agreement) (in such capacity, the “Administrative Agent”), and each of the Lenders from time to time party thereto, and (ii) the Refinancing Term Sheet attached thereto as Annex A. Capitalized terms used herein but not defined herein have the meaning given to them in the Amendment. The undersigned (the “Backstop Party”) desires to provide a commitment (the “Backstop Commitment”) to the Company to (i) fund any shortfall in the $200,000,000 of new debt and/or equity financing pursuant to the Refinancing (as defined in the Refinancing Term Sheet) in accordance with the requirements set forth in the Refinancing Term Sheet (the “Minimum New Funding Requirement”) that is not funded by third parties, including, without limitation, the requirement that the Refinancing occur on or prior to May 11, 2020 (the “Refinancing Deadline”), and (ii) convert, or cause its applicable affiliates to convert, Term Loans (including Tranche A-3 Term Loans) into equity to the extent necessary to comply with the requirements of the Refinancing Term Sheet, subject to the terms and conditions set forth herein.
In connection with the foregoing, the Backstop Party irrevocably commits and agrees that the Backstop Party shall, (i) to the extent that the Company is unable to or fails to secure third parties to fund the full amount of the Minimum New Funding Requirement in the form of debt and/or through the issuance of equity (including convertible debt), in accordance with the requirements of the Refinancing Term Sheet, make available to the Company the Minimum New Funding Requirement sufficiently in advance of the Refinancing Deadline in the form of debt and/or equity such that the Company may effectuate the Refinancing in accordance with the requirements set forth in the Refinancing Term Sheet such that the Refinancing occurs on or prior to the Refinancing Deadline and, (ii) to the extent that the Company is unable to or fails to secure third parties to fund a sufficient amount of the Minimum New Funding Requirement through the issuance of equity in accordance with the Refinancing indebtedness cap set forth in the Refinancing Term Sheet, convert, or cause its applicable affiliates to convert, Term Loans (including Tranche A-3 Term Loans) into equity to the extent necessary to comply with the requirements of the Refinancing Term Sheet. For the avoidance of doubt, if the Backstop Party is required to fund any of the Minimum New Funding Requirement in connection with its obligations in the proceeding sentence, the form that such funding shall take, the terms of such debt and/or equity and whether any or all of the Backstop Party’s new or existing debt is convertible or converted into equity shall be in accordance with the requirements of the Refinancing Term Sheet.
The Backstop Party commits and agrees that it will not make any assignments of, or sell any participations in, the Term Loans (including Tranche A-3 Term Loans) to any party other than an affiliate that the Backstop Party has the ability to cause to comply with the commitments and other agreements hereunder relating to the Term Loans.
The obligation of the Backstop Party to fund its Backstop Commitment may not be assigned to any other person or entity without the prior written consent of the Company and the Administrative Agent; provided, however, that the Backstop Party may syndicate its obligations to fund the Refinancing, so long as the Backstop Party remains fully obligated hereunder.
This letter agreement (“Letter Agreement”) is binding on and solely to the benefit of and enforceable by the Backstop Party and the Company, and nothing set forth in this Letter Agreement shall be construed to confer upon or give to any other person any benefits, rights or remedies under or by reason of, or any rights to enforce or cause the Company to enforce, the Backstop Commitment or any provisions of this Letter Agreement, except, in each case, the Administrative Agent and the Lenders are third party beneficiaries to this Letter Agreement and are entitled to the rights and benefits of the Company hereunder and shall have the right to enforce the provisions hereof as if a party hereto.
The Backstop Party hereby represents and warrants with respect to itself to the Company that (a) it has all corporate, limited liability company or limited partnership power and authority to execute, deliver and perform this Letter Agreement, (b) the execution, delivery and performance of this Letter Agreement by it has been duly and validly authorized and approved by all necessary corporate, limited liability company or limited partnership action, (c) this Letter Agreement has been duly and validly executed and delivered by it and constitutes a valid and legally binding obligation of the Backstop Party, (d) the execution, delivery and performance of this Letter Agreement by it does not and will not conflict with, violate the terms of or result in the acceleration of any obligation (i) under any material contract, material commitment or other material instrument to which it is a party or is bound, (ii) its certificate incorporation or organization, bylaws or articles, membership agreement or limited partnership agreement, or (iii) result in the violation of any law or statute applicable to it or any judgment, order, rule or regulation of any court or arbitrator or governmental or regulatory authority having jurisdiction over it, (e) no consent, approval, authorization, order, license, registration or qualification of or with any court or arbitrator or governmental or regulatory authority is required for the execution, delivery and performance of this Letter Agreement by it, (f) it has available unrestricted cash or cash equivalents, liquid securities and/or uncalled capital commitments in excess of its Backstop Commitment and (g) represents that it has the ability to cause the Term Lenders (including the Tranche A-3 Term Lenders) to comply with the commitments and other agreements hereunder relating to the Term Loans.
The Company hereby represents and warrants with respect to itself to the Backstop Party that (a) it has all corporate, limited liability company or limited partnership power and authority to execute, deliver and perform this Letter Agreement, (b) the execution, delivery and performance of this Letter Agreement by it has been duly and validly authorized and approved by all necessary corporate, limited liability company or limited partnership action, (c) this Letter Agreement has been duly and validly executed and delivered by it and constitutes a valid and legally binding obligation of the Company, (d) the execution, delivery and performance of this Letter Agreement by it does not and will not conflict with, violate the terms of or result in the acceleration of any obligation (i) under any material contract, material commitment or other material instrument to which it is a party or is bound, (ii) its certificate incorporation or organization, bylaws or articles, membership agreement or limited partnership agreement, or (iii) result in the violation of any law or statute applicable to it or any judgment, order, rule or regulation of any court or arbitrator or governmental or regulatory authority having jurisdiction over it, and (e) no consent, approval, authorization, order, license, registration or qualification of or with any court or arbitrator or governmental or regulatory authority is required for the execution, delivery and performance of this Letter Agreement by it.
