Certain Relationships and Related Party Transactions

9 Months Ended

Sep. 29, 2012

Related Party Transactions [Abstract]

Certain Relationships and Related Party Transactions

Certain Relationships and Related Party Transactions

Relationship with Blackstone Management Partners V L.L.C.

In connection with the closing of the Acquisition, Holdings entered into a shareholders agreement (the “Shareholders Agreement”) with Blackstone and certain members of the Company's management. The Shareholders Agreement governs certain matters relating to ownership of Holdings, including with respect to the election of directors of our parent companies, restrictions on the issuance or transfer of shares, including tag-along rights and drag-along rights, other special corporate governance provisions and registration rights (including customary indemnification provisions).

The Board of Directors of PGI includes three Blackstone members, two outside members and the Company’s Chief Executive Officer. Furthermore, Blackstone has the power to designate all of the members of the Board of Directors of PGI and the right to remove any or all directors, with or without cause.

Management Services Agreement

Upon the completion of the Merger, the Company became subject to a management services agreement (“Management Services Agreement”) with Blackstone Management Partners V L.L.C. (“BMP”), an affiliate of Blackstone. Under the Management Services Agreement, BMP (including through its affiliates) has agreed to provide certain monitoring, advisory and consulting services for an annual non-refundable advisory fee, to be paid at the beginning of each fiscal year, equal to the greater of (i) $3.0 million or (ii) 2.0% of the Company’s consolidated EBITDA (as defined under the credit agreement governing our ABL Facility) for the immediately preceding fiscal year. The amount of such fee shall be initially paid based on the Company’s then most current estimate of the Company’s projected EBITDA amount for the fiscal year immediately preceding the date upon which the advisory fee is paid. The payment with respect to the period beginning on the closing date of the Acquisition and ending December 31, 2011 was made on the Merger Date based on the $3.0 million minimum annual amount. After completion of the fiscal year to which the fee relates and following the availability of audited financial statements for such period, the parties will recalculate the amount of such fee based on the actual consolidated EBITDA for such period and the Company or BMP, as applicable, shall adjust such payment as necessary based on the recalculated amount. Based on the Company’s fiscal year 2011 financial performance, the advisory fee for fiscal 2011 was $3.0 million. The Company paid $3.0 million at the beginning of first quarter 2012 for the fiscal 2012 advisory fee. Accordingly, the Company has recognized fees of $0.8 million for both the three month periods ended September 29, 2012 and October 1, 2011 and $2.3 million and $2.2 million for the nine month period ended September 29, 2012 and for the eight month period ended October 1, 2011, respectively, which are included in Selling, general and administrative expenses in the Consolidated Statements of Operations.

BMP also received transaction fees in connection with services provided related to the Acquisition. Pursuant to the Management Services Agreement, BMP received, at the closing of the Merger, an $8.0 million transaction fee as consideration for BMP undertaking financial and structural analysis, due diligence and other assistance in connection with the Merger. In addition, the Company agreed to reimburse BMP for any out-of-pocket expenses incurred by BMP and its affiliates in connection with the Merger and the provision of services under the Management Services Agreement. Accordingly, for advisory services associated with the Acquisition pursuant to the Management Services Agreement, in February 2011, the Company recognized fees of $7.9 million which are included in Special charges, net in the Consolidated Statements of Operations in the eight months ended October 1, 2011. Further, the Company capitalized, as of January 28, 2011, $0.8 million of fees as deferred financing costs.

Scorpio Holdings Corporation

Holdings’ stock-based compensation costs relate to certain employees of the Company and were incurred for the Company’s benefit, and accordingly are included in Selling, general and administrative expenses in the Consolidated Statements of Operations.

Scorpio Holdings Corporation — Common Share Activity

During third quarter 2012, 162 shares of Holdings capital stock with a fair market value of $1,000 per share were repurchased from former employees of the Company. During first quarter 2012, 526 shares of Holdings capital stock with a fair market value of $1,000 per share was purchased by certain executive officers of the Company, the majority of which was purchased by the Company’s Chief Executive Officer. The Company collected the cash from the employees on behalf of Holdings, and the Company retained the cash. Accordingly, the Company recognized a shareholder payable of approximately $0.5 million. During second quarter 2011, 58 shares of Holdings capital stock with a fair market value of $1,000 per share were repurchased from a former employee of the Company. The Company paid cash to the former employee on behalf of Holdings, and Holdings did not reimburse the Company for the cash outlay. Accordingly, the Company recognized a shareholder receivable of approximately $0.1 million.

As of September 29, 2012, the Company had a net payable due to Holdings of $0.3 million due to the aforementioned Holdings capital stock activity.

Other Relationships

Blackstone and its affiliates have ownership interests in a broad range of companies. We have entered into commercial transactions in the ordinary course of our business with some of these companies, including the sale of goods and services and the purchase of goods and services.