2
The Backstop Party acknowledges that (i) the Company may seek specific performance of the Backstop Commitment in addition to any other available remedies and (ii) damages are not an adequate remedy with respect to these matters.
The Company and the Backstop Party acknowledge that the Company’s rights, title and interest in and to this Letter Agreement are “Collateral” pledged to the Administrative Agent, for the ratable benefit of the Secured parties, under the Collateral Agreement.
This Letter Agreement is governed in all respects, including as to validity, interpretation and effect, by the laws of the State of New York, without giving effect to its principles or rules of conflict of laws, to the extent such principles are not mandatorily applicable by statute and would permit or require the application of the laws of another jurisdiction. The parties hereto hereby irrevocably submit to the exclusive jurisdiction of the Courts of the State of New York sitting in New York County and the United States District Court of the Southern District of New York, and any appellate court from any thereof solely in respect of the interpretation and enforcement of the provisions of this Letter Agreement, and irrevocably agree that all claims in respect of the interpretation and enforcement of the provisions of this Letter Agreement, or with respect to any action or proceeding hereunder, shall be heard and determined in any of the Courts of the State of New York sitting in New York County and the United States District Court of the Southern District of New York, and that such jurisdiction of such courts with respect thereto shall be exclusive, except solely to the extent that all such courts shall lawfully decline to exercise such jurisdiction. Each party hereto hereby waives and agrees not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof, that it is not subject to such jurisdiction. Each party hereto hereby waives and agrees not to assert, to the maximum extent permitted by law, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof, that such action, suit or proceeding may not be brought or is not maintainable in such courts, that the venue thereof may not be appropriate or that this Letter Agreement may not be enforced in or by such courts. The parties hereto hereby consent to and grant any such court jurisdiction over the person of such parties and over the subject matter of any such dispute. THE PARTIES HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) BROUGHT BY EITHER OF THEM AGAINST THE OTHER IN ANY MATTERS ARISING OUT OF OR IN ANY WAY CONNECTED WITH OR CONTEMPLATED BY THIS LETTER AGREEMENT.
This Letter Agreement constitutes the sole agreement, and supersedes all prior agreements, understandings and statements, written or oral, between the parties hereto with respect to the subject matter hereof. The terms of this Letter Agreement may not be modified or otherwise amended, or waived, except pursuant to a written agreement signed by the parties hereto. This Letter Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one and the same instrument.
[Rest of Page Left Intentionally Blank]
3
Very truly yours, | |||
B. RILEY FINANCIAL, INC. | |||
By: | /s/ Phillip J. Ahn | ||
Name: | Phillip J. Ahn | ||
Title: | Chief Financial Officer
& Chief Operating Officer |
[Signature Page to Backstop Letter]
4
Acknowledged and agreed as of the date first above written: | |||
BABCOCK & WILCOX ENTERPRISES, INC. | |||
By: | /s/ Dwayne M. Petish | ||
Name: | Dwayne M. Petish | ||
Title: | Treasurer |
[Signature Page to Backstop Letter]
5
EXHIBIT 31.1
CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Bryant R. Riley, certify that:
1. I have reviewed this quarterly report on Form 10-Q of B. Riley Financial, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 11, 2020
/s/ BRYANT R. RILEY | |
Bryant R. Riley Co-Chief Executive Officer Chairman of the Board (Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Thomas J. Kelleher, certify that:
1. I have reviewed this quarterly report on Form 10-Q of B. Riley Financial, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 11, 2020
/s/ THOMAS J. KELLEHER | |
Thomas J. Kelleher Co-Chief Executive Officer (Director) |
EXHIBIT 31.3
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Phillip J. Ahn, certify that:
1. I have reviewed this quarterly report on Form 10-Q of B. Riley Financial, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 11, 2020
/s/ PHILLIP J. AHN | |
Phillip J. Ahn | |
Chief Financial Officer and Chief Operating Officer | |
(Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of B. Riley Financial, Inc. (the “Company”) for the quarter ended March 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Bryant R. Riley, Co-Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ BRYANT R. RILEY | |
Bryant R. Riley | |
Co-Chief Executive Officer Chairman of the Board |
|
May 11, 2020 |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of B. Riley Financial, Inc. (the “Company”) for the quarter ended March 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas J. Kelleher, Co-Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ THOMAS J. KELLEHER | |
Thomas J. Kelleher | |
Co-Chief Executive Officer Director | |
May 11, 2020 |
Exhibit 32.3
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of B. Riley Financial, Inc. (the “Company”) for the quarter ended March 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Phillip J. Ahn, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ PHILLIP J. AHN |
|
Phillip J. Ahn | |
Chief Financial Officer and Chief Operating Officer | |
May 11, 2020 |
Earnings Per Share (Tables) |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of basic and diluted earnings per share |
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Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands |
Mar. 31, 2020 |
Dec. 31, 2019 |
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Statement of Financial Position [Abstract] | ||
Loans receivable from related parties | $ 216,302 | $ 157,080 |
Preferred stock, par value | $ 0.0001 | $ 0.0001 |
Preferred stock, authorized | 1,000,000 | 1,000,000 |
Preferred stock, issued | 2,531 | 2,349 |
Preferred stock, outstanding | 2,531 | 2,349 |
Preferred Stock, Liquidation preference | $ 63,273 | $ 58,723 |
Common stock, par value | $ 0.0001 | $ 0.0001 |
Common stock, authorized | 100,000,000 | 100,000,000 |
Common stock, issued | 25,988,565 | 26,972,332 |
Common stock, outstanding | 25,988,565 | 26,972,332 |
Accounts Receivable (Tables) |
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of components of accounts receivable, net |
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Schedule of allowance for doubtful accounts |
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Condensed Consolidated Statements of Equity (Parenthetical) - $ / shares |
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Mar. 31, 2020 |
Mar. 31, 2019 |
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Statement of Stockholders' Equity [Abstract] | ||
Dividends on common stock per share | $ 0.35 | $ 0.08 |
Dividends on Preferred stock per share | $ 429.69 |
Acquisitions |
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Mar. 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Combinations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ACQUISITIONS | NOTE 3—ACQUISITIONS
Membership Interest Purchase Agreement with BR Brand Acquisition LLC
On October 11, 2019, the Company and B. Riley Brand Management LLC, an indirect wholly-owned subsidiary of the Company (the "B. Riley Member"), entered into a Membership Interest Purchase Agreement (the "MIPA") with BR Brand Acquisition LLC (the "BR Brand Member") and BR Brand, pursuant to which the B. Riley Member acquired a majority of the equity interest in BR Brand. The closing of the transactions in accordance with the MIPA (the "Closing") occurred on October 28, 2019.
The B. Riley Member completed the Closing of a majority of the equity interest in BR Brand pursuant to the terms of the MIPA in exchange for (i) aggregate consideration of $116,500 in cash and (ii) warrant consideration of $990 from the issuance by the Company to Bluestar Alliance LLC ("Bluestar"), an affiliate of the BR Brand Member, of a warrant to purchase up to 200,000 shares of the Company's common stock at an exercise price per share equal to $26.24. One-third of the shares of common stock issuable under the warrant immediately vested and became exercisable upon issuance at the Closing, and the remaining two-thirds of such shares of common stock will vest and become exercisable following the first and/or second anniversaries of the Closing, subject to BR Brand's (or another related joint venture with Bluestar) satisfaction of specified financial performance targets. The fair value of the non-controlling interest in the amount of $29,373 was determined based on the relative fair value of the net assets acquired. The Company incurred $570 of transaction costs in connection with the acquisition.
In connection with the Closing, (i) the BR Brand Member has caused the transfer of certain trademarks, domain names, license agreements and related assets from existing brand owners to BR Brand and (ii) the Company, Bluestar and certain of their affiliates (including the B. Riley Member and the BR Brand Member) entered into an amended and restated operating agreement for BR Brand and certain other commercial agreements.
The Company evaluated the transaction under the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 805, Business Combinations, and Accounting Standards Update ("ASU") 2017-01, Business Combinations: Clarifying the Definition of a Business. Based on this evaluation, the Company has determined that the acquisition did not meet the definition of a business and, therefore, has accounted for the transaction as an acquisition of assets. The fair value of the assets acquired, including transaction costs, have been reflected in the accompanying financial statements as follows:
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Goodwill and Other Intangible Assets |
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Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GOODWILL AND OTHER INTANGIBLE ASSETS | NOTE 7—GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill was $223,697 at both March 31, 2020 and December 31, 2019.
Intangible assets consisted of the following:
Amortization expense was $4,024 and $3,377 for the three months ended March 31, 2020 and 2019, respectively. At March 31, 2020, estimated future amortization expense was $11,689, $15,218, $14,564, $12,573 and $8,486 for the years ended December 31, 2020 (remaining nine months), 2021, 2022, 2023 and 2024, respectively. The estimated future amortization expense after December 31, 2024 was $15,553.
In the first quarter of 2020, in accordance with ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, the Company made a qualitative assessment of the impact of the COVID-19 outbreak on goodwill and other intangible assets. The Company determined that the COVID-19 outbreak was a triggering event for testing the indefinite-lived tradenames in the Brands segment and made a determination that the indefinite-lived tradenames in the Brands segment were impaired. In the three months ended March 31, 2020, the Company recognized an impairment charge of $4,000 for the indefinite-lived tradenames in the Brands segment. We will continue to monitor the impacts of the COVID-19 outbreak in future quarters. Changes in our forecasts could cause the book values of indefinite-lived tradenames to exceed fair values which may result in additional impairment charges in future periods. |
Revenue from Contracts with Customers |
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Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
REVENUE FROM CONTRACTS WITH CUSTOMERS | NOTE 11—REVENUE FROM CONTRACTS WITH CUSTOMERS
Revenue from contracts with customers by reportable segment for the three months ended March 31, 2020 and 2019 is as follows:
Contract Balances
The timing of the Company's revenue recognition may differ from the timing of payment by its customers. The Company records a receivable when revenue is recognized prior to payment and the Company has an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, the Company records deferred revenue until the performance obligations are satisfied. Receivables related to revenues from contracts with customers totaled $46,450 and $46,624 at March 31, 2020 and December 31, 2019, respectively. The Company had no significant impairments related to these receivables during the three months ended March 31, 2020. The Company's deferred revenue primarily relates to retainer and milestone fees received from corporate finance and investment banking advisory engagements, asset management agreements, Valuation and Appraisal engagements and subscription services where the performance obligation has not yet been satisfied. Deferred revenue at March 31, 2020 and December 31, 2019 was $73,709 and $67,121, respectively. During the three months ended March 31, 2020 and 2019, the Company recognized revenue of $13,987 and $13,234 that was recorded as deferred revenue at the beginning of the respective year.
Contract Costs
Contract costs include: (1) costs to fulfill contracts associated with corporate finance and investment banking engagements are capitalized where the revenue is recognized at a point in time and the costs are determined to be recoverable; (2) costs to fulfill Auction and Liquidation services contracts where the Company guarantees a minimum recovery value for goods being sold at auction or liquidation where the revenue is recognized over time when the performance obligation is satisfied; and (3) commissions paid to obtain magicJack contracts which are recognized ratably over the contract term and third party support costs for magicJack and related equipment purchased by customers which are recognized ratably over the service period.
The capitalized costs to fulfill a contract were $460 and $450 at March 31, 2020 and December 31, 2019, respectively, and are recorded in prepaid expenses and other assets in the condensed consolidated balance sheets. For the three months ended March 31, 2020 and 2019, the Company recognized expenses of $72 and $601 related to capitalized costs to fulfill a contract, respectively. There were no significant impairment charges recognized in relation to these capitalized costs during the three months ended March 31, 2020 and 2019.
Remaining Performance Obligations and Revenue Recognized from Past Performance
The Company does not disclose information about remaining performance obligations pertaining to contracts that have an original expected duration of one year or less. The transaction price allocated to remaining unsatisfied or partially unsatisfied performance obligations with an original expected duration exceeding one year was not material at March 31, 2020. Corporate finance and investment banking fees and retail liquidation engagement fees that are contingent upon completion of a specific milestone and fees associated with certain distribution services are also excluded as the fees are considered variable and not included in the transaction price at March 31, 2020. |
Share-Based Payments (Details 1) - Amended and Restated FBR & Co. 2006 Long-Term Stock Incentive Plan [Member] - Restricted Stock Units (RSUs) [Member] |
3 Months Ended |
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Mar. 31, 2020
$ / shares
shares
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Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward] | |
Nonvested at beginning | shares | 485,033 |
Vested | shares | (41,963) |
Forfeited | shares | (5,306) |
Nonvested at end | shares | 437,764 |
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Roll Forward] | |
Nonvested at beginning | $ / shares | $ 18.33 |
Vested | $ / shares | 15.66 |
Forfeited | $ / shares | 19.18 |
Nonvested at end | $ / shares | $ 18.57 |
Restructuring Charge (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | |
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Mar. 31, 2020 |
Mar. 31, 2019 |
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Restructuring Charge (Textual) | ||
Restructuring charges | $ 147 | |
Principal Investments - United Online And magicJack [Member] | ||
Restructuring Charge (Textual) | ||
Restructuring charges | 176 | |
Severance costs | $ 147 |
Income Taxes (Details) - USD ($) $ in Thousands |
3 Months Ended | |
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Mar. 31, 2020 |
Mar. 31, 2019 |
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Operating Loss Carryforwards [Line Items] | ||
Net operating loss carryforwards | $ 53,932 | |
U.S. federal corporate tax rate | 27.40% | 28.00% |
Deferred tax assets valuation allowance | $ 61,945 | |
Federal Tax Authority [Member] | Maximum [Member] | ||
Operating Loss Carryforwards [Line Items] | ||
Expiration date | Dec. 31, 2037 | |
Federal Tax Authority [Member] | Minimum [Member] | ||
Operating Loss Carryforwards [Line Items] | ||
Expiration date | Dec. 31, 2032 | |
State and Local Jurisdiction [Member] | ||
Operating Loss Carryforwards [Line Items] | ||
Net operating loss carryforwards | $ 64,088 |
Share-Based Payments (Details) - Amended and Restated 2009 Stock Incentive Plan [Member] - Restricted Stock Units (RSUs) [Member] |
3 Months Ended |
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Mar. 31, 2019
$ / shares
shares
| |
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward] | |
Nonvested at beginning | shares | 2,263,988 |
Granted | shares | 5,575 |
Vested | shares | (16,157) |
Nonvested at end | shares | 2,253,406 |
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Roll Forward] | |
Nonvested at beginning | $ / shares | $ 12.35 |
Granted | $ / shares | 24.54 |
Vested | $ / shares | 19.30 |
Nonvested at end | $ / shares | $ 12.33 |
Share-Based Payments |
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SHARE-BASED PAYMENTS | NOTE 15—SHARE-BASED PAYMENTS
(a) Amended and Restated 2009 Stock Incentive Plan
Share- based compensation expense for restricted stock units under the Company's Amended and Restated 2009 Stock Incentive Plan (the "Plan") was $4,109 and $1,726 for the three months ended March 31, 2020 and 2019, respectively.
The restricted stock units generally vest over a period of one to three years based on continued service. Performance based restricted stock units generally vest based on both the employee's continued service and the Company's common stock price, as defined in the grant, achieving a set threshold during the three-year period following the grant. In determining the fair value of restricted stock units on the grant date, the fair value is adjusted for (a) estimated forfeitures, (b) expected dividends based on historical patterns and the Company's anticipated dividend payments over the expected holding period and (c) the risk-free interest rate based on U.S. Treasuries for a maturity matching the expected holding period.
As of March 31, 2020, the expected remaining unrecognized share-based compensation expense of $15,238 will be expensed over a weighted average period of 1.3 years.
A summary of equity incentive award activity for the three months ended March 31, 2020 was as follows:
The total fair value of shares vested during the three months ended March 31, 2020 was $312.
(b) Amended and Restated FBR & Co. 2006 Long-Term Stock Incentive Plan
In connection with the acquisition of FBR & Co. on June 1, 2017, the equity awards previously granted or available for issuance under the FBR & Co. 2006 Long-Term Stock Incentive Plan (the "FBR Stock Plan") may be issued under the Plan. The share-based compensation expense in connection with the FBR Stock Plan restricted stock awards was $791 and $767 during the three months ended March 31, 2020 and 2019, respectively. As of March 31, 2020, the expected remaining unrecognized share-based compensation expense of $3,833 will be expensed over a weighted average period of 1.6 years.
A summary of equity incentive award activity for the three months ended March 31, 2020 was as follows:
The total fair value of shares vested under the FBR Stock Plan during the three months ended March 31, 2020 was $657.
(c) 2018 Employee Stock Purchase Plan
In connection with the Company's Purchase Plan, share based compensation was $165 and $121 for the three months ended March 31, 2020 and 2019, respectively. At March 31, 2020, there were 592 shares reserved for issuance under the Purchase Plan. |
Summary of Significant Accounting Policies (Policies) |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Principles of Consolidation and Basis of Presentation | (a) Principles of Consolidation and Basis of Presentation
The condensed consolidated financial statements include the accounts of B. Riley Financial, Inc. and its wholly-owned and majority-owned subsidiaries. The condensed consolidated financial statements also include the accounts of (a) Great American Global Partners, LLC which is controlled by the Company as a result of its ownership of a 50% member interest, appointment of two of the three executive officers and significant influence over the funding of operations, and (b) GA Retail Investments, L.P. which is controlled by the Company as a result of its ownership of a 50% partnership interest, appointment of executive officers and significant influence over the operations. The condensed consolidated financial statements have been prepared by the Company, without audit, pursuant to interim financial reporting guidelines and the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted pursuant to such rules and regulations. In the opinion of the Company's management, all adjustments, consisting of only normal and recurring adjustments, necessary for a fair presentation of the financial position and the results of operations for the periods presented have been included. These condensed consolidated financial statements and the accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 10, 2020. The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the operating results to be expected for the full fiscal year or any future periods. |
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Use of Estimates | (b) Use of Estimates
The preparation of the condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and reported amounts of revenue and expense during the reporting period. Estimates are used when accounting for certain items such as valuation of securities and loan receivables, allowance for doubtful accounts, the fair value of intangible assets and goodwill, the fair value of mandatorily redeemable noncontrolling interests, fair value of share based arrangements, accounting for income tax valuation allowances, recovery of contract assets and sales returns and allowances. Estimates are based on historical experience, where applicable, and assumptions that management believes are reasonable under the circumstances. Due to the inherent uncertainty involved with estimates, actual results may differ.
On January 30, 2020, the World Health Organization ("WHO") announced a global health emergency because of a new strain of coronavirus (the "COVID-19 outbreak"). In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues to evolve. The impact of the COVID-19 outbreak on the Company's results of operations, financial position and cash flows will depend on future developments, including the duration and spread of the outbreak and related advisories and restrictions. These developments and the impact of the COVID-19 outbreak on the financial markets and the overall economy are highly uncertain and cannot be predicted. If the financial markets and/or the overall economy are impacted for an extended period, the Company's results of operations, financial position and cash flows may be materially adversely affected. |
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Interest Expense — Securities Lending Activities and Loan Participations Sold | (c) Interest Expense — Securities Lending Activities and Loan Participations Sold
Interest expense from securities lending activities is included in operating expenses related to operations in the Capital Markets segment. Interest expense from securities lending activities is incurred from equity and fixed income securities that are loaned to the Company and totaled $7,921 and $6,804 for the three months ended March 31, 2020 and 2019, respectively. Loan participations sold as of March 31, 3020 totaled $12,405. Interest expense from loan participations sold totaled $552 for the three months ended March 31, 2020. |
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Concentration of Risk | (d) Concentration of Risk
Revenues in the Capital Markets, Valuation and Appraisal and Principal Investments — United Online and magicJack segments are currently primarily generated in the United States. Revenues in the Auction and Liquidation segment are primarily generated in the United States, Australia, Canada and Europe. Revenues in the Brands segment are primarily generated in the United States and Canada.
The Company's activities in the Auction and Liquidation segment are executed frequently with, and on behalf of, distressed customers and secured creditors. Concentrations of credit risk can be affected by changes in economic, industry, or geographical factors. The Company seeks to control its credit risk and potential risk concentration through risk management activities that limit the Company's exposure to losses on any one specific liquidation services contract or concentration within any one specific industry. To mitigate the exposure to losses on any one specific liquidations services contract, the Company sometimes conducts operations with third parties through collaborative arrangements.
The Company maintains cash in various federally insured banking institutions. The account balances at each institution periodically exceed the Federal Deposit Insurance Corporation's ("FDIC") insurance coverage, and as a result, there is a concentration of credit risk related to amounts in excess of FDIC insurance coverage. The Company has not experienced any losses in such accounts. The Company also has substantial cash balances from proceeds received from auctions and liquidation engagements that are distributed to parties in accordance with the collaborative arrangements. |
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Advertising Expenses | (e) Advertising Expenses
The Company expenses advertising costs, which consist primarily of costs for printed materials, as incurred. Advertising costs totaled $841 and $362 for the three months ended March 31, 2020 and 2019, respectively. Advertising expense is included as a component of selling, general and administrative expenses in the accompanying condensed consolidated statements of operations. |
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Share-Based Compensation | (f) Share-Based Compensation
The Company's share-based payment awards principally consist of grants of restricted stock, restricted stock units and costs associated with the Company's employee stock purchase plan. In accordance with the applicable accounting guidance, share-based payment awards are classified as either equity or liabilities. For equity-classified awards, the Company measures compensation cost for the grant of membership interests at fair value on the date of grant and recognizes compensation expense in the condensed consolidated statements of operations over the requisite service or performance period the award is expected to vest. The fair value of the liability-classified award will be subsequently remeasured at each reporting date through the settlement date. Change in fair value during the requisite service period will be recognized as compensation cost over that period.
In June 2018, the Company adopted the 2018 Employee Stock Purchase Plan ("Purchase Plan") which allows eligible employees to purchase common stock through payroll deductions at a price that is 85% of the market value of the common stock on the last day of the offering period. In accordance with the provisions of ASC 718, Compensation — Stock Compensation ("ASC 718"), the Company is required to recognize compensation expense relating to shares offered under the Purchase Plan. |
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Income Taxes | (g) Income Taxes
The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the condensed consolidated financial statements or tax returns. Deferred tax liabilities and assets are determined based on the difference between the financial statement basis and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company estimates the degree to which tax assets and credit carryforwards will result in a benefit based on expected profitability by tax jurisdiction. A valuation allowance for such tax assets and loss carryforwards is provided when it is determined to be more likely than not that the benefit of such deferred tax asset will not be realized in future periods. Tax benefits of operating loss carryforwards are evaluated on an ongoing basis, including a review of historical and projected future operating results, the eligible carryforward period, and other circumstances. If it becomes more likely than not that a tax asset will be used, the related valuation allowance on such assets would be reduced.
The Company recognizes tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. Once this threshold has been met, the Company's measurement of its expected tax benefits is recognized in its financial statements. The Company accrues interest on unrecognized tax benefits as a component of income tax expense. Penalties, if incurred, would be recognized as a component of income tax expense. |
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Cash and Cash Equivalents | (h) Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. |
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Restricted Cash | (i) Restricted Cash
As of March 31, 2020 and December 31, 2019, restricted cash balance of $471 related to one of the Company's telecommunication suppliers. |
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Securities Borrowed and Securities Loaned | (j) Securities Borrowed and Securities Loaned
Securities borrowed and securities loaned are recorded based upon the amount of cash advanced or received. Securities borrowed transactions facilitate the settlement process and require the Company to deposit cash or other collateral with the lender. With respect to securities loaned, the Company receives collateral in the form of cash. The amount of collateral required to be deposited for securities borrowed, or received for securities loaned, is an amount generally in excess of the market value of the applicable securities borrowed or loaned. The Company monitors the market value of the securities borrowed and loaned on a daily basis, with additional collateral obtained, or excess collateral recalled, when deemed appropriate.
The Company accounts for securities lending transactions in accordance with ASC "Topic 210: Balance Sheet," which requires companies to report disclosures of offsetting assets and liabilities. The Company does not net securities borrowed and securities loaned and these items are presented on a gross basis in the condensed consolidated balance sheets. |
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Property and Equipment | (k) Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets. Property and equipment held under finance leases are amortized on a straight-line basis over the shorter of the lease term or estimated useful life of the asset. Depreciation and amortization expense on property and equipment was $932 and $1,536 for the three months ended March 31, 2020 and 2019, respectively. |
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Loans Receivable | (l) Loans Receivable
Loans receivable, at fair value are loans held for investment that are accounted for at fair value under the fair value option. The Company adopted ASU 2016-13 and its amendment ASU 2019-05 effective January 1, 2020. Pursuant to ASU 2016-13 and its amendment ASU 2019-05, the Company elected the irrevocable fair value option for all outstanding loans receivable that were measured at amortized cost as of December 31, 2019. As of March 31, 2020 and December 31, 2019, loans receivable, at fair value totaled $326,299 and $43,338, respectively, with various maturities through December 2024. As of March 31, 2020 and December 31, 2019, loans receivable, at fair value had principal balances totaling $339,630 and $32,691, respectively, with cost basis, net of unamortized costs, origination fees, premiums and discounts, totaling $333,466 and $32,578, respectively. During the three months ended March 31, 2020, the Company recorded unrealized losses of $17,926 on the loans receivable, at fair value, which is included in trading (losses) income and fair value adjustments on loans on the condensed consolidated statement of operations.
Loans receivable, at cost are measured at historical cost and reported at their outstanding principal balances net of any unearned income, charge-offs, unamortized deferred fees and costs on originated loans, and for purchased loans, net of any unamortized premiums or discounts. As of December 31, 2019, loans receivable at cost had a carrying value of $225,848.
Interest income on loans receivable is recognized based on the stated rate of the loan and the unpaid principal balance plus the amortization of any costs, origination fees, premiums and discounts and is included in interest income - loans and securities lending on the condensed consolidated statement of operations. Loan origination fees and certain direct origination costs are deferred and recognized as adjustments to interest income over the lives of the related loans. Unearned income, discounts and premiums are amortized to interest income using a level yield methodology. |
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Securities and Other Investments Owned and Securities Sold Not Yet Purchased | (m) Securities and Other Investments Owned and Securities Sold Not Yet Purchased
Securities owned consist of marketable securities and investments in partnership interests and other securities recorded at fair value. Securities sold, but not yet purchased represents obligations of the Company to deliver the specified security at the contracted price and thereby create a liability to purchase the security in the market at prevailing prices. Changes in the value of these securities are reflected currently in the results of operations.
As of March 31, 2020 and December 31, 2019, the Company's securities and other investments owned and securities sold not yet purchased at fair value consisted of the following securities:
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Fair Value Measurements | (n) Fair Value Measurements
The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. 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. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) for identical instruments that are highly liquid, observable and actively traded in over-the-counter markets. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations whose inputs are observable and can be corroborated by market data. Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.
The Company's securities and other investments owned and securities sold and not yet purchased are comprised of common and preferred stocks and warrants, corporate bonds, and investments in partnerships. Investments in common stocks that are based on quoted prices in active markets are included in Level 1 of the fair value hierarchy. The Company also holds loans receivable valued at fair value, nonpublic common and preferred stocks and warrants for which there is little or no public market and fair value is determined by management on a consistent basis. For investments where little or no public market exists, management's determination of fair value is based on the best available information which may incorporate management's own assumptions and involves a significant degree of judgment, taking into consideration various factors including earnings history, financial condition, recent sales prices of the issuer's securities and liquidity risks. These investments are included in Level 3 of the fair value hierarchy. Investments in partnership interests include investments in private equity partnerships that primarily invest in equity securities, bonds, and direct lending funds. The Company also invests in priority investment funds and the underlying securities held by these funds are primarily corporate and asset-backed fixed income securities and restrictions exist on the redemption of amounts invested by the Company. The Company's partnership and investment fund interests are valued based on the Company's proportionate share of the net assets of the partnerships and funds; the value for these investments are derived from the most recent statements received from the general partner or fund administrator. These partnership and investment fund interests are valued at net asset value ("NAV") in accordance with ASC "Topic 820: Fair Value Measurements."
The fair value of mandatorily redeemable noncontrolling interests is determined based on the issuance of similar interests for cash, references to industry comparables, and relied, in part, on information obtained from appraisal reports and internal valuation models.
The following tables present information on the financial assets and liabilities measured and recorded at fair value on a recurring basis as of March 31, 2020 and December 31, 2019.
As of March 31, 2020 and December 31, 2019, financial assets measured and reported at fair value on a recurring basis and classified within Level 3 were $421,415 and $152,589, respectively, or 19.8% and 6.6%, respectively, of the Company's total assets. In determining the fair value for these Level 3 financial assets, the Company analyzes various financial, performance and market factors to estimate the value, including where applicable, over-the-counter market trading activity.
The following table summarizes the significant unobservable inputs in the fair value measurement of level 3 financial assets and liabilities by category of investment and valuation technique as of March 31, 2020:
The changes in Level 3 fair value hierarchy during the three months ended March 31, 2020 and 2019 are as follows:
The Company adopted ASU 2016-13 and its amendment ASU 2019-05 effective January 1, 2020. Pursuant to ASU 2016-13 and its amendment ASU 2019-05, the Company elected the irrevocable fair value option for all outstanding loans receivable that were measured at amortized cost as of December 31, 2019. The loans receivable, at fair value are included in transfers into level 3 fair value assets in the above table. During the three months ended March 31, 2019, there was a transfer of one financial asset from level 1 to level 3 in the fair value hierarchy as a result of the asset's principal market becoming inactive during the quarter.
The amount reported in the table above for the three months ended March 31, 2020 and 2019 includes the amount of undistributed earnings attributable to the noncontrolling interests that is distributed on a quarterly basis. The carrying amounts reported in the condensed consolidated financial statements for cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued expenses and other liabilities approximate fair value based on the short-term maturity of these instruments.
As of March 31, 2020, the senior notes payable had a carrying amount of $853,523 and fair value of $666,428. The carrying amount of the term loan approximates fair value because the effective yield of such instrument is consistent with current market rates of interest for instruments of comparable credit risk.
During the three months ended March 31, 2020 and 2019, except for the impact of the intangible impairment charge as described in Note 7- Goodwill and Intangible Assets, there were no assets or liabilities measured at fair value on a non-recurring basis. The fair value of the indefinite-lived intangible assets was determined based on a discounted cash flow model using a rate of 14.0%. The indefinite-lived intangible assets are level 3 assets in the fair value hierarchy. |
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Foreign Currency Translation | (o) Foreign Currency Translation
The Company transacts business in various foreign currencies. In countries where the functional currency of the underlying operations has been determined to be the local country's currency, revenues and expenses of operations outside the United States are translated into United States dollars using average exchange rates while assets and liabilities of operations outside the United States are translated into United States dollars using period-end exchange rates. The effects of foreign currency translation adjustments are included in stockholders' equity as a component of accumulated other comprehensive income in the accompanying condensed consolidated balance sheets. Transaction gains (loss) were $949 and ($186) during the three months ended March 31, 2020 and 2019, respectively. These amounts are included in selling, general and administrative expenses in the Company's condensed consolidated statements of income. |
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Common Stock Warrants | (p) Common Stock Warrants
The Company issued 821,816 warrants to purchase common stock of the Company (the "Wunderlich Warrants") in connection with the acquisition of Wunderlich Securities, Inc. ("Wunderlich") on July 3, 2017. The Wunderlich Warrants entitle the holders of the warrants to acquire shares of the Company's common stock from the Company at an exercise price of $17.50 per share, subject to, among other matters, the proper completion of an exercise notice and payment. The exercise price and the number of shares of Company common stock issuable upon exercise are subject to customary anti-dilution and adjustment provisions, which include stock splits, subdivisions or reclassifications of the Company's common stock. The Wunderlich Warrants expire on July 3, 2022. On May 16, 2019, the Company repurchased 638,311 warrants for $2,777 ($4.35 per warrant). As of March 31, 2020, Wunderlich Warrants to purchase 183,505 shares of common stock were outstanding.
On October 28, 2019, the Company issued 200,000 warrants to purchase common stock of the Company (the "BR Brands Warrants") in connection with the acquisition of a majority ownership interest in BR Brand Holdings LLC ("BR Brand"). The BR Brand Warrants entitle the holders of the warrants to acquire shares of the Company's common stock from the Company at an exercise price of $26.24 per share. One-third of the BR Brand Warrants immediately vested and became exercisable upon issuance, and the remaining two-thirds of warrants will vest and become exercisable following the first and/or second anniversaries of the closing, subject to BR Brand's (or another related joint venture with Bluestar Alliance LLC) satisfaction of specified financial performance targets. The BR Brand warrants expire three years after the last vesting event occurs.
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Equity Investment | (q) Equity Investment
bebe stores, inc.
At March 31, 2020, the Company had a 30.5% ownership interest in bebe stores, inc. ("bebe"). The equity ownership in bebe is accounted for under the equity method of accounting and is included in prepaid expenses and other assets in the condensed consolidated balance sheets.
National Holdings Corporation
On November 14, 2018, the Company entered into an agreement to acquire shares of National Holdings Corporation ("National Holdings"), a Nasdaq-listed issuer, from Fortress Biotech, Inc. for an aggregate purchase price totaling approximately $22.9 million. The transaction was completed in two tranches. In the first tranche, which was completed in the fourth quarter of 2018, the Company acquired shares representing 24% of the total outstanding shares of National Holdings. The second tranche was completed in the first quarter of 2019. As of March 31, 2020, the Company had purchased 6,159,550 shares of National Holdings' common stock, representing 46.8% of National Holdings' outstanding shares, at $3.25 per share. The carrying value for the National Holdings investment is included in prepaid expenses and other assets in the condensed consolidated balance sheets. The equity ownership in National Holdings is accounted for under the equity method of accounting.
As of March 31, 2020, the carrying values of the Company's investments in bebe and National Holdings exceeded their fair values based on their quoted market prices. In light of these facts, the Company evaluated its investments in bebe and National Holdings for impairment. The Company utilize no bright- line tests in such evaluations. Based on the available facts and information regarding the operating results of both entities, the Company's ability and intent to hold the investments until recovery, the relative amount of the declines, and the length of time that the fair values were less than the carrying values, the Company concluded that recognition of impairment losses in earnings was not required. However, the Company will continue to monitor these investments and it is possible that impairment losses will be recorded in earnings in future periods based on changes in facts and circumstances or intentions. |
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Loan Participations Sold | (r) Loan Participations Sold
As of March 31, 2020, the Company has sold investments ("Loan Participations Sold") to third parties ("Participants") that are accounted for as secured borrowings under ASC Topic 860, Transfers and Servicing. Under ASC Topic 860, a partial loan transfer does not qualify for sale accounting in order for sale treatment to be allowed. A participation or other partial loan transfer that meets the definition of a participating interest is classified as loan receivable and the portion transferred is recorded as a secured borrowing under loan participations sold in the condensed consolidated balance sheet. The Participants are entitled to payments made by the borrower of the related loan equal to the current Loan Participations Sold outstanding at the interest rates for the respective investment. In the event that the borrower defaults, the Participants have rights to payments from such borrower, but do not have recourse to the Company. The terms of the Loan Participations Sold are commensurate with the terms of the related loan.
As of March 31, 2020, the Company had entered into participation agreements for a total of $12,405. In addition, the interest income and interest expense related to the Loan Participations Sold resulted in interest income and interest expense which is presented gross on the condensed consolidated statement of operations. |
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Supplemental Non-cash Disclosures | (s) Supplemental Non-cash Disclosures
During the three months ended March 31, 2020, non-cash investing activities included $4,633 non-cash conversion of an equity method investment. |
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Reclassifications | (t) Reclassifications
As of December 31, 2019, loans receivable recorded at fair value of $43,338 were previously included in securities and other investments owned, at fair value. These loans receivable amounts have been reclassified and reported in loans receivable, at fair value to conform to the 2020 presentation. During the three months ended March 31, 2019, trading income and fair value adjustments on loans of $25,867 was previously included in services and fees income in the capital markets segment. These trading income and fair value adjustments on loans amounts have been reclassified and reported in trading (loss) income and fair value adjustments on loans to conform to the 2020 presentation. During the three months ended March 31, 2019, interest income earned on loans of $2,090 was previously included in services and fees income in the capital markets segment. These interest income amounts have been reclassified and reported in interest income – loans and securities lending to conform to the 2020 presentation. During the three months ended March 31, 2019, expenses of $4,421, were previously included in direct cost of services in the valuation and appraisal segment. These expenses have been reclassified and reported in selling, general and administrative expenses to conform to the 2020 presentation. |
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Variable Interest Entity | (u) Variable Interest Entity
In 2018, the operations of GACP II, LP, a private debt investment limited partnership (the "Partnership") commenced operations. The Company's investment in the Partnership is a variable interest entity ("VIE") since the unaffiliated limited partners do not have substantive kick- out or participating rights to remove the Company's subsidiary that is the general partner managing the Partnership. The Company has determined that it is not the primary beneficiary due to the fact that its fee arrangements are considered at-market and thus not deemed to be variable interests, and it does not hold any other interests in the Partnership that are considered to be more than insignificant. The Company determines whether it is the primary beneficiary of a VIE at the time it becomes involved with a VIE and reconsiders that conclusion at each reporting date. In evaluating whether the Company is the primary beneficiary, the Company evaluates its economic interests in the entity held either directly by the Company or indirectly through related parties. The consolidation analysis can generally be performed qualitatively; however, if it is not readily apparent that the Company is not the primary beneficiary, a quantitative analysis may also be performed.
The carrying value of the Company's investments in the VIE that was not consolidated is shown below.
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Recent Accounting Standards | (v) Recent Accounting Standards
Recently adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments − Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASC 326"). This standard requires an allowance to be recorded for all expected credit losses for certain financial assets. The new standard introduces an approach, based on expected losses, to estimate credit losses on certain types of financial instruments. In May 2019, the FASB issued ASU No. 2019-05, Financial Instruments − Credit Losses (Topic 326); Targeted Transition Relief," which allows entities to irrevocably elect, upon adoption of ASU 2016-13, the fair value option on financial instruments that (1) were previously recorded at amortized cost and (2) are within the scope of ASC 326-20 if the instruments are eligible for the fair value option under ASC 825-10. ASU 2016-13 and ASU 2019-05 are effective for public companies for interim and annual period beginning December 15, 2019.
The Company adopted the new credit losses standard effective January 1, 2020. Pursuant to ASU 2016-13 and its amendment ASU 2019-05, the Company elected the irrevocable fair value option for all outstanding loans receivable that were previously measured at amortized cost. Under the fair value option, loans receivable are now measured at each reporting period based upon their exit value in an orderly transaction and unrealized gains or losses from changes in fair value are recorded in the consolidated statements of operations. These loans are no longer subject to evaluation for impairment through an allowance for loan loss as such losses will be captured through fair value changes. The impact of adopting ASC 326 was immaterial to the consolidated financial statements. |
